Buzz Lightyear often is heard saying his popular catchphrase, “To infinity and beyond,” in the 1995 Pixar classic “Toy Story.” A reference to the toy’s misguided interpretation of the adventures of space exploration, the phrase has evolved to reference the infinite opportunities people can seek in life’s journey. In the consumable packaged goods (CPG) market, the emergence of a new category also can hold unlimited potential if marketed correctly. Today, that cannot be more true when it comes to growing acceptance of cannabis.
“In 2019, sales of legal cannabinoid-containing products in the U.S. generated between $12-$13 billion,” says Rick Maturo, associate director of client services for cannabis practice at New York-based Nielsen. “This includes sales of adult-use and medicinal marijuana products sold by licensed dispensaries, hemp-derived [cannabidiol] CBD products sold at brick-and-mortar retail, direct-to-consumer sales of hemp-derived CBD products from manufacturers online, and online hemp-CBD stores. This figure does not include sales of hemp used in textiles, industrial applications (e.g., ‘hemp-crete’), or sales of FDA-approved pharmaceuticals like Epidiolex.”
Like many markets, cannabis sales jumped as stockpiling behavior began in light of the coronavirus (COVID-19) pandemic.
“Sales volumes in virtually all open recreational retail markets dramatically increased between March 13 through March 20,” Maturo says. “Following that period, sales rapidly dissipated and fell below average in most markets.”
Michele Scott, senior analyst for Chicago-based Mintel, suspects this could impact shopping patterns as consumers still want to be able to make cannabis purchases, but in a safer environment.
“Permanent changes to the recreational cannabis market relate to the changes made to make shopping safer,” she says. “Curbside pickup and delivery options, which were limited to certain markets prior to COVID-19, are becoming more widely available. Like many other CPGs, consumers stockpiled cannabis products in the earlier days of COVID-19 and have begun to return to more typical purchasing patterns.”
Already a multi-billion dollar industry, the contribution from the beverage market, however, remains limited. Maturo notes that cannabis-infused beverages account for between 1.5 and 3 percent of the greater cannabis market, but that doesn’t mean the category is without -potential.
“That said, we believe that beverages will ascend to being one of the predominant hemp-CBD formats, as they are slated to play a larger role in the legal marijuana space than they have previously,” Maturo says.
Cannabis’ role in new product development within beverages, however, likely will look different in terms of the non-alcohol and alcohol spaces, experts note.
“Cannabis foods and beverages are not poised to eclipse adult beverages,” Mintel’s Scott says. “Alcohol is perceived as more social, while cannabis tends to be an at-home experience aimed at winding down, relaxing and reducing stress. However, competition is still present: Generation Z is drinking less, and 32 percent of consumers are willing to replace alcohol with cannabis beverages.”
Nielsen’s Maturo also notes that the predictions of negative impacts on beverage alcohol from legal cannabis, particularly marijuana, have not materialized in the early going.
“Overall, legal cannabis has not yet made much of a dent in actual sales,” he explains. “Sales are typically negatively impacted in low single digits, before market conditions stabilize. From what we’ve observed, off-premise (i.e., retail) sales are more impacted than on-premise sales; and in terms of super-categories, beer is hit hardest, followed by spirits, with wine seeing the smallest and a notably smaller negative impact on sales. Specific to beer, sub-premium domestic brands, and especially those with higher ABV, tend to see greater impact than craft, imported, and non-sub-premium domestic brands.
“That said, between 30-40 percent of beverage alcohol drinkers that indicate they’re likely to consume a marijuana product in the next 12 months say they have already or plan to decrease their beverage alcohol consumption as a result of using marijuana,” Maturo continues. “We also know that more than a quarter indicate that when they consume marijuana, they consume fewer drinks.”
He adds that if, or when, hemp-CBD hits the shelves on a national level, this could pose a bigger threat to beverage alcohol because of the associated mood enhancements.
“To this extent, we see hemp-CBD infused-beverages fitting in where mocktails and other NA-alcohol-style beverages are gaining traction, but with an additional element of being positioned as a ‘functional” beverage,’” he notes.
Given this take, it would seem that the non-alcohol beverage market is likely to see a bigger disruptor effect as cannabis becomes more widely accepted. However, evidence shows that still isn’t the case.
“So far, we haven’t seen cannabis-infused beverages have a measurable disruption on the NA-beverage market,” Maturo explains. “And given the current fragmentation of the legal marijuana market and ‘gray’ legal area surrounding hemp-derived CBD beverages, we do not anticipate any broad disruption occurring without a significant change in the legal landscape (e.g., marijuana becomes federally legal, hemp-CBD is approved (or allowed) for ingestible products and gets broad national distribution like any other CPG beverage).”
Despite this gray area, Nielsen still forecasts hemp-based CBD beverages will evolve beyond its niche status.
“First, we anticipate that federally legal hemp-CBD beverages will become a reality sooner than federally-legal marijuana beverages, which means that hemp-CBD beverages have a better chance of getting national distribution and exposure than marijuana-beverages,” Maturo says. “And even if federal marijuana becomes a reality first, distribution and exposure will still be limited to licensed dispensaries, unless the law allows for non-dispensary retailers to sell marijuana.
“Second, hemp-CBD beverages are better suited for more frequent use and are applicable to a wider set of occasions, whereas most marijuana-infused beverages are still intoxicating and are unlikely to be utilized (by most) at work, caring for dependents, commuting, pre/post-workout, etc.,” he continues. “To put it simply, someone today could feasibly substitute all their coffee consumption with hemp-CBD infused coffee without skipping a beat, but most would be unable to function and/or would be breaking laws and workplace policies if they were consuming THC-dominant marijuana beverages instead.”
Another key factor is that CBD-infused beverages tend to be associated with a functional, health- and-wellness halo.
“This is especially imperative to gaining traction and ‘acceptance’ with CPG companies, who will eventually dominate the category, and the national chain retailers (e.g., Target and Walmart) who are anxious to stock non-topical CBD products like beverages —but are cautiously waiting on the sidelines until these products are federally legal — because hemp-CBD will have a less negative impact on their brand and corporate equity than anything related to marijuana,” Maturo explains.
Mintel’s Scott also highlights the product attributes that CBD could bring to the non-alcohol beverage market, but cautions the legal hurdles.
“Functional beverages are trending and CBD and hemp-infused beverages from water to energy drinks are an important part of that trend,” she says. “While CBD is touted for relaxing qualities and sleep improvement, hemp elevates drinks to superfood status with added fiber, omega-3s and protein. Importantly, the FDA does not approve food and drink products with CBD at this time and has taken action in some instances.”
Although cannabis products have become more accepted by various sets of consumers, legal hurdles still remain. The passage of the 2018 Farm Bill did open the door to the use of industrialized hemp, but that did not transcend to the food and beverage markets, experts note.
“From the FDA’s purview, they’ve had official public comment periods where they’ve sought input from scientists, businesses, manufacturers and consumers on hemp-CBD,” Maturo says. “And even as recently as this past month, they’ve sought data examining interactions, unwanted side effects, and overall health outcomes, but I do not expect the FDA to resolve this issue anytime soon — optimistically, I’d say in the next 18-24 months, but more likely 36 months or longer.
“I think before we get there, we’re more likely to see some sort of Congressional intervention where Congress passes a bill that would reclassify hemp-CBD as a dietary supplement, thereby forcing the FDA to allow it on the market in ingestible forms — see H.R. 5587 filed in Jan ’20,” he continues. “That said, some states have taken the lead and passed their own laws allowing for hemp-CBD to be legally infused into ingestible products, circumnavigating the FDA. For example, Colorado passed HB1295 back in 2018, which declares that foods and beverages containing hemp oil are “unadulterated” and legal to sell in Colorado. Other states like Illinois, Texas, Florida and Indiana have similar laws on the books allowing for CBD ingestible products. California has attempted to pass similar legislation, but so far it has not passed.”
