THC Beverages: Demographic Opportunities, Regulatory Challenges & Brand Differentiation
This growth strategy marketing example is unexpected, mainly because of the product category involved: THC beverages. Companies must see much profit potential from consumers, because it’s a product that’s challenging to produce both technically and within the regulatory environment.
I was recently in the liquor store looking for some makgeolli, a delicious Korean rice wine, when I stumbled on something that surprised me: THC beverages. In Boston, where I live, up until recently I had never noticed these products in liquor stores. Though there seem to be plenty of dispensaries (I knew marijuana had gone mainstream when there was a dispensary on Newbury Street, a mile-long stretch of fashionable shops and restaurants beloved by tourists and locals alike), I never thought I would see a THC product in a liquor store. But there they were, looking very similar to hard seltzers: a variety of beverages infused with a variety of cannabinoids.
THC beverages are not just sold in Boston, which after all sits next to the People’s Republic of Cambridge in one of the bluest states in the county. Marijuana is legal for recreational use in 24 states. And it seems that cannabis may be taking up space that was once occupied by alcohol, not just on liquor store shelves but also in the beverage market: alcohol use is declining among consumers aged 18-34. During the pandemic, according to one poll, nearly half of people who had used cannabis before reported increasing their consumption of cannabis in order to decrease their consumption of alcohol. Adam Terry, CEO of Cantrip Beverages, writes on Twitter,
“I hear it from every alcohol distributor I talk to – cannabis beverages are disrupting the alcohol sector.”
Within the next decade, Fortune Business Insights projects the global cannabis beverage market to increase in size by about 2000% (though this article will focus on the United States).
So, cannabis beverages are bursting onto the beverage market, and a strategy is needed to capitalize on this explosive growth. What are some of the considerations for these companies, when it comes to implementing growth strategy marketing? Below, I discuss three considerations which should shape market strategy in the THC beverage industry.
- Opportunities presented by Gen Z generational changes: the young adult demographic is driving increased demand for cannabis.
- Regulatory challenges faced by the cannabis industry as a whole, including the fluidity and variability of state and federal regulations.
- Growth strategy marketing in the cannabis beverage industry should involve some brand differentiation through use of different cannabinoids, which also presents opportunities to overcome some regulatory hurdles.
Cannabis Growth Strategy Marketing:
Gen Z Demographic Opportunities
As you can see in the below chart from Gallup, the percentage of adults who answer yes to the question: “do you smoke marijuana?” has doubled. What is most significant for the future market of cannabis beverages is the fact that, according to a University of Michigan study,
“marijuana use in the past 12 months and past 30 days among young adults has reached the highest levels ever recorded.”
“Young adult” here means someone from ages 19-30. This includes the youngest Millennials and adult-age Gen Zers. THC beverage companies can be aggressive in their growth strategies as they reach this younger customer base, who, as mentioned earlier, are also drinking less alcohol: the same University of Michigan study reports “historically low prevalences” of alcohol use, “decreasing over the last ten years.”
All in all, this means that we can probably expect the US cannabis market to grow or maintain its size. The decreased use of alcohol is especially promising for cannabis beverages, as people who cannot or do not want to drink alcohol might use THC beverages as a way to join in the fun socially without consuming alcohol. Unlike an edible or a joint, THC beverages can replace alcohol on a 1-1 basis.
Cannabis Growth Strategy Marketing:
Regulatory Challenges to Growth of THC Beverages
While these demographic trends are promising for the growth of the cannabis industry, growth strategy marketing for THC beverages must address the regulatory challenges faced by the industry as a whole.
The main regulatory challenge is perhaps the sheer variety of regulations, and the way in which they are changing quickly. While cannabis is still illegal at the federal level, states have been legalizing cannabis for recreational use over the last decade, but this has produced a patchwork of regulations. Writing for lexology.com, lawyers from the firm McDermott Will & Emery explain that the regulations surrounding the sale of cannabis beverages vary widely between states, and are not always well-defined within individual states. They write:
“on the one hand, several states, including Minnesota, have expressly legalized the inclusion of hemp-derived cannabinoids in beverage products, with clear regulations regarding testing, labeling, advertising and more. On the other hand, some states have legalized hemp beverage products but lack a robust regulatory framework – leading to a mostly unregulated, laissez-faire market.”
Growth strategy marketing in the cannabis beverage industry must account for these diverse regulatory frameworks, if a company is to operate between multiple states. Furthermore, operating in a state like Minnesota might make initial growth lower-risk. On the other hand, it may be possible to operate at a lower cost in other states where the regulatory framework is less clear and therefore more laissez-faire, but this might be more risky because new regulations could alter the situation.
The regulatory status of interstate sale of THC beverages is similarly hazy. Lawyers at ArentFox Schiff write:
“California, Oregon, and Washington have all enacted laws allowing their governors to enter into agreements with other states for the interstate sale of marijuana”
However, two out of these three states will only allow the interstate sale of marijuana if the federal government legalizes it, and the third stipulates that “such interstate commerce will not result in significant legal risk to the State of California.” Interstate commerce is, of course, usually regulated by the federal government, which is why currently the interstate sale of THC beverages is impossible.
The strength of growth strategy marketing opportunities for THC beverages ultimately depends on brands’ ability to respond to these regulatory challenges.
One opportunity for product improvement that THC beverage companies currently cannot employ due to regulation is to infuse alcohol with THC. Alcohol-infused THC might be attractive not only because some consumers like to get “cross-faded,” but also because THC is a nonpolar compound (not soluble in water- this is why you typically think of a “pot brownie:” the cannabis is infused into the fatty butter).
Currently, THC beverage companies must use nano-emulsion to create a water-based THC beverage, but THC is soluble in alcohol. If they were allowed to infuse THC into alcohol, this would likely simplify the manufacturing process, decreasing cost or increasing quality. This growth strategy is currently impossible due to regulatory issues. However, if the law were to change, there could be great economic opportunity: this suggests the importance of flexibility in such a dynamic environment.
Cannabis Growth Strategy Marketing:
Varied Cannabinoids Overcome Regulatory Issues, Differentiate Products
While regulation does pose challenges, it can also foster innovation. In the cannabis industry, this innovation creates the opportunity for product differentiation. According to a 2023 study in the Journal of Cannabis research, the 2018 Farm Bill:
“…removed the cannabinoids in hemp from the definition of marijuana in the Controlled Substances Act and defined hemp as containing less than 0.3% ∆9 THC by dry weight… [as a result] loopholes quickly emerged, such as ∆8 THC, another psychoactive compound much like ∆9 except with less potent and long-lasting effects… Since it is a natural component of hemp, provided that products containing it have less than 0.3% ∆9 by dry weight, they can contain as much ∆8 as they want. Some states have taken action to stop the sale and distribution of ∆8 THC … but new loopholes (for example, the increase in products with hexahydrocannabinol… are identified more quickly than lawmakers can close them.”
In other words, the 2018 farm bill sanctioned hemp products with less than .3% ∆9 THC by dry weight. As a result, people started selling hemp products that contained less than ∆9 THC, but plenty of other cannabinoids. The reason this still works is that there are many compounds similar to ∆9 THC which also have psychoactive effects and bind to the cannabinoid receptors (which are located in the brain and throughout the body). This is a good example of the way in which regulation can produce innovation: the 2018 Farm Bill incentivized companies to explore more types of cannabinoids.
For the cannabis beverage industry, the variety of cannabinoids poses two growth strategy marketing opportunities.
- First of all, cannabis beverage producers can exploit the 2018 farm bill to expand business into states which normally do not allow marijuana, as long as they use other cannabinoids.
- Second, the proliferation of different cannabinoids with slightly different effects presents an opportunity for brands to differentiate themselves.
In an article in Wine Enthusiast, the CEO of Keef Brands Travis Tharp is quoted as saying:
“Purpose-driven products are the wave of the future… We’re starting to see beverages move beyond THC to incorporate lesser known, but therapeutically promising, alternative cannabinoids.”
These different mixes of so-called “minor” cannabinoids, all with different effects, can serve to both draw in more customers who might not be interested in the most psychoactive qualities of THC, and to differentiate new THC beverages from existing options.
Growth Strategy Requires Diverse Knowledge. Insight to Action Can Help.
The business considerations around THC beverages range from the chemistry of the THC molecule itself, to regulatory hurdles, to understanding changing consumer preferences. Furthermore, as we have seen, all of these factors influence each other: changes in the law can drive chemical innovation and alter consumer preferences.
The founder of Insight to Action, Michal Clements, has 30 years of experience in the food and beverage industry and in bringing together all of these considerations. The entire team is geared towards understanding the most important factors that influence a business in order to develop a market strategy that makes sense. For more information on growth strategy marketing, customer segmentation, positioning strategy, and more, see Our resources page. We also offer a newsletter, your go-to source for the ever-evolving world of market strategy. Furthermore, we would love to speak with you during our office hours.
