Contact High: Delta 9 THC Thrives in the States

Consumers are high on hemp THC – both literally and figuratively. The number of (adult) American shoppers reporting they’ve tried the technically legal intoxicant rose six percentage points to 14% between Q1 and Q4 2024, according to the Brightfield Group.

And it is certainly no coincidence that this spike is coming as mainstream retail outlets and seasoned alcohol distributors like Southern Glazer’s embrace the hemp THC category, helping more consumers to feel comfortable giving these feel-good products a whirl, whether it comes in tincture, edible, or – as a reader of this magazine might assume – beverage format.

The embrace of hemp-derived THC by retailers such as Total Wine & More and Spec’s has helped significantly to drive the category’s growth, as many brands now stocked in those accounts will gladly tell you, even as the regulatory environment around hemp THC remains a jump ball between the industry and government. While major markets have demonstrated an unpredictable capacity to crack down and shutter with little to no notice (as of this writing, all eyes remain on California, has effectively enacted a Delta 9 ban), others, like Minnesota, are opening doors wide and creating white space in even more mainstream channels like convenience and grocery – a situation that was nearly unthinkable just a couple of years ago.

It’s enough that even losing out on one of the most mature cannabis markets in the country, California, isn’t enough to deter brands or dampen their optimism for the expansion of this category – in fact many hemp beverage brands are downright bullish on their outlook; just take pioneering social tonic brand Cann, which is now in 5,000 stores, with DSD contracts in 30 states, since it pivoted from marijuana-derived to hemp-based delta-9 THC in its low-dose beverage line. Of those 30 states, CEO and co-founder Jake Bullock says that 10 have come online in the last few months and are not yet “fully ramped,” meaning the company is bracing for rapid footprint expansion later this year.

“The level of sophistication in terms of the operations on the distribution side that are stepping in to take these products on, is increasing,” he said. “It seems like a new major, affiliated distribution house on the beer side – Molson Coors, [Anheuser-Busch InBev], Constellation, are getting into this space.”

Channel Surfing

Major alcohol distributors like Southern Glazer’s Wine & Spirits were ahead of the curve on hemp beverages, agreeing to carry CBD drinks like Canopy Growth’s RTD portfolio as far back as 2021, when those beverages were facing intense pressure and a frustrating lack of regulatory clarity from the federal government. Since 2022, Minnesota has been opening doors for the broader THC space with a hemp-friendly omnibus bill that has since helped give a jolt to the hemp beverage industry across the rest of the country.

Retail chains such as Total Wine are now building full sets with brands like Cann, Pamos, Wana Brands, Keef, Nowadays and more available in-store and online, giving it the seal approval for some skeptical consumers.

Bullock called Total Wine the “leader in the space,” noting the chain has become Cann’s biggest customer and that the brand has now grown its business “on the back of the markets” where Total Wine has brought it in, as smaller independent liquor retailers in those communities are typically quick to follow.

“They’re putting two and two together that not only are consumers drinking a little bit less booze, but they’re going out and seeking stores which stock the THC drinks,” he said. “So we’re hearing this in a lot of different markets, where convenience stores and grocery stores are starting to say ‘hold on, if we’re not in this game, are we going to see an impact to our data?”

As the alcohol channel has come on board, conventional accounts appear to be following in suit.

While Bullock wouldn’t name names, he said that Cann is preparing to launch in a number of conventional grocery retailers this summer, noting that many grocers now have “an openness to taking on this category,” particularly in states such as Minnesota that have helped open up the market with a favorable regulatory environment.

At hemp THC beverage brand Pamos, president Jared Dougherty and co-founder Nishant Machado echoed that optimism for conventional retail growth.

“A lot of the regional grocery players who have great relationships with the Anheuser-Busch and the Molson Coors houses, they’re in the space as well,” Dougherty said. “So whether it’s a Piggly Wiggly chain or Rouses, they’re all picking up the space.”

Dougherty said that, like Cann, Pamos has met with to-be-named-later “larger grocery chains” who are currently doing category reviews and are expected to move into this hemp category this year as well. He suggested that it’s the culmination of industry education campaigns and rising consumer demand that are finally pushing these larger players to seriously consider adding hemp THC sets.

“Twelve months ago it was a very different conversation,” he said. “When we spoke to retailers, it was never a ‘No,’ it was more of a ‘Let me learn more.’ And now, 12 months later, we’ve got these guys saying ‘Okay, let me start to build out a set.’”

Pamos co-founder and investor Nishant Machado put it more succinctly: “No one’s taking the risk if they don’t believe in the reward.”

Even if the regulatory framework is still the textbook definition of “gray space,” there’s an affirmation and legitimacy that resonates with major distributors and retailers giving these products their seal of approval, and that hits for both consumers and buyers in other channels like convenience.

“The sophisticated, established, credible businesses out there have all been watching, and now they’re starting to dip their toe in the water,” Machado said. “So it starts with c-stores, some of the large household names, they are now hearing it from the trades. They’re hearing it and see at the liquor stores that they frequent, they’re seeing it from the distributors who are reputable [and] who’ve been distributing to them for the last 50 years.”

The Channel Reality

The white space may be wide open, but even if the liquor space is pushing THC forward culturally, the reality check is that it’s still a smaller piece of the overall picture for hemp beverages.

A recent report by the Brightfield Group found that smoke and vape shops, as well as specialty hemp and CBD stores, remain the top channels where hemp THC beverage consumers are getting their kicks; 55% of consumers reported that they bought drinks from both channels in Q4 2024, up from 49% for smoke shops and 50% for hemp and CBD stores in Q3.

In Q4, they were followed in order by online hemp retailers (36%), convenience stores and gas stations (27%), online direct-to-consumer (26%), liquor stores (25%) and bars and restaurants (15%).

In fact, consumers buying THC from liquor stores actually fell quarter-over-quarter, with 31% of consumers buying from those accounts in Q3. However, Matt Zehner, a senior analyst at the Brightfield Group, said that’s most likely a hiccup in the channel’s growth rather than indication of a backslide as the THC occasion quickly becomes one of Americans favorite go-to alcohol alternatives.

“I think pretty much anywhere where alcohol is sold is an opportunity space,” Zehner said.

In its report, Brightfield found that consumer confusion around THC, CBD and cannabis still hangs heavy over the category, but education efforts make an impact: before being shown an info video on the difference between the cannabinoids and sourcing only 42% said they had tried a hemp THC product. After the video, that number increased by 16 percentage points as consumers realized they had, in fact, purchased and consumed hemp THC.

Repeat intent is also high, Zehner noted.

“We have 48% saying that they are going to use at least weekly, and only 5% saying that they definitively won’t use again,” he said. “Most of the categories, at least, people who try it are open to coming back, so there is a higher rate of return.”

While retail may be one piece of the puzzle, one more channel to watch out for is on-premise, and not just bars and restaurants but places like concert venues and festivals as well, Zehner suggested.

Historically, he said that cannabis beverages struggled in the more rigidly regulated dispensary space because the true opportunity in the category is not in converting existing THC users, but alcohol users. And that will be the key going forward.

“[Dispensaries are] not reaching out to someone who wants to drink something on a Friday night,” he said. “They’re going into a liquor store or bar and they’re not exactly sure what they have in mind – and that’s a lot of the alcohol consumer. So anywhere where you have a chance to meet that consumer at their point of purchase, instead of making them have to come to you at a dispensary, is a huge opportunity.”