The growing concern over calories and hangovers is driving more millennials to replace alcohol with cannabis in their social life — a trend that pushes investors to increasingly eye the infused beverage industry as an opportunity.
A recent Monitoring the Future research found US millennials drink far less alcohol than previous generations: The percentage of college students who drink alcohol daily declined from 6.5% in 1980 to 2.2% in 2017.
By contrast, there was a significant increase in daily marijuana use among young US adults, especially during 2019, the research further revealed, resonating with the gradual legalization of medical and recreational marijuana across the country.
So far, 11 states have legalized marijuana for recreational use with 33 states in total allowing it for medical purposes. Illinois became the latest state to legalize marijuana for recreational use after Governor JB Pritzker singed a bill into law last June.
Financial services company Cowen predicts the sales of recreational cannabis in the US will increase more than 700% from $6 billion in 2016 to $50 billion in 2026, prompting beverage companies of all sizes, such as Ceria, to tap into the space to grow their profits.
Keith Villa, the creator of Blue Moon Brewing Company, launched Ceria in 2018 – a company produces a cannabis-infused and non-alcoholic craft beer brand Grainwave. Breweries that manufactures similar products include Colorado-based New Belgium Brewing and Dad & Dude’s Breweria, as well as SweetWater Brewing Co. of Georgia.
Several mainstream CPG heavyweights, including Coca-Cola, PepsiCo and Mondelēz, also reportedly consider launching infused food products, but nothing so far has materialized.
Lagging growth projections
These existing infused beverages in the market, however, do not appeal widely to consumers who are already frequent cannabis users, at least according to Jake Bullock, co-founder of cannabis-infused social tonic startup Cann.
“As a result, the mainstream consumer is not entering the market as quickly,” he wrote me via email, stressing the cannabis industry has lagged the growth projections many analysts and companies have made.
“It is clear that cannabis is here to stay and will only continue to penetrate existing markets and new states over time,” Bullock added. “Products like Cann bridge that gap by providing a product that is approachably dosed, delicious tasting and fits easily to existing social behaviors.”
The other element that prevents more people from exploring THC-added food is their confusion with CBD products.
The other co-founder of Cann, Luke Anderson, notes many consumers who are curious about cannabis turn to CBD to explore the plant, but often time, they don’t know the difference between the cannabinoids.
“This has created a lot of confusion in the market, with people thinking they would ‘feel something’ after trying a CBD-only product and not being able to tell what was physiologically happening versus a placebo effect,” he said.
“This experience may have discouraged people from exploring micro doses of THC, which are quite safe but give you a very palpable buzz. While CBD products play in a crowded health and wellness segment of grocery aisles.”
Anderson said his company has aimed to reshape the alcohol industry with a small amount of THC in each can since it was first launched about a year ago.
Cann prides itself in balancing 2 mg of sativa-dominant hybrid THC and 4mg of CBD to provide a “sessionable experience” without high calories and the hangover.
“After launching the product in Los Angeles last summer, we can barely make enough cans to keep up with the growing demand,” Bullock said. “In the fall, we began expanding statewide to Northern California and San Diego … We are also exploring the launch of our social tonics in new state markets in 2020.”
VC fund Imaginary-led $5 million seed funding
The growth of Cann will be supported by its newly raised $5 million seed funding led by VC fund Imaginary, which has previously invested in multiple fast-growing CPG brands, including frozen superfoods startup Daily Harvest and Cerebelly, a brain health-focused baby food company.
Other investors who helped to raise the money include private capital growth fund JM10, Global Founders Capital, Navy Capital and Brian Spaly.
Cann believes Imaginary’s investment speaks to its potential to become the first cannabis company that crosses over into the mainstream food and beverage industry by providing a better social beverage option for people looking to reduce their alcohol consumption.
“If you look at Imaginary’s portfolio, you see a collection of beautifully designed brands that addresses a very visceral pain point for the modern consumer,” Anderson said.
“Most people want to drink less alcohol but haven’t found a substitute they’re satisfied with before Cann, so it fits right in,” he added. “By helping us think like Daily Harvest … we are able to stay focused on solving our core consumer’s problems rather than getting distracted by trends in the volatile cannabis channel.”
Cann’s future growth will be mainly driven by product innovations with its new no sugar-added SKU hitting the shelves in February.
“We’ve formulated a lengthy list of limited-edition flavors, and there’s an exciting caffeinated concept we can’t wait to bring to market,” Anderson said. “We’ll also offer pack size innovations geared towards value and convenience that will significantly broaden Cann’s usage occasions.”