Is weed beer the new beer? A deep dive into cannabis-infused beverages

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January 17, 2020
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Executive summary

This report examines the rapidly developing Beverages category, offering insight into an undeniable phenomenon within cannabis, as evidenced by Constellation Brands’ massive investment. The report covers the overall size of the beverage market, a state-by-state breakdown of it, an examination of segments within the category, and more. It will be useful to anyone looking to enter the infused beverages market, as well as to retailers and members of the media interested in better understanding what consumers are looking for in an infused beverage.


Introduction

When Constellation Brands, an alcohol company that owns Corona, added $4 billion to its already ample investment in Canopy Growth, people noticed. Besides the fact that an alcohol company was investing in the cannabis industry, it aroused a lot of interest in the potential market for cannabis-infused beverages. Constellation is not the only major alcohol company to take an interest in cannabis—Lagunitas brewing makes a non-alcoholic, THC-infused “beer” too.

Such investments have led to countless articles about CBD-infused sodas replacing beer entirely, or non-alcoholic, THC-infused champagne being the new drink of choice on New Years’ Eve. It’s fair to speculate, but the data doesn’t exactly bear out those narratives. This report shows us what beverages are selling well, and with whom. Soda is still king. And while there may be a few true connoisseurs who appreciate getting buzzed off booze-free bubbly on NYE, the Mocktails segment—which contains alcohol imitations—hasn’t exactly taken off yet.

Beyond the general preference for sodas, we look at what kind of sodas people like, breaking down the category into flavor preferences. Interestingly enough, flavor preferences are kind of all over the place, which suggests that whatever was first-to-market in each state was what people gravitated to. This could be because of the relative novelty of infused beverages. Pricing, also, is kind of all over the place, with each state posting wildly different numbers for each Segment. Again, this probably has a lot to do with how siloed each state is in terms of product development, and federal legalization could smooth it all out.

We’ve also examined how well people prefer Beverages, and seen that while few baskets overall contain them, the majority of baskets with Beverages in them contain another category. Beverages are clearly an impulse buy, but that’s something that can be capitalized on. There’s also the matter of CBD-infused beverages vs THC-infused beverages. While CBD-infused Beverages don’t make up the majority of sales, they are a significant portion. Whether hemp-derived CBD beverages, which are newly available in bars, coffee shops, and restaurants, will eat into that share remains to be seen.

All told, beverages are a category within cannabis that’s worth watching. It might not be quite the movement that some have made it out to be, but there are a significant number of cannabis consumers who don’t drink alcohol, but still want to have a “drink” with their friends. The cannabis-infused beverage category meets a need that people didn’t even know they had, which makes it automatically interesting. However, there is certainly a plateau to that need. This report shows the market as it currently exists and attempts to understand where it might end up. For anyone looking to break into Beverages, it will be invaluable.


Methodology

Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked up with Headset’s data analytics platform. The data included are for 2019 year-to-date, and span Colorado, Washington, and Nevada. Those data are cross-referenced with our catalog of over hundred thousand products to provide detailed information on market trends.

Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.


Beverages are burgeoning

Over the last two years, Beverages have seen steady growth, both in overall sales and market share. Market share has gone up 0.22%, and the overall market has doubled, going from a little under $1.5 million to about $3 million. However, that’s still a relatively small portion of the overall cannabis market. Beverages, at their peak market share, were only 1.42% of sales. So, while the category has constantly gained share and grown sales, it is by no means a mass market, yet.

Lagunitas only jumped into the infused beverages market last June, and few of the other THC-infused alcohol replacement offerings are backed by brands even half as big. A few years of marketing from a company with experience selling drinkable intoxicants could really change the game, especially as advertising rules for cannabis are eased

BEVERAGE MARKET SHARE (CO, NV, WA)

Beverages by state

Washington and Colorado have split the Beverages market pretty evenly since 2017. Nevada only began selling the category towards the end of 2017 and has accounted for a little over $1 million in sales each quarter since then.

While Washington enjoyed slightly higher Beverage sales for a few quarters in 2018, it wasn’t exactly a trend. Colorado outsold Washington in Q4 of 2018. It’s hard to say what the consistency of this breakdown means, exactly, as we’ll see later that the flavor and price of Beverages vary quite a bit in those two states. It is possible, however, that both states offering Beverages around the same time helped establish their place in the retail environment as something of an interesting add-on and have kept both markets from ever ballooning. Seeing how California does, with the presence of Lagunitas’ HiFi Hops, will be interesting.

TOTAL BEVERAGE SHARE STATE-BY-STATE

Soda reigns supreme

Soda was and is the hottest seller in the Beverages category. It was also the only category besides Mocktails that grew from 2018 to 2019, gaining 3.9% of the overall Beverages market share. Warm drinks, like those in the Tea, Coffee & Hot Cocoa segment, lost market share, as did Iced Tea, Lemonade, and Fruit drinks.

It’s not surprising that soda does well, as that’s already a go-to drink for people in general, and especially people who don’t drink Alcohol, but it is interesting that Mocktails made gains. Again, it’s not enough of a gain to indicate that alcohol-replacement drinks are going to be a “thing” in the Beverages category anytime soon, but it does at least indicate new interest.

BEVERAGE SALES BY STATE

What’s selling in Washington?

Again, Soda. Washington saw 70% of its Beverage sales going to Soda. In Colorado and Nevada, respectively, only 18% and 26% of sales went to Soda. This is, again, likely due to the siloing off of brands. In Washington, Legal Soda was early to market and delivered a clear and appealing brand identity. While Craft Elixirs offered a line of Drops, Mixes, Elixirs & Syrups products, they ultimately found success in traditional Edibles, which could explain why only 10% of sales in Washington went to Drops, Mixes, Elixirs & Syrups, as opposed to 38% in Colorado. Indeed, sales in both Nevada and Colorado seem to be driven by that segment, as well as the Iced Tea, Lemonade, and Fruit segment. Nevada also sees 12% of sales going to Mocktails, which makes sense given Las Vegas’ reputation as a party town.

BEVERAGE SALES BY SEGMENT

Lemon, lime, and everything in between

The Other category of flavor clearly shows the long-tail of products that make up small bits of the market. None of these flavors have more than 1% market share but there are hundreds of them with flavors like huckleberry, hibiscus, honeydew, dragonfruit to name just a few. These long tails are significant portions of some markets with half of the market in Washington and Nevada comprised of a multitude of flavors with low market share. Of products with significant market share the distinct fruit flavors that each state does prefer are interesting. Washington skews towards citrus, with a small slice of Apple to balance it out. Lemon, Lime, Orange, and Apple make up 52% of the market, with the rest being miscellaneous.

While the market share for Other is similar in Nevada (40%), Fruit Punch and Tea are major factors. This suggests that flavor preferences are driven to some extent by what’s available. In a space as small as Beverages, just making a product might be enough to dictate what people drink. This is also borne out by looking at Colorado, where Flavorless takes up 37% of the market. If we remember that the Drops, Mixes, Elixirs & Syrups segment makes up 38% of their market, and that such products are often added to other drinks, this makes a lot of sense. If the drink you’re spiking is already flavored, why add another?

FLAVOR PREFERENCES BY STATE

Paying for it

While some categories are consistent in Average Item Price (AIP) by state, most are pretty much all over the place. Drops, Mixes, Elixirs & Syrups are among the highest priced items across all three states, while Other are among the lowest. But then when we look at something like Tea, Coffee & Hot Cocoa, which is the highest priced item in Nevada, but almost the lowest priced item in Washington, we see no consistency. Perhaps, if Nevada was higher across the board and Washington was lower, we’d be able to make sense of this, but Nevada’s Mocktails are the cheapest while Washington’s are the most expensive. The likeliest explanation is, again, the different brand landscape in each state.

BEVERAGE AVERAGE ITEM PRICES

The devil is in the dosage

Looking at what products sell best by the number of milligrams of THC they contain shows us one interesting trend. Where 100mg products made up most of the market in 2017, with a 90.9% share, that’s dropped to 67.1% in 2019. And what’s risen to replace it isn’t large format, it’s the 0-5mg range, suggesting that consumers are more interested in getting buzzed than stoned. Or, in keeping with the alcohol-replacement theory, that people are drinking multiple beverages in one sitting, as you would do with beer or wine. Whether it’s due to that or just new customers with lower tolerances, it’s clear that there is lots of room for low dosage Beverages.

NEVADA BEVERAGE SALES BY TOTAL THC

Who’s drinking what

While Millennials tend to dominate most demographic breakdowns of cannabis consumers, we see an interesting reversal of that trend here, at least in Colorado. Most of our demographic data, which are voluntarily reported by members of loyalty programs, comes from Colorado and Nevada. In Colorado, the Silent Generation is far and away the largest consumer of Beverages.

