Investing in Cannabis Beverages

INNO

*The Main Arguments Against Investing in Cannabis Beverages*

1) People don’t want to drink to get high
2) They are going to be too expensive
3) They take too long to hit you
4) They taste like weed
5) They are only 1% of cannabis sales in the US

The counter points to these arguments:

1) Cannabis drinks are not intended for heavy users, or the long-time connoisseurs of dry bud. The target market is for brand new users that would never smoke or vape. And it’s a massive target market.

There are roughly 370 million people living in North America and about 275 million of them are between the ages of 15-65. Within this demographic, roughly 45 million people use cannabis. And out of this 45 million people, about 15 million of them use cannabis daily. So out of the roughly 275 million potential customers, heavy cannabis users make up 5% of it. There are 30 million other current cannabis users (who use cannabis weekly or monthly) and 230 million other consumers (who haven’t yet been interested in cannabis) to still capture as customers.

Cannabis Beverages Market: Billion Dollar Global Business with
openPR (Google)

The consumer base that isn’t currently interested in cannabis absolutely dwarfs that of heavy cannabis users/connoisseurs who use weed daily. The population of new users that will come onboard over the next decade is immensely larger than the number of daily users that exist today. And the majority of these people are never going to smoke or vape (it’s one of the main reasons they never used cannabis in the past). It is the new tech beverages (that provide a consistent microdose with a quick onset and offset, a low sugar content, and are a healthier alternative to alcohol) that are going to penetrate and capture this market because these consumers are used to, and comfortable with, drinking to get inebriated. They will also try edibles like chocolates and candy, but many will find it foreign to get intoxicated by eating food rather than drinking liquid. Ingesting food/candy or a mint to get intoxicated isn’t normal to a large portion of the population. It just won’t feel right to most people. They won’t feel as comfortable doing that as they do drinking. Drinking has always been socially accepted and is ingrained in our DNA.

2) Canopy’s first drink is $3.95 on the Ontario Cannabis Store website. For comparison, there are many craft beer tall cans that sell for this price at the LCBO. As economies of scale grow then the price will continue to drop and become even more affordable. The goal is to make it just as competitive as alcoholic beverages, not to try and compete with vape pen or dry bud prices (the majority of people in the target market are not interested in smoking joints or hitting vape pens, so these consumption methods are not competition). The manufacturing and distribution infrastructure for cannabis beverages is just getting set up now. It is very early days. Once it grows over time then costs will decrease, and the prices will get lower for us consumers.

3) It’s 2020. Most of today’s drinks use infusion technology that enables the effects to hit you within 5-10 minutes after ingesting them. There isn’t much difference in time between how quickly an alcoholic beverage hits you and how quickly a cannabis beverage hits you. I have personally tried them in California, so I am not just spreading hearsay.

4) This same infusion technology has allowed drink makers to remove almost all of the taste of weed from their products. Some of them leave in the taste of specific terpenes to give the drink a unique flavour, but other than that you can’t taste the weed (at least not in a way that ruins the experience or diminishes it in any way). They have come a very long way since the days of tasting like bong water or being full of sugar to mask it.

5) The current statistics on cannabis beverage sales in the US are not a good barometer for the future. Up until the last year or two, almost all of the drinks available have been high dose (100mg), very sugary, and viscous (poor mouth feel). The high dose has clearly been trying to target heavy users who we have already established don’t want to drink their weed. Using stats from the past (that measure low tech crappy drinks being marketed to heavy users) to predict future outcomes for a completely different type of beverage (low dose, fast onset) and target market (new users) is completely failed logic and analysis. According to the analytics service provider, Headset, 100mg drinks made up 91% of the cannabis beverage market in 2017 and by 2019 this percentage had fallen to 67%, with new 0-5mg THC drinks now grabbing a 25% share. Their data also shows that the total market for cannabis beverages doubled during this time period, which is a trend in the right direction. At the current ~2% of total cannabis sales, there is still a ton of room for growth for this category.

One last thing to keep in mind:

Drinks have a much larger potential distribution and retail base compared to every other consumption format. Restaurants, bars, sports arenas, convention centres, etc. are not going to allow people to smoke up in their venues. For health and sanitary reasons (and laws), there is just no way that is going to happen.

These type of venues are all familiar and experienced with distributing/selling liquid ingestible packaged goods. This is what they are going to stick to once cannabis becomes widespread and legalized globally. They aren’t going to start selling oils, shatter, and other concentrates so that their patrons can smoke in their facility. They will sell drinks that are easily stored in their fridges or on their shelves beside their alcohol counterparts (don’t get me wrong, it is going to take years to get to this point because of both social and political roadblocks…but there is no doubt that it will get there – time is a very powerful variable, and consumer demand and institutional lobbying carry a lot of weight).

The powerful restaurant, bar, and pub lobby groups in North America are not going to just sit back and watch other establishments pop up that offer cannabis consumption and steal their patrons and revenue away from them. Not a chance. They are going to do everything in their power to get in on selling cannabis products to keep their clientele coming to their establishments.

And cannabis beverages will be the format that outright wins in this part of the supply chain (especially since alcohol distributors are also very, very powerful lobbyists and will want in on the money to be made too – they are experts at distributing drinks, so might as well profit off a new channel).

If there is any chance that cannabis makes its way into mainstream outlets it will be by beverages leading the way (and my opinion is that there is a very good chance that cannabis eventually becomes just as widespread as alcohol). Nobody can honestly argue that another form factor would be approved by the government and its regulators before drinks would be. There is just no winning argument there.

Nobody knows how long this will all take, but it will eventually happen. It might take 5 years, might take 10 years, might take 15 or more. If you are a long-term investor then it could be lucrative to get in early and be patient.

Landon Bryce

 

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