Cannabis Beverages: Fab or Fad?

Are cannabis beverages are poised to take over the market for intoxicating beverages from alcoholic beverages, or are they simply the latest fad set to give way to alcoholic beverages’ century of dominance? A decade ago, the question would have bordered on heresy and certainly not been worth printing in any credible publication. Recent years have witnessed an undeniable growth of cannabis beverages and a growing popular sense that the beverages may be a preferred alternative to traditional alcoholic beverages.

There is no doubt that cannabis use is on the rise among virtually all categories of Americans, but particularly the coveted younger markets. A recent study found that more young Americans consumed cannabis than alcohol. How concerned should alcohol companies be about this trend? Is cannabis the future or will it be regulated out of relevance?

The Choice of a New Generation?

In these evolving times, perhaps one relatable way to think about a consumer’s choice is to envision an average weekday night. The consumer is looking for something to take the edge off after work, something to help wind down after getting the kids fed and to bed, or maybe just something to sip while watching the big game or their favorite show. Historically, the answer was alcohol. Maybe beer, maybe wine, or maybe a preferred spirit. Times, however, are a changin’.

Increasingly, adults are choosing cannabis beverages over alcoholic beverages. The marketing strategy is pretty simple: This is a product that often has zero to few calories, little to no sugar, and—here’s the kicker—it doesn’t contain alcohol. All of that and yet it still provides a “buzz” that purports to offer at least a passable replacement for traditional alcoholic beverages. Basically, it’s a healthy alternative to what many are increasingly viewing as an unhealthy product. For the time being, many consumers seem to ignore that the research on the actual health benefits and the health risks of cannabis beverages is not nearly as comprehensive as the research on alcohol use and abuse.

The result: Cannabis beverages are the hot new thing, and they are a multibillion-dollar industry taking direct aim at the consumer base once taken for granted by the alcohol industries.

Wait, Are These Cannabis Beverages Even Legal?

Well now that you ask, that’s an interesting question. Beverages containing less than 0.3% delta-9 THC on a dry weight basis are not considered federally illegal under a piece of legislation known as the 2018 Farm Bill. The FDA has indicated in informal guidance documents that cannabis products should not be included in food or beverages, but to date the FDA has not initiated any enforcement action based solely on the presence of federally compliant cannabis in the food or beverage.

 

The biggest current legal threat to the growth of cannabis beverages is the combination of state-licensed marijuana companies and those who fear that the beverages will be unsafe or find their way into the hands of minors. State-licensed marijuana businesses operate under a regulatory microscope with prohibitive compliance costs and paralyzing tax rules. Cannabis beverages, on the other hand, have for years largely operated outside of any regulatory framework. Marijuana businesses understandably cried foul that their competition in the market for intoxicating products was not subject to the same rules. At the same time, there was an increased concern that unregulated cannabis beverages may be unsafe and target vulnerable populations with creative, sometimes nefarious marketing and health claims. The result has been a virtual assault on cannabis beverages in the legislatures of nearly every state. Some states have banned such beverages and others have made clear that the current law allows for them. This is a multibillion-dollar street fight happening in the halls of 50 capitols every session, and the end result is very much in the balance.

Adapt, Die, or Just Recognize the Trend?

So, what is the alcohol industry to do in the face of growing competition from cannabis beverages? There are a number of options, some of which can be taken in conjunction with others.

If you can’t beat ‘em, join ‘em? There’s becoming a big difference between whether alcohol companies in general will suffer at the expense of hemp beverages or whether simply alcohol consumption will. Even if the latter is true, the former is far from certain. Distributors that made their fortunes on alcohol distribution are increasingly adding hemp beverages to their portfolios in order both to offset any decline in alcohol sales and to capture the growing market for hemp beverages.

Although it may be be painful in the short term and there is no incentive for alcohol executives wanting job security, there is something to be said for waiting out this cannabis beverage boom to see if it dissipates over time. This dissipation could take a number of forms, such as consumers simply deciding they are no longer interested in cannabis beverages; if information comes to light showing an unflattering risk vs. benefit profile for cannabis beverages; or federal or state laws prohibit the products. In any case, alcohol companies would expect their portion of the intoxicating beverage market to rebound to some extent.