Three reasons the CBD beverage market is exploding and driving innovation

While investors have yet to pin-down how big of a potential the recreational cannabis industry is, one of its segments is beginning to evolve: The CBD beverage market

1Mar

Beer, alcohol, tea, juice, coffee and even water laced with marijuana are shaping a rapidly growing space which could soon operate independently: The cannabis-infused drink industry.

This emerging space is on track to become a $600m market in the US in the next four years, according to estimates by analysts at Canaccord Genuity. Canaccord said the CBD-laced beverages will grow to a $260m market while THC-infused drinks will flourish to become worth $340m.

Here are three reasons why the cannabis-infused drink industry is the hottest market trend to place your bets right now.

Big companies are on a buying spree

The most popular names in the beverage industry are making the transition into the cannabis beverage space, indicating that the potential is now in the emerging sector.

In August 2018, Corona and Modelo maker Constellation Brands increased its stakes into Canadian cannabis company Canopy Growth by paying $4bn for a 38% ownership. This February, a group of analysts said Constellation Brand's stakes on Canopy Growth had strategically placed the company ahead of tough competitions in the booming market.

"We believe CGC/STZ will become a force in high margin consumables (i.e. cannabis bevs)," Wells Fargo analyst Bonnie Herzog said.

Meanwhile, Coