Why Are Alcohol Companies Getting Into Cannabis?

Are cannabis-infused beverages the next big thing? As more and more businesses look to capitalize on the “budding” marijuana market, some of the world’s leading alcohol distributors are experimenting with non-alcoholic drinks that provide flavorful new delivery systems for THC and CBD.

Some of these manufacturers are spending hundreds of millions of dollars on market research and production, and if they have their way, canna-beverages may soon be as abundant in your local dispensary as pot brownies and CBD oil.

Major Producers of Cannabis-Infused Beverages

Not surprisingly, the majority of large producers are alcohol companies. Molson Coors Brewing Company has announced plans to produce cannabis-infused beverages with The Hydropothecary Corporation, one of Canada’s leading cannabis producers. The two organizations have formed a standalone company, Truss joint venture, to focus specifically on cannabis-infused drinks like water, hot beverages, and beers. Molson Coors CEO Mark Hunter anticipates that beverages will soon account for 20-30% of the cannabis market—the current market share is only 2-3%.

Constellation Brands, the Fortune 500 alcohol producer behind Corona, Modelo, and more than 100 other brands, has invested over $4 billion to purchase a minority stake in Canopy Growth Corporation, another leading Canadian cannabis brand. Constellation now has a 38% stake in Canopy, and the two companies are working to produce cannabis-infused beverages and sleep-aids in Canada as soon as fiscal 2021.

Anheuser-Busch InBev is also getting involved. The organization has entered into a $100 million partnership with Tilray, a Canadian cannabis company, to research non-alcoholic cannabis drinks for the Canadian market. Much of the research is focused on the viability of cannabidiol (CBD) as a beverage ingredient.

Lagunitas Brewing Company, which is owned by Heineken, has launched Hi-Fi Hops, a non-alcoholic “hoppy sparkling water” with 10mg of THC per serving. Hi-Fi Hops contains no alcohol but is high in THC. There’s also a CBD-infused version of the beverage.

Smaller alcohol producers are also entering the game. Humboldt Distillery in Northern California now offers “Humboldt’s Finest,” an 80-proof vodka infused with hemp and aromatic terpenes. Though the product contains no THC, it does contain other cannabinoids like CBD to complement the high alcohol content.

So what’s behind the trend? It’s worth noting that none of these products actually contain alcohol, as the combination of alcohol and cannabis is often subject to tighter restrictions than cannabis on its own. Still, the cannabis beverage market is already in full swing—largely fueled by alcohol companies.

Why Are Brewers Pursuing Cannabis Beverages?

The cannabis market is currently valued at $40 billion and projected to increase to $80 billion by 2030. Alcohol businesses are uniquely poised to maneuver into this growing market because they already deal in adults-only intoxicants and can therefore branch out without risking their professional reputation. But there are other more specific motivations to consider as well.

Beer Sales Are in Decline

As marijuana legalization becomes more widespread, it appears that some long-time drinkers are shifting their focus to the herb. Data from Beer Canada reveals that beer sales have dipped by 3% since the country legalized marijuana one year ago. In U.S. states and cities with legalized cannabis, beer sales have dropped by as much as 6.4%.

One 10-year study concluded that there’s a significant overlap between cannabis consumers and alcohol consumers. As these consumers spend more money on legal cannabis, they may be spending less on alcohol products as a result. Beer companies are seeing the writing on the wall, which may explain in part why they’re slowly breaking into the cannabis market.

Even if beer sales were still strong, alcohol companies aren’t going to miss out on a golden opportunity. As previously noted, there’s a significant overlap between cannabis customers and alcohol customers. This overlap allows companies to tap into a new lucrative market.

Alcohol buyers, in general, aren’t looking for refreshments. They’re looking for something that will help them relax, something that will take the edge off, and something that they can bring to the party to enhance the collective social experience. The same can be said of many cannabis buyers, so the product transition is an obvious choice for major brewers.

Cannabis Gives Brewers Access to New Customers

It’s not all about overlapping customers. Cannabis-infused beverages allow alcohol companies to reach other subsets of customers that might not otherwise buy from them.

One example is medical marijuana patients. Consider that over half of medical marijuana patients are over the age of 40 (more than a third are over 50), but alcohol consumption declines as people get older. Cannabis-infused beverages give patients the option of consuming cannabis in an easy, familiar way, without having to mess around with smoke or vape products.

That’s not to say that younger consumers aren’t also a key demographic. College-aged young adults make up an especially promising market for these products, as research shows that Gen-Zers and younger millennials are consuming marijuana in greater numbers than ever before.

A recent report from the American Academy of Pediatrics found that nearly half of college-aged Americans consumed marijuana within a 12-month period. If alcohol distributors can successfully capitalize on this popularity within the beverage market, it may prove to be a goldmine.

Cultural Acceptance of Cannabis Is on the Rise

Support for cannabis legalization continues to grow and reached an all-time high in 2019, according to Pew Research. In the organization’s most recent survey, a staggering 67% of respondents expressed support for legalization.

One of the key arguments promoted by cannabis supporters is that marijuana is safer than alcohol. There are a number of points commonly used to support this argument.

• Alcohol use contributes to approximately 88,000 deaths every year in the U.S., while death from cannabis overdose is virtually unheard of.
• Alcohol causes much greater long-term damage to the brain than marijuana.
• Alcohol appears to be far more addictive. Approximately 1 in 10 cannabis users becomes dependent, while nearly 13% of the entire U.S. adult population has an alcohol use disorder.
• Cannabis has been shown to have a number of useful medical applications whereas the minor medicinal properties of alcohol are often outweighed by the more significant risks.

While some of these points can certainly be debated and require more research, there does seem to be a growing public perception that marijuana is “better for you.” That perception coupled with the increased availability of cannabis may help to explain why beer sales are dipping and why alcohol companies are starting to diversify.

It’s very similar to how tobacco companies jumped on the e-cig trend. Tobacco sales have been plummeting in recent years just as e-cigarette sales have been surging, and surveys have shown that many younger Americans perceive vaping as harmless. Whether or not that’s true, it appears to be influencing the market share, and so tobacco companies like Altria (formerly Phillip Morris) and Reynolds America are shifting much of their efforts into the vape market.

Cannabis Appeals to the Health-Conscious Individual

For many users, marijuana isn’t just perceived as a safer alternative to cannabis. It’s seen as being actively beneficial in a number of ways.

• Marijuana, unlike alcohol, doesn’t cause hangovers, so a user can indulge heavily in the evening and still be ready to hit the gym and go to work first thing in the morning.
• Marijuana has been shown to work as a natural performance enhancer, which is why a lot of bodybuilders and endurance athletes love it. Drinking a cannabis beverage before a workout is far more discreet than smoking.
• Marijuana contains no calories, so it appeals to individuals watching their waistline and their BMI. Zero-calorie canna-beverages are a real possibility, whereas zero-calorie alcoholic beverages will never happen. Alcohol is made from fermented starch and sugar and contains seven calories per gram.
• Because THC is flavorless, it presents limitless flavor opportunities. With alcohol, the best you can do is diminish the ethanol flavor by diluting it and piling other flavors on top of it.

And of course, we’re seeing a major cultural shift in favor of natural medicines as opposed to addictive pharmaceuticals. Marijuana is at the forefront of this movement, and making it available in beverage form ensures a greater selection of options for health-conscious consumers.

Alcohol Companies Face Big Challenges With Cannabis Products

If cannabis drinks account for just 2-3% of the market, why don’t alcohol companies invest in other types of edibles instead?

Again, the issue isn’t just profit but profit potential. Some industry execs, like Molson Coors CEO Mark Hunter, are looking to increase the popularity of these drinks by as much as tenfold. They believe that the products’ limited reach has largely been a matter of limited availability and intense regulatory hurdles.

Up to this point, the differing regulations in each state have created a logistical nightmare.

Heineken’s Hi-Fi Hops, for example, is only available in select California dispensaries and must be consumed at home.

And even though Humboldt’s Finest contains no THC and is theoretically legal in all 50 states, many jurisdictions expressly forbid these types of products. This may be why it’s produced within the safety of California’s “Emerald Triangle,” the nation’s largest cannabis growing market.

Mass production for cannabis-infused beverages is still a long way off in the United States. This may be why companies like Molson Coors Brewing Company are currently focusing the bulk of their efforts on the Canadian market, where the federal laws are ostensibly more cannabis-friendly. But while businesses expected to start unveiling cannabis-infused beverages in October 2019 (when edibles became legal), there are still a lot of complicated provincial regulations causing delays.

In addition, the California Department of Health has cracked down hard on bars and businesses that offer cannabis- and CBD-infused cocktails, deeming it illegal to sell cannabis mixed with alcoholic beverages. Regulators don’t fully know the effects of mixing these two substances (commonly referred to as “crossfade”), and so they’re taking a cautious stance even in places where cannabis is legal.

There are also consumer-focused challenges to consider. For example, one challenge is producing a canna-beverage that is as fast-acting as alcohol. Nobody wants to wait hours to feel the effect and then be catatonic for the rest of the day—if you’ve ever over-indulged in a pot brownie, you know what we mean. The best canna-beverages will be those with an onset time of no more than 15 to 30 minutes and a buzz that lingers without overpowering. That means that businesses need to be especially mindful of their ingredients and cannabinoid ratios.

Cannabis-Infused Beverages Have Nowhere to Go but Up

If alcohol distributors can overcome the hurdles associated with varying regulations, consumer demand, and quality control, the cannabis beverage market may indeed become a major cash cow. But since beverages currently account for just 2-3% of the market, there’s still a lot of work that needs to be done.

Ultimately, it looks like these companies are trying to get in on the ground floor of what will soon become a major market. More states are legalizing cannabis every year, and it’s only a matter of time before these products are federally recognized. Rather than wait until the floodgates are already open, companies are investing in research and experimenting in small and large markets with legal marijuana.

The ultimate success of cannabis-infused beverages is yet to be seen, but if these manufacturers have their way, THC brews may soon be as popular as Bud Light—maybe even more popular if beer sales continue to dip.

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