The First Drop: Brands Hold the Key for CBD

Sure, they were arguing for the success of a new business that they’re all tied to, but the panelists at our Cannabis Forum in December made a great point: the most determinative success factor for proving the legal cannabis/marijuana industry overall will be the development of strong brands.

This struck a chord with me at the time, and as I look back I understand why: the success of most differentiated CPG is brand-dependent. While medical use has created a prescription market for cannabis, which might then create space in both over-the-counter medicine and dietary supplements, the true key to the broader consumer realm for both CBD and THC focused cannabis-based beverages will be borne by the kind of trust that brands engender.

And as heartening as it must be for startups to see the large beer companies starting to make investments in various parts of the cannabis infrastructure, it’s going to be hard for the big guys to create a cannabis brand on their own. It’s been repeated to the point of nausea, but they have all proven to be really bad at moving out of their sweet spots when it comes to product innovations in categories in which they don’t have, or buy, a significant interest.

Looking back, new categories, particularly functional ones, have almost entirely moved to the forefront via independent brands, from Gatorade to Red Bull to Muscle Milk to Vita Coco. Even when the Soda Giants have tried to introduce new concepts that eventually caught on, it’s been the outsider brands that have done it better: guarana sodas, coffee sodas, even off the wall plays like Kvass have done better when outsider brands have applied imagination and passion to define the contours around the new category. I fully expect that will happen with cannabis, particularly as the restricted distribution environment puts the focus on small, local brands.

What the big guys do great, however, is build scale when things start to work. So if, say, a CBD brand like a Sprig or a Recess is able to prove out that it can deliver functional psychological or physiological effects, it’s likely that one of the giants will bite the bullet and invest.

That’s not going to happen on the THC side, I think we’re all aware, because of the age gate issues. The beer, wine, and spirits companies have reached out already; they have the experience and personnel to meet the THC brands where they need to in terms of distribution and regulation. It’s no secret that they’ve been looking at capitalizing on the end of marijuana prohibition for a long time – the only question is whether they’ll move past beverages, and into the broader world of the vape and flower, or just cede that ground to the likes of Altria and Philip Morris.

But when it comes to CBD, which of the big companies is likeliest to align with a smaller brand? And are there any CBD beverage companies that might attract their interest? For now, it’s going to be slow: Coke has reportedly kicked the tires (although it was more of a fact-finding trip) on CBD, but invested in cleanse brand Dirty Lemon only after that company shelved its own CBD-enhanced SKU. Coke could indirectly invest through one of its more progressive partners, like L.A. Libations, but it would be surprising if it takes the lead role in opening up the category. Pepsi is only moderately more likely to go forward into CBD – the Global Nutrition Group would have to drag the rest of the company by the nose. Nestle is all in on gut health these days.

Still, there are a few partners who might make sense. As Monster and Rockstar expand their platforms to new use cases, it wouldn’t be surprising to see them deploy CBD in a SKU or two. Both brands feature so much storytelling in their portfolios that it’s easy enough to see either one trying a special edition on for size (Monster Blunt or Rockstar Rolled, natch!) But they’re not going to do it through acquisition: they have too proud a tradition of internal innovation. That’s what we’re also seeing at GTs Kombucha, which recently launched its own CBD SKU.

But then there’s KDP. The wide range of distribution partners left from the Dr Pepper Snapple legacy make it the one of the likeliest strategic to have some CBD brands in its system, somewhere, but what would really make it worthwhile would be if one of JAB’s broad set of coffee partners looks to add CBD as an ingredient in its range of products. The cannabinoid has already started popping up in a variety of independent regional coffee brands – given the experimental nature of much of the roster, how hard would it be for, say, Intelligentsia to roll out a bespoke CBD offshoot that combines the brand’s reputation for quality and innovation? Or imagine a Peet’s CBD Latte in certain stores? Or, on the still-independent side, what about a group like Bulletproof – as much a bodyhacking platform as a beverage type – or La Colombe?

The possibilities keep growing. As we’ve written before, there’s got to be some steak behind the sizzle in terms of functionality and science. But the chefs are there, and the grills are all heating up.