Nevada, on the other hand, sees a pretty even distribution across age groups. While this might seem strange, as novelty cannabis products are typically not popular with older generations, it makes sense when you remember that most of the Colorado Beverages market is Drops, Mixes, Elixirs & Syrups. All stuff you might add to a cup of tea at the end of the night to use as a sleep aid or pain reliever.

BEVERAGE MARKET SHARE BY GENERATION

Beverages by the basket

Beverages appeared in a relatively small number of baskets overall in 2019, and those baskets exhibited some unique characteristics. Baskets with Beverages in them contained items from other categories 58% of the time, which supports the idea that Beverages are an impulse buy or add-on item. However, it’s interesting that Flower is not the most frequent other category in Beverage baskets.

Under the typical model of impulse buying in cannabis, people come in to buy Flower or Pre-Rolls, see an interesting Edible or Beverage, and throw that in the bag on a lark. However, we see that Beverages are most commonly bought alongside Edibles, with 17% of Beverage baskets containing an item from the Edible category. In fact, Flower, Concentrates, and Pre-Rolls are all less prevalent in Beverage baskets, while Vapor Pens and Edibles are more prevalent. This suggests that Beverages might appeal more to people who prefer less combustion-based consumption methods.

CATEGORY MIX OF BEVERAGE BASKETS

What about CBD?

Looking at the percentage of Beverage and Edible products that contain CBD as a primary ingredient tells us an interesting story. CBD is, of course, having its moment, and demand for CBD-infused everything is taking off. But it’s long been a part of the cannabis industry, especially in products that you eat or drink.

Since 2016, the percentage of Edibles and Beverages containing CBD has steadily gone up, although a lot more steadily in the case of Edibles. CBD-infused Beverages started with a larger market share than their counterpart Edibles and have surged to as high as 30% of the Beverages market at times. But that surge has started to wane, and they’re holding at 25%. The increasing presence of hemp-derived CBD drinks like Vybe or Sprig cannot be ignored here. While marketing to wellness-focused consumers with CBD might have been a wise move in 2017 or even 2018, it’s hard for cannabis retailers to compete with a cheap CBD soda that’s sold in coffee shops and bars.

MARKET SHARE TO CBD BEVERAGES

Conclusion

The Beverages market, while not massive, presents several unique insights about the state of the cannabis industry. First and foremost, it shows us how the piecemeal, state-by-state pattern of legalization affects sales. Even among states that legalized at the same time, like Colorado and Washington, price and consumer preferences vary wildly, as evidenced by our data on flavors.

Had cannabis been legalized at a federal level, we could expect to see a lot more consistency across the country, as brands would be nationwide, not limited to individual states. While many brands do cross state lines, the first-to-market brands in each state are still going to take priority and shape the market, like Legal did in Washington.

That said, there are still some overarching trends to the category. Sodas aren’t just popular in Washington, enjoying a healthy share of the market in other states as well. They’re also growing that share, with only Mocktails joining them as a growing segment. Drops, Mixes, Elixirs & Syrups have been significant players in the Beverage market in the past, but increased interest in Beverages as a discrete packaged consumable, a la six-packs of beer or 20oz sodas, could shift the market away from that segment.

Indeed, the trends that do stand out in the Beverages market point to this becoming even more of a thing. Especially in dosage. The average cannabis consumer doesn’t have enough tolerance to imbibe an entire 100mg Beverage in one sitting, so a lot of those were probably divisible into smaller doses, via a dropper or attached cup. The rise in low dose products suggests that single-serve products are gaining in popularity. It’s premature to say that 5mg THC sodas will become ubiquitous at backyard BBQs, but the theory that non-drinkers are turning to cannabis drinks as an alternative isn’t entirely untenable.

Overall, the Beverage category is one to watch. Which direction it takes—either towards a single-serve, mass market consumable or back towards a specialty cannabis product—has a lot to say about consumer preferences in cannabis more generally.

About Headset

Headset is a consumer data analytics platform that provides market intelligence for the cannabis industry. Our extensive Market Reports deep-dive into specific categories and aspects of the industry to help businesses better monitor the market and perform exhaustive category analysis. Reports are generated via aggregate, real-time transaction data to get a unique and thorough analysis of what’s happening in the cannabis industry as the data becomes available. Headset offers three distinct products that help retailers, dispenaries, brands, product manufacturers, distributors, and investors move ahead in the industry.

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