Brian Sudano, managing partner for New York-based Beverage Marketing Corporation (BMC), notes that the Farm Bill did allow for some hemp-based ingredients to cross state lines, but not everything was included.
“Thus far state legislation dictates the use of industrial hemp, less than 0.3 percent [tetrahydrocannabinol] THC, in local markets,” he says. “However, it freed up shipments of hemp-based products across state lines. Many regulatory counsels have interpreted the Farm Bill to legalize consumables of industrial hemp. It is important to note that isolates are not allowed and industrial hemp applies to entire plant extracts. Therefore, CBD isolates are not legal, nor are CBD beverages federally legal.”
And from a distribution perspective of finished beverages with hemp or CBD infusions, manufacturers still are met with legal limitations.
“Because cannabis cannot be transported across state lines, distribution is a serious challenge for brands,” Mintel’s Scott says. “All nodes in the production chain must be housed in a single state, from the growth and cultivation of the cannabis plant to the final sale at dispensaries. With some states experiencing product shortages, getting enough inputs to produce consistent and reliable products is a real challenge.”
To CBD or to THC
Although analysts forecast CBD to be the form of cannabis that manufacturers, and ultimately consumers, will gravitate toward, it seems that education still is needed to help consumers understand its nuances.
“Consumer understanding of the differences between CBD and THC is mixed,” Scott says. “Less than half (46 percent) of consumers 22-plus report understanding the difference between CBD and THC with only 17 percent considering themselves ‘very knowledgeable.’ However, the percentage of self-reporting knowledgeable consumers rises to 61 percent for those aged 24-34. These consumers have had access to information about legal use for more of their adult lives and demonstrate that the interest is there, if education is, too.”
BMC’s Sudano notes that the average understand the association with topical aliments to a certain degree, but present a dearth of understanding in regards to the benefits and limitations.
“For example, nano-encapsulation of CBD oil is being promoted as water-soluble even though it is not truly water-soluble,” he says. “True water solubility is when liquid is immediately absorbed into the bloodstream with nearly 100 percent bioavailability, which oil does not provide.
Regarding THC, most view it as a mood-altering product versus therapeutic,” Sudano continues. “For the most part, this is accurate.”
Nielsen’s Maturo explains that although consumers indicate relative knowledge about CBD and THC, when asked to discern certain aspects, some gaps still remain.
“Just by virtue of media consumption, most U.S. adults have heard of CBD, and most claim they have ‘a little knowledge’ about it, but when you probe their understanding further, it's abundantly clear that there’s lots of confusion and misinformation out there,” he explains. “For example, only about 40 percent of U.S. adults were able to accurately answer that CBD can be derived from both marijuana and hemp. Similarly, only 25 percent of U.S. adults understand that every product derived from hemp doesn’t necessarily contain CBD, so what you have is some people consuming hemp-seeds or using products with hemp-seed oil as an ingredient, erroneously thinking they’re consuming CBD.
“Add in other terms like ‘full-spectrum hemp-extract’ or ‘hemp-oil extracted from aerial parts’ and most consumers are, rightfully, confused even more,” Maturo continues. “But it’s not just consumers who are confused by CBD; only about 33 percent of healthcare practitioners we’ve spoken with understand that hemp-CBD is legal at the federal level, despite the majority saying they will and do discuss CBD with patients when it comes up.”
When it comes to THC, Maturo explains that the cannabinoid is even less understood beyond being known as CBD’s intoxicating cousin.
“At the root of it, I think most U.S. adults have come to understand cannabis simply as ‘marijuana’ means intoxicating, and ‘CBD’ means non-intoxicating for health and wellness, albeit technically not being accurate — not all marijuana products are intoxicating, and not all CBD-containing marijuana products are non-intoxicating,” he says. “That said, I’m personally excited to see what’s going to happen once the other 150-or-so known cannabinoids get their time in the sun.
“Right now, THC and CBD-based products dominate the market and broader cannabis conversation, but unbeknownst to many, we’re only just starting to scratch the surface of our understanding of all of these other naturally occurring compounds — not to mention all of the combinations of terpenes and flavonoids,” Maturo concludes.