What You Need to Know About the Cannabis Beverage Industry
Solid advice from a beverage business veteran who recently pivoted to cannabis.
Many creative entrepreneurs are concocting all sorts of cannabis-infused drinks, but there is more to launching a beverage company than a good recipe.
Breck Speed of Farmington Research is a veteran with over 25 years in the beverage industry. He recently pivoted to cannabis, working with companies to develop and launch cannabis beverage products. Here, he shares his unique insights into this burgeoning area of the industry.
If someone came to you looking to launch a cannabis beverage line, what would you say is involved, and what should be considered?
Many people in this industry don't have prior beverage experience, there are a few, but most of them are brand new to it. So we spend a lot of time helping them understand the co-packing situation, what kind of appropriate container is needed: glass or plastic, powder stick, or whatever they're trying to do. And then we also help talk them through sales, marketing, distribution, and all the things you have to go from idea to putting it into the consumer's hands. So, even though we only charge people for our water-soluble extract or the technology for the water-soluble extract, we spend about 80 percent of our time helping folks get their arms around the entire industry. And we're happy to do that because we want our customers to be successful and pay their bills. Right?
A lot of new products come in powder form vs. bottled liquid form. Do you think one will be more popular than the other? From a store's perspective, it's easier to stock powder form than cases of cans or bottles. Also, is the technology better with the powder form vs. the liquid form?
There is not a big difference in technology. It's more about portability because water weighs a lot. If you ship it, whether commercially to another business, retail location, or direct to consumer, it's expensive because water weighs more than powder sticks.
Consumers like ready-to-drink beverages, but there are lots and lots of use occasions where powders will be preferred. How about the convenience of adding a single-serve powder stick to your can of Lacroix at a party? It's also very discreet if you don't want to be so brand forward with your friends.
I think there will be a large market for powder, and it already exists with non-cannabis brands.
It's a new industry that you're developing. Your company is developing this brand-new technology of putting THC in beverage form.
It's been fascinating. We've done powders, capsules, drinks, and hot beverages with a sugar cube that's coming. I think there'll be many different kinds of successful applications, much like there are now. There are so many darn varieties of beverages. I don't know which of them will be the big winners, but the consumers will tell us at the end of the day, as they always do.
Are supply chain issues causing bottlenecks and putting the industry's growth at risk?
Initially, there was some concern about aluminum cans, for instance. But, the aluminum can manufacturers have worked with their brokers and smaller producers to ensure they have options. Glass bottles can be a challenge. Because to buy glass bottles directly from a producer usually requires orders in the hundreds of 1000s, but again, some brokers will provide stock bottles.
The lack of interstate commerce requires businesses to operate entirely within their state when its industry standard to have your supply chain spread throughout the country. How do you think this will affect the growth of the industry?
Co-packing is the bottleneck and a serious challenge right now. I went to the cannabis drinks conference in Illinois last November, and it was striking to me there's not a single beverage co-packer in Illinois. There we were at a meeting for cannabis drinks, and you couldn't launch a beverage in that state because of inadequate supply chain issues. And this is repeated state by state.
Given the lack of co-packers, there are challenges on volumes and other things. The expertise across what's available is spotty. And people are going about that in different ways. Some products are getting hand canned in Colorado. You've got brands like Wink, who are taking it upon themselves to put together a mobile canning solution where they take their equipment from state to state and work with licensees to get their brand distributed more widely.
The biggest companies will likely get involved soon, like the alcohol giants Constellation, Anheuser Busch, Molson Coors, and others who will push for cross-state transportation. However, that's not going to be helpful to the craft brewers of the cannabis industry. They will probably look for local or mobile solutions, much like the craft beer and wine industry does now. They will rely on a system of mobile canning and bottling.
The mobile canning business seems like a low-cost barrier to entry for entrepreneurs compared to the high costs to open a dispensary or cultivation facility- do you agree?
As the industry grows, there are many other supplier opportunities and everything that goes with it. I'm sure it will become vertically integrated as time goes on as people decide to grow, process, package, and do everything themselves. And you have better margins with each of those things, and the more you can add, the more money you can make.
Right now, it appears the worst place to be on is cultivation, particularly within the beverage industry. The margins in that area will probably continue to be relatively low unless it's something exceptional.
It seems the best business advice you can give someone is to become a multi-state operator if you want reasonable profit margins and national brand awareness.
If consumers like a specific brand in their home state, they certainly want to access it while they're on vacation, business, or otherwise.