While the THC beverage market remains a sliver of the overall cannabis industry, it’s possible that summer 2023 could one day be seen as a turning point for the category thanks to the legalization of mainstream sales for hemp-derived drinks in Minnesota, as well as a recommendation this week by the federal Health and Human Services Department that cannabis be reclassified from a Schedule I to a Schedule III drug so it can be opened up for research.
However, the North Star State isn’t the only place in the country where you can find Delta-9 THC beverages outside of dispensaries – trendsetting California retail chain Erewhon is also now offering intoxicating drinks (for those 21 and over) in its stores, beginning this year with Colorado-based brand Weller, which debuted its line of THC-infused sparkling waters last year.
We caught up with Weller CEO John Simmons to learn more about the brand’s experience in both Erewhon and Minnesota and about how hemp-derived THC is breaking out into the mainstream.
The following interview has been edited for length and clarity.
Weller is now selling THC beverages at Erewhon. Can you tell me about how that opportunity came about? What’s the impact of having a high-visibility retailer like that carrying cannabis drinks and what does it mean in terms of Erewhon’s overall strategy?
We had created a line of THC beverages to launch in dispensaries back in 2022 and we put a lot of time and effort into formulating what we thought was a uniquely positioned, all natural line of THC-infused beverages that had no preservatives and botanicals that would mimic certain effects of different marijuana strains. As we got closer to launch we decided not to go into dispensaries for a couple of reasons: one being that low dose beverages don’t sell very well in dispensaries. Most of the beverages that are sold in dispensaries are high potency – 100 milligrams – and I think what we learned was that our target consumer was shopping in places that sold hard kombucha and better-for-you, low-ABV alcoholic beverages.
When we learned more about Delta-9, we realized that we had the experience in working with emulsion technology and cannabinoid water solubility. Then we saw Delta-9 exploding in Minnesota and we realized that we could quickly pivot those beverages to hemp-derived THC.
We took a cooler with some products to Expo West this year and set up a handful of meetings just to explore what the interest level would be with some of our key retailers. So over dinner one night at Expo West, we’re having dinner with Ana Yoo from Erewhon. I’d worked with her and our VP of Sales, Megan, had worked with her when she was at Whole Foods and when she was at Thrive Market, back when I had Third Street Chai. So there was some goodwill with our relationship. We started talking about this THC innovation that we had with Ana and her team and our brokers at dinner, so we got her samples.
We launched in late July. It was the first hemp THC product on their shelf and it fit in a couple of stores in the alcohol set, but in most of the stores it’s in the functional beverage set. It’s age-gated, 21+, which is something that we print on the can and something that is mandated in some states. But, I think with Erewhon, it was a chance for us to learn how consumers will react to it, and to gauge demand with that specific set of consumers and their shopper demographic. For Erewhon, it was a chance for them to learn as well if this is something that they should include in their sets, if it was exciting for their consumers.
How does this work from a regulatory standpoint? Where is the California market for hemp-derived THC drinks at the moment in terms of this ability to distribute and sell?
Every state is different and what we’re doing with our THC launch is we’re shipping to distributors in six states and we are paying close attention, along with our legal team, to regulations that are either developing or in process. We’re participating in feedback sessions, along with other beverage companies, to see if we can add clarity and information to the dialogue that’s occurring. But in California it’s legal and our distributors concur, as well as the retailers and their legal review, and so far everything’s been going fine. But New York has had some recent regulations that are going to be prohibitive to what we’re doing, and I think you’re seeing that some of these regulations also have the potential to negatively affect all cannabinoids, including the CBD market.
How does the burgeoning mainstream market for THC beverages compare to the opportunities for CBD today? Is the regulatory environment easier or harder to navigate?
The lack of action by the FDA has hurt the entire industry, I think that’s abundantly clear. Many retailers are looking for guidance in terms of [whether] this is FDA approved and by what guidelines this industry is going to be regulated. We’ve been waiting for that, and a lot of states have created those guidelines by themselves in a vacuum.
The CBD industry overall has been down, as reported in SPINS. However, the bright light in the CBD industry has been CBD beverages, which were up 25% year-over-year, according to the most recent data. So CBD beverages are still finding loyalty and repeat purchase velocities that are very healthy for the entire beverage category. But I think that the overall CBD category being down casts a long shadow over the entire industry, despite our subcategory seeing some very healthy growth.
Talking about consumer interest in CBD, how has that evolved? What opportunity is there to grow consumer interest given it’s been several years now since CBD beverages first entered the market.
Consumer interest has waned in terms of bringing in new consumers. I think that is because it’s less available where they shop. Some retailers continue to go strong with CBD, so you have a loyal customer who this works for and they find it important in their daily life, but you don’t see new adoption.
Your mainstream retailers like Whole Foods or Costco, if you will, need to be able to continue to introduce the product to new consumers. There’s also been some negative press that the category is faltering as a whole, so with the lack of FDA clarity and guidelines we won’t see the adoption and household penetration that’s necessary for these functional ingredients to break through.
Switching back to THC, Minnesota is pioneering mainstream sales for hemp-based THC drinks. Are you selling there now? What’s your read on that market?
We’ve been selling our CBD beverages in Minnesota for a long time. It’s our current distributor who picked up our THC line, so we do have some cross-channel brand recognition in that market. And that is a very healthy market in a lot of ways. Even though on a federal level we’re going to see a roller coaster for THC beverages for quite some time, at the end of that process I think we are going to see something that looks like the Minnesota marketplace.
There’s real value in having a low-potency THC beverage set at a place where people buy alcohol, whether it’s liquor store, or on-premise, because it’s just an overall healthy way to reduce alcohol consumption. I think Minnesota is a glimpse of the future, it’s just going to require a lot of patience and it’s going to require some real clarity and hard work on the advocacy groups to see that it is brought to market in a responsible way, not in this Wild West Delta-8 unregulated, untested, non-age-gated way that you’re seeing in places like New York City. That’s where we get the backlash.
On that note, how wide is your distribution for the THC line in Minnesota? How large of a footprint have you built?
We’re in some co-ops, we’re in liquor stores, and we’re in some on-premise accounts. I don’t have a store count at the moment, but I do know that we have healthy distributor orders and reorders.
Although it is, by most accounts, looking like a saturated market, because of how that market has embraced this subcategory there’s a lot of local players with local distribution. I don’t know what the overall saturation point is going to be, but the reports are extremely positive. You’re also seeing adoption from some fairly large retailers: Cub, Total Wine, and some other larger retailers that are looking at this and are having great success with it, not just from a trial but from a repeat purchase sell-through point of view.
The alcohol consumer is the target. Where we’re having some friction is within the cannabis world, where the marijuana industry has been somewhat adversarial to the hemp-derived THC world. Which is unfortunate, because we don’t see hemp beverages as cannibalizing marijuana sales from dispensaries.