Hemp-Derived Satisfies Consumer Thirst For THC Beverages

It’s high times for hemp beverages. Powered by a new set of brands that use delta-9 THC derived from hemp as an intoxicating ingredient, demand has steadily ticked up in the last year among consumers, while distribution has expanded beyond small, independent retailers and into national retailer and distribution operations.

Nevertheless, despite the optimism surrounding major bev-alc retailers like Total Wine & More and Spec’s paving the way for more robust distribution opportunities, there remains a complex gray area surrounding how these THC drinks are regulated. This lack of uniformity is casting shadows over how to efficiently meet a thirsty market amid conflicting signals from state and federal policymakers.

Over the last year, CBD drink makers and marijuana-derived THC brands have changed course as new distribution avenues have opened up in that low-dose, delta-9 (D9) THC beverage category. What started in Minnesota during summer 2022 has spawned a billion dollar industry in the last year as brands have realized that the most effective path to market for low-dose beverages (between 2mg and 5mg per serving) is not through recreational and medicinal cannabis dispensaries, but a mixture of traditional alcohol retailers, online sales, and even convenience stores and co-ops that don’t traditionally sell booze.

It’s not all smooth sailing: federally, marijuana is still categorized as a Schedule I substance under the Controlled Substances Act. But the cooler was opened by the 2018 Farm Bill, in which industrial hemp grown with tetrahydrocannabinol (or THC, the psychoactive component of marijuana) concentration of no more than 0.3% was deemed legal, leaving a backdoor for sectors of the cannabis industry to capitalize on.

What remains is a relatively murky area for D9 THC beverages to operate in between a regulated, age-gated industry like alcohol and the black market that existed before states started to allow medical and recreational, adult-use cannabis. This environment has led to a complex set of logistical issues for hemp beverage brands seeking to market and advertise products both online and to retailers – even as demand has grown among consumers.

But the growth of the product type has enabled it to develop a regulatory offense: Lobbying groups, service providers and hemp brands themselves have taken up the mantle to educate policy makers and legislators for guidelines, regulation and enforcement as demand for low-dose, THC beverages grows.

Sales of hemp-derived THC drinks were up by 143% in 2023, according to data from the Brightfield Group. Dollar sales for hemp THC beverages was $98.1 million in 2023, below CBD drinks ($166.9 million) and well behind the marijuana-derived THC versions ($347 million). Yet, it’s still early days for the nascent industry and trends point to that discrepancy changing rapidly.

A Veritable Green Rush In Beverages

“The [hemp-derived THC] market is set to overtake the CBD drinks market by 2025, potentially faster, depending on the regulatory landscape and brand investment by large manufacturers,” said Brightfield Group managing director Bethany Gomez.

In states where recreational cannabis has not been legalized, consumers are finding hemp beverages sold via the internet — or even less regulated outlets — as viable alternatives to dispensaries. Hemp-derived beverage sales are also taking off in states like Tennessee, where marijuana dispensaries are not able to operate. Regionally, the South accounts for 56.8% of hemp THC beverage sales compared to 16.2% in the Northeast (where many states have passed recreational or medicinal cannabis legislation), according to the Brightfield Group’s data.

The momentum is now attracting more entrepreneurs.

In the last year, the number of hemp D9 beverage brands has grown exponentially from both CBD beverage makers jumping into the hemp THC category and new brands erupting out of adjacent categories like craft beer and functional beverages.

The speed of growth in hemp THC beverage is hard to quantify but, as a comparison point, last spring the Hemp Beverage Alliance (HBA) was an informal conversation between eight brands every other week discussing issues ranging from co-packers and distribution opportunities. Now, HBA founder and president Christopher J. Lackner says “we’re up to 200 members, with 50% [of membership] brands and the other 50% being supply chain operators, law firms and professional service providers.”

At the Hemp House dispensary in Minneapolis, Minnesota, hemp THC drinks jumped from 20 SKUs to around 400 between 2022 and 2023, said David Gonzalez, who manages growth at the dispensary and is spearheading a push for more data collection in the category.

In Minnesota alone, there are now over 3,000 retailers selling hemp THC drinks. Part of the reason Gonzalez and other industry leaders are trying to organize the data is to help stakeholders tell a complete story about the category to both distributors and lawmakers.

“The more infrastructure that gets laid, the more distributors pick up these types of products, the more they proliferate and get into retail stores,” he said. “It’s tough to put the genie back in the bottle.”

One of the most effective distribution channels for the category has been online, although that route to market has its own challenges.

Meta and Google have maintained strict advertising policies for both THC and CBD products. Both tech platforms amended their policies last year to be moderately less stringent around wording and, in the case of CBD, requiring third party certification before allowing posts and advertising to go up.

Aaron Nosbisch launched LUCYD media company in 2018 to help CBD and THC brands navigate the complicated climate of social media advertising on Meta, Google, and now TikTok. With the success of building LUCYD as a service provider to the cannabis industry, Nosbisch launched his own hemp THC beverage brand, BRĒZ, last year. It offers low-dose D9 and CBD ‘social tonics’ fortified with Lion’s Mane mushrooms.

Counter to beverage industry philosophy, BRĒZ operates almost exclusively online and has no plans to expand at the moment into traditional retail. BRĒZ is the second largest THC beverage sold online, tallying $1 million in sales in March alone, according to Nosbisch.

“This has become a big industry very, very, very quickly,” he said. “And my customers are not cannabis users. I’d say 80% of my customers rarely-to-never smoke cannabis.”

The growth in DTC has fueled the increasing interest outside of the adult-use dispensary channel and into beer, wine and liquor retailers, Lackner said. “These are adult beverages that need to be next to other adult beverages in the places where people expect them to be.”

If the only place you could get functional beverages was specialty health and nutrition stores like GNC or Vitamin Shoppe, Lackner said, adaptogenic drinks would not be in nearly every grocery store today.

For the THC beverage industry to expand it needs the distribution network that has been set up and, in many cases, supported by alcohol companies. Bev-alc distributors are the best way to grow the category because they are experienced in transporting, selling and merchandising a controlled beverage product. Yet, cannabis beverages are inherently taking market share away from booze and marketing as alcohol alternatives in stores, forcing the low-dose THC beverage industry to be careful how it works with bev-alc distributors, according to some industry stakeholders spoken to for the story.

Alcohol Distribution Is Key

Flyers Cocktail Co. launched in October 2021 offering three varieties of CBD beverages in 8 oz. cans. In 2023, the brand expanded into 12 oz. slim cans with 5mg of hemp-derived THC – which now outperform the company’s CBD beverages.

Positioned as an alcohol-free alternative to traditional cocktails, Flyers is in about 600 stores currently but sees its recent partnership with Total Wine & More in Connecticut as a watershed moment, as it has lined up new distribution partnerships in Missouri, Tennessee, Massachusetts and Illinois. The brand is targeting distribution in about 3,000 doors by the end of the year.

Traditionally the route to market and distributor buy-in within a state is driven by brands marketing themselves to hundreds of independent retailers and then bringing velocity data back to the DSDs to show consumer demand, said Flyers CEO and co-founder Craig Lewis.

“With hemp THC, it’s the other way around,” he said. “We have zero exposure in the state and these distributors are actively holding conversations and pitch meetings to bring hemp THC into the state. Then, brands are retroactively filling it with support like brand messagers, sales reps and incentive programs.”

A similar story is being told by hemp THC beverage brand Pamos. Co-founder David Mupko said “some of the largest beer distributors” in the industry are on the cusp of carrying THC beverages and within the next two to three months, there will be very few major beer DSD networks that don’t carry THC beverages.

Pamos launched as a multiserve marijuana-derived THC beverage and has operated in California, Nevada and Arizona since 2021. Last October, the brand released its hemp THC version, which has opened up a broader swath of retail options.

Even though people are consuming less alcohol, it doesn’t mean they are willing to give up the buzz or the ritual that comes with having adult beverages like beer, Mukpo said. “There was always a demand for low-dose THC beverages, accessibility was always the issue.”

Access is changing quickly. Total Wine & More expanded its THC offerings from its initial launch in Minnesota to new states like Texas and Connecticut. Riding the wave, Texas-based liquor store chain Spec’s is another major alcohol purveyor to recently put THC beverages onto store shelves.

“As consumers look to mix in alcohol alternatives to their cart, Spec’s is meeting that demand by bringing in a diverse group of brands from the emerging delta-9 THC category,” Spec’s third-generation owner Lisa Rydman-Lindsey said in a statement.

Pamos announced it had partnered with Spec’s, which will carry both of the brand’s product lines — non-alcoholic, large format spirits and its RTD Spritzes — in over 200 locations. The beverage maker has also been actively working to line up an on-premise account with Amerant Bank Arena – which hosts NHL’s Florida Panthers games.

Distribution is also moving onto food delivery platforms like DoorDash. After quietly testing the market for hemp THC beverages in Minnesota, the delivery platform is now gearing up for a major expansion into other markets in coming months.

The Hemp THC Gray Market

While some cannabis brands are thriving on what has been a state-by-state approach, others are getting together to unify the patchwork quilt of regulations, with the hope of finding solutions to other federal barriers around banking and taxation.

The Cannabis Beverage Association (CBA), which represents both hemp-derived and marijuana-derived THC, is focused on bringing more education to legislators and regulators as the rapid growth of the category has put pressure on policymakers. The CBA is actively lobbying for the Alcohol and Tobacco Tax and Trade Bureau (TTB) to oversee THC beverage regulation and enforcement.

“Beverage could really be the category that makes cannabis more approachable for people on [Capital] Hill, whether its policy makers or regulators,” said Diana Eberlein, president of the Cannabis Beverage Association.

The melange of state-level legislation that has happened over the years has made regulation unsustainable in the long run, Eberlein said.

State policymakers are struggling with loopholes and unforeseen consequences within their own regulatory structure. With the hemp-derived product category’s growth has come a slew of brands making “synthetic” delta-8 (a different cannabinoid compound found in hemp) beverages that do not have the same testing protocols and standards of purity espoused by organizations like the CBA and HBA.

At the beginning of the year, Florida’s state legislature attempted to address the problem of unregulated delta-8 (D8) products (including beverages) with uncommonly high dosages showing up in gas stations and convenience stores. State lawmakers passed a bill that outlaws D8 and restricts D9 THC products to 5 milligrams per serving and 50 milligrams per container.

New York (where recreational cannabis is legal) went even further with its restrictions limiting hemp-derived THC products to 1mg THC per serving and 10 mg THC per package with a 15-to-1CBD to THC ratio; essentially barring nearly all hemp THC beverages from the state.

Similarly, Colorado put in place a similar law last year limiting hemp THC to 1.25mg per serving and a mandated 20:1 or greater CBD to THC ratio. In California, THC beverages (both hemp- and marijuana-derived) are only permitted to be sold through adult-use cannabis dispensaries.

Even for some cannabis industry stakeholders these laws seem counterintuitive and overly stringent. On the one hand, the state laws are an attempt to control the black market that has sprung up alongside the gray market that hemp-derived beverages have ushered in. Yet some hemp producers see the laws (as in the case of California and Colorado) as a way for the regulated, recreational marijuana industry to control what THC products are sold and who makes them.

The waffling and constantly evolving regulatory environment state-to-state can be exceedingly expensive for newcomers to the category like Magic Cactus, which launched its 2mg THC and 6mg CBD beverage late last year. Anticipating New York opening up a lot of opportunity, founder Jonny Locarni set up manufacturing there with a path to market plan within the state.

“We were thinking this would be a great spot to have a retail footprint,” Locarni said. “Then we had to pull the plug completely on that plan. We haven’t put a single product on any shelf in New York.”

In an effort to provide clarity for the industry, the CBA has partnered with the University of Maryland Medical Cannabis Science and Therapeutics program to help policymakers understand the intricacies of how the THC beverage category is evolving and how to regulate it.

“These policies are being made at this top level with nothing informing them,” said University of Maryland graduate student and CBA Education Committee member Jessika Bartron, who has been tasked with developing the education program.

“The government is looking around saying ‘who do we trust, who has this information,’” she said. “There’s high-dose, there’s low-dose, there’s hemp-derived, there’s THC-derived. There’s a lot of education that needs to happen for high-level decision makers to be able to make these policies that don’t end up in loopholes and put people in dangerous positions.”