From Extensions to Originals, Brands Pursue Different Paths to CBD/Hemp Market

In case you haven’t heard, hemp, and by extension CBD, is kind of a big deal in the beverage world.

The past year has seen a steady rise in the number of brands operating in the segment, a pace that only accelerated following the passage of the 2018 Farm Bill recognizing industrial hemp as a federally legal commodity crop. With a plethora of suppliers eager to provide them with the source ingredient, the market is wide open for beverage entrepreneurs to jump in with innovative and engaging new brands. Yet established players are equally focused on the potential for CBD as an opportunity to extend existing product lines and inject new energy and dimension to their brands. How consumers, retailers and distributors respond to either strategy will help determine the long-term viability of the hemp and CBD-infused drink space.

Going CBD Centric

Staking an uncompromising claim to hemp and CBD as the star ingredient of a beverage has its advantages.

Just as in any other category, being a first mover gives brands a natural advantage as they enter the market. As consumers seek more information about the benefits of CBD and hemp, those companies that can help introduce them to the ingredient in an engaging and credible way stand to gain dollar share and loyalty within the new category. Jonathan Eppers, founder and CEO of New York-based VYBES, said launching the drink was an opportunity to help consumers who may have some familiarity with CBD experience the ingredient in an efficacious and consistent format. The product contains 15 mg of hemp-derived CBD per bottle and is sold in over 1,400 stores in 17 states, according to the company.

“What VYBES wants to nail is that when you pick up a bottle that says ‘15 mg of CBD,’ that’s what you are getting,” Eppers said.

As they work to achieve efficacy, however, startup brands are also free from the expectations that carry over in a line extension; without preconceived notions on flavor, they can build their formulas around CBD rather than try and integrate it into an existing one. Still, Eppers noted getting the flavor of VYBES was a “big challenge.” He eventually partnered with Colorado-based Stillwater to use its CBD isolate liquid concentrate, rather than a powder, for its drinks, which didn’t affect the flavor nor change viscosity, color or nutritional profile.

However, in getting off the ground, CBD beverage makers face a basic problem: securing a consistent supply chain. Without other products to help spread the risk, long lead times or shortages can wreak havoc on brands working exclusively in the space. With 4 million bottles of VYBES expected to ship this year, the brand needs its supplier to scale at a similar pace.

“If I call them and I need a rush order, they can’t do that for me,” Eppers said, noting that CBD was approximately 30 percent of the cost of goods for VYBES. “It’s less simple than just having us keep stocking inventory. But what makes the relationship great is that we’ve grown together.”

Elsewhere, Los Angeles-based Recess has taken a different approach. By featuring adaptogenic ingredients alongside CBD, the brand is marketed as both a relaxation aid and fuel for creative productivity. But in downplaying emphasis on CBD as an ingredient, CEO and founder Ben Witte told BevNET Recess is hoping consumers form a more emotional connection with “the feeling of being calm, cool and collected.”

“I view Recess as a productivity company,” he said. “The idea is that you can’t be productive if you are stressed out or anxious, so you need to reset so you can be your most productive and creative self. We don’t even talk about CBD. I think consumers want to buy into [the] feeling of brand.”

The brand has fed that feeling with a slick social media presence and the launch of IRL, a pop-up retail concept in New York City that Witte compared to “walking into our Instagram.” In the company’s grand strategy, drinks are simply the opening gambit in an effort to create a broader lifestyle brand and shake up what Witte described as “lackluster, to be polite” marketing in beverage.

“Recess is an idea — and there are many vehicles for that idea,” Witte said, naming online retailers Casper and Everlane, along with Red Bull, as inspirations. “Today brands are built on your phone, not on the shelf.”

CBD As Line Extension

Like any other functional ingredient, CBD allows existing brands to expand into a new and fast growing segment of the market with added value SKUs. Yet working with CBD and hemp brings a host of additional hurdles, including shifting consumers’ perception of a brand.

For beverage makers already working with natural functional ingredients, the recent rise of CBD and hemp has provided a path towards building a broader product platform. With the debut of Dream Catcher, an enhanced sparkling water with 25 mg of CBD per 10 oz. bottle, GT’s Living Foods is doing exactly that. Speaking to BevNET, CEO GT Dave explained that CBD had been on his radar for several years; it was originally intended to be part of the brand’s Alive line of adaptogenic teas in 2017. He said the ingredient fit with his company’s concept of approaching food as “plant-based medicine,” with Dream Catcher being marketed as a way to support “being the best version of yourself” through reduced anxiety and mental clarity.

“As far as brand promise and story, I believe that everything we do at GT’s is designed to uplift and inspire people,” he said. “We made an effort to honor and respect CBD itself and how it’s supposed to be consumed and with what.”

Like other beverage makers in the space, Dave said he thoroughly vetted potential supplier partners before deciding on one. And though he declined to name his source, other brands have taken a different approach. To launch its CBD-based line extension, lemonade brand Honeydrop partnered with Colorado-based EvoHEMP. Speaking to BevNET, Honeydrop CEO David Luks explained that the brand is leveraging the supplier’s reputation to lend credibility to its product by prominently featuring EvoHEMP’s logo on product packaging. “That helped give us credibility with retailers and distributors,” he said. “Within two or three years, it’s going to be hard to develop that credibility in CBD if you are a brand already trying to come in with an adjacent product.”

Consumers aren’t the only ones facing a choice when it comes to CBD and hemp-infused beverages; distributors are also seeking to partner with brands that they believe in to help them prove the category’s long term potential. Speaking to BevNET earlier this month, LA Distributing co-founder Richard Medina said his company, which distributes VYBES in the Los Angeles metro area, values brands with a singular focus.

“Right now, it’s about looking for a brand that is built around CBD, that wants to be the CBD brand,” he said. “What we’ve been seeing is a lot of brands that have been built in a different category and are launching CBD line extensions. We really want to see a brand that is focusing on CBD — everything about it is CBD and they aren’t venturing away from that.”

Indeed, as the CBD and hemp space quickly grows crowded, many predict that credible and efficacious products will ultimately win the day, regardless of whether they come in the form of line extensions or startup brands.

“CBD is a buzzword but retailers don’t want to pick up products that are just ‘fairy dusting’ it because they don’t want to be known as the retailer selling bogus products or they don’t want to tarnish the reputation of CBD so people won’t appreciate it in six to 12 months,” Dave said. “I think when we jumped into the market with a well thought-out, developed, branded, curated and formulated product, it gave doubters more confidence that what we are making it legitimately.”