Don't bogart that drink! That's what cannabis consumers are saying with increasing frequency as beverages containing THC (the psychoactive chemical in cannabis), and other cannabinoids (such as the popular CBD) that may offer consumers therapeutic benefits, are taking the cannabis industry and, to a degree, the beverage industry, by storm.
This has even led the CEO of Truss Beverage Co., a joint venture between brewing giant Molson Coors Canada and cannabis company Hexo Corp., to declare this the summer of cannabis-infused beverages.[1]
Beverages containing CBD derived from federally lawful hemp — cannabis containing less than .03% THC — are available for sale in virtually every state like any other drink, and are produced by drink makers of all sizes. Brands like Forth, Recess and VYBES are well known, and PepsiCo Inc. recently announced that it's adding CBD to its Rockstar Energy drink.
In contrast, though legal in some states, drinks containing THC derived from cannabis — cannabis containing .03% THC or more — are still federally unlawful, and are thus burdened by a unique regulatory regime that requires thoughtful planning by cannabis drink makers.
Why Are Beverage and Cannabis Companies Betting on Cannabis Drinks, Even As Legal Questions Remain?
The short answer is that cannabis beverages are making cannabis more attractive to more consumers than traditional cannabis product offerings because consumers increasingly view them as an alternative to alcohol beverages and products with higher THC potencies.
Michael Bronstein — the president of the American Trade Association for Cannabis and Hemp, which formed a beverage council that represents major players in the cannabis beverage space — told me:
The beverage category represents untapped potential for the entire category and in a form factor that is accessible to a consumer interested in cannabis but maybe isn't interested in smoking or vaping.
Currently, in the 37 states, District of Columbia, and various U.S. territories that have legalized cannabis for recreational and/or medical use, cannabis is sold as flower, i.e., cannabis buds or prerolled joints; tinctures; pills; ingestibles, such as gummies; vapes; and a variety of other forms, such as butter and wax.
State-licensed cannabis operators are constantly developing new strains of cannabis or product formulations with greater THC potency to appeal to the cannabis consumer looking to get high.
While high THC potencies may appeal to the avid cannabis consumer, they may not be attractive to new cannabis consumers, nor are they appropriate for certain social settings. Additionally, their current forms of delivery may not appeal to avid and new cannabis consumers alike.
Below are a few key reasons that cannabis beverages are a growing category in both the beverage and cannabis industries.
Health
Due to health concerns, smoking anything has really become a thing of the very distant past for the vast majority of Americans. And, since the vaping crisis in 2019, when lung injuries allegedly related primarily to tobacco and e-liquid vaping were reported, e-cigarettes and other vape products have experienced the same stigma.
Of course, even avid cannabis consumers are concerned about the health effects of smoking and vaping cannabis.
Cannabis beverages allow consumers a way to enjoy cannabis without the health risks related to smoking and vaping, and thus appeal to new and existing cannabis consumers who are looking for a healthier way to consume cannabis.
Self-Regulation
More and more consumers are finding that low doses of THC enhance their active lifestyles. However, the measurements and onset time of THC in other types of cannabis products, such as edibles, make their effects harder to predict, and the high THC content of other cannabis products limits their use to certain situations, such as those where getting high is the focus.
Cannabis drinks (which can now be made with fast-acting, water-soluble THC), consumed in tightly measured increments, allow for effective micro-dosing — i.e., ingesting very low doses of THC, and in moderation, to experience a mild physical and psychoactive effect, as opposed to the euphoria resulting from high-THC products.
Thus, cannabis beverages can be consumed by more people in more and different settings.
Discreet
Rare is the social event where someone is smoking or vaping tobacco, and even rarer in a social setting is someone smoking or vaping cannabis. The distinctive smell of cannabis is anything but discreet, and even in states where cannabis is legal, smoking cannabis in public is generally not allowed.
Cannabis drinks eliminate the conspicuousness of smoking cannabis. Thus, subject to laws allowing their consumption, they can be consumed anywhere other drinks are consumed without attracting attention to the consumer.
Given the above, it is no wonder cannabis drinks are attracting new cannabis consumers and are appealing to traditional cannabis consumers looking for better ways to experience cannabis.
Ben Larson, CEO of Vertosa, a cannabis infusion technology company in the beverage space, told me that cannabis's natural affinity to the beverage form factor "makes cannabis more accessible and approachable, and we find that it's a safe way for people to try cannabis for the very first time."
In addition to these social benefits, he points to the technical aspects unique to infused beverages: "The ability to sip a low-dose beverage paired with the fast onset and high bioavailability properties presented by the nanoemulsion technology" allows for a new, titratable cannabis experience.
Gallup has reported that every year since 1992, beer has been the most popular alcoholic beverage, and the percentage of beer drinkers is often double that of liquor drinkers.[2] Cannabis drinks are to cannabis products like beer is to alcohol products.
Just as beer, with its low alcohol content, appeals to more alcohol consumers than liquor, cannabis products, with their lower THC content, can appeal to more cannabis consumers than cannabis products with high THC potency.
Thus, it is not surprising that beverage companies like Molson Coors Brewing Co., Constellation Brands Inc. and Boston Beer Co. Inc. have gotten into the cannabis drink game,[3] as they may be betting cannabis consumption skews toward cannabis beverages the way alcohol consumption skews toward beer.
Which Regulations Are Pertinent to Cannabis Beverage Production and Distribution?
While cannabis beverages may be an obvious product line extension for beverage and cannabis companies, cannabis drinks face a gauntlet of federal and state restrictions not applicable to other beverages, the effect of which is to limit the ability of cannabis drink makers to roll out a brand of cannabis drink on a national or even regional level.
The limited distribution afforded to cannabis drinks means producers must be efficient in order to be profitable.
For example, as discussed below, the state-by-state differences in the regulation of cannabis make marketing cannabis products on a multistate basis extremely challenging.
Traditional models for distribution employed by the beverage industry, such as regional distributors and refrigerated trucks, are not easily transferred to cannabis drinks, which can only be sold in the state where they are produced, and through a limited number of retailers.
Consequently, cannabis beverage makers must invent a new production and distribution wheel that accounts for the unique regulatory regime under which they operate.
Federal Prohibition
The major impediment to the growth of the cannabis beverage segment is the federal prohibition of cannabis and the resultant state-by-state regulation of cannabis products.
While cannabis is still federally unlawful, it is legal for either medical or recreational use in 37 states, plus Washington, D.C., and various U.S. territories.
However, each such state, district and territory has issued its own jurisdiction-specific regulations that prohibit cannabis products manufactured in one jurisdiction from distribution in another.
The federal prohibition also affects cannabis drinks in many ways that will not be discussed in this article, such as by limiting cannabis drink makers with respect to banking, federal trademark protection, and potentially imposing different and more onerous taxes.
State Prohibition
While the number of jurisdictions legalizing cannabis increases annually, not all of them allow for cannabis beverages. Every jurisdiction that has legalized cannabis has restricted the forms in which cannabis can be sold.
For example, in Pennsylvania, which has legalized medical marijuana, cannabis beverages are not among the permitted forms. Likewise, in New Jersey, which recently launched its adult-use program and also provides for medical marijuana, cannabis drinks are not allowed.
Limited Retail Outlets
Even in states that permit cannabis drinks, the number of retail outlets in which cannabis drinks can be sold is limited to the number of cannabis dispensaries licensed by the state, and the number of such dispensaries that are willing to offer cannabis beverage for sale.
In California, for example, where there are more than 12,000 convenience stores, there are less than 1,000 retail cannabis dispensaries, and not all of them may sell cannabis drinks.
Inventory and Storage
Even in states permitting cannabis drinks, many cannabis dispensaries do not sell cannabis drinks because of the cost of doing so. Cannabis beverages might need to be refrigerated, and, as with other cannabis products, they may be subject to heightened security requirements.
In Illinois, for example, when a dispensary closes, it is required to store all cannabis in a reinforced vault room with restricted access to prevent diversion, theft or loss.[4]
Cannabis dispensaries may simply forego selling cannabis drinks to avoid the additional expense of offering them.
THC Serving Size Limitations
Another challenge for cannabis drink makers is state-by-state differences in THC serving size limits.
For example, in Washington and Oregon, a serving of a cannabis-infused beverage cannot exceed 10 milligrams of THC, and the maximum number of servings in a cannabis drink is 10 — or 100 mg of THC total — whereas cannabis drinks in Massachusetts cannot contain more than 5 mg of THC.
Consequently, a cannabis drink maker who wants to sell cannabis beverages in more than one state must either choose the lowest THC denominator, or be prepared to offer different THC formulations in different states.
Packaging, Labeling and Advertising
Each state that has legalized cannabis has regulations governing the packaging, labeling and advertising of cannabis products, and there are differences in such requirements from state to state.
Consequently, a cannabis drink maker might be forced to change its packaging, labeling or advertising from state to state, or take the approach of trying to account for the differences in state regulations with one-size-fits-all packaging, labeling and advertising that accounts for the regulations in a number of different states.
Branding and Licensing
If cannabis drinks are limited to intrastate production and distribution, how then do cannabis drink makers create a cannabis beverage that has national brand recognition? The key is licensing arrangements.
Cannabis drink makers are licensing their brands and formulations to cannabis producers in states where cannabis beverages are legal, and controlling production and distribution of their branded drinks in those states through such arrangements.
However, such arrangements must account for the differences in state cannabis regulations from state to state discussed above, as well as many more legal issues.
Conclusion
Cannabis drinks are growing in popularity. Given health concerns related to smoking and vaping, and the self-regulation and discreetness offered by cannabis beverages, they are attracting new consumers to cannabis and becoming the choice of existing cannabis consumers.
The way beer appeals to a wider base of consumers than high-alcohol liquors, cannabis drinks may appeal to a wider base of cannabis consumers looking for the mild effects of a low-THC product, as opposed to the psychoactive effects of high-THC products.
However, until the federal prohibition on cannabis ends or changes, cannabis drinks will be limited to only those states that have legalized them, and even in those states, they will be limited to only those retail outlets licensed and willing to carry them.
Cannabis drink makers navigating the gauntlet of applicable federal and state regulations, and the differences in regulations from state to state, must adopt efficient ways of doing so.
Beverage and cannabis companies that are already in the game are working out the kinks in their distribution models, so there are more and more cannabis drink offerings, and more and more cannabis drink consumers. Cannabis drinks may soon be coming to a dispensary near you.
Seth A. Goldberg is a partner and team lead of the cannabis industry group at Duane Morris LLP.
Notes
[2] https://news.gallup.com/poll/1582/alcohol-drinking.aspx.
[3] These Are The Top 5 Beverage Companies Investing In Cannabis | PotNetwork, https://www.potnetwork.com/news/these-are-top-5-beverage-companies-investing-cannabis
Boston Beer subsidiary to launch cannabis beverages in Canada through partnerships | Food Dive, https://www.fooddive.com/news/boston-beer-subsidiary-to-launch-cannabis-beverages-in-canada-through-partn/605879/.
[4] See 410 ILCS 705/15-100.
Reprinted with permission of Law360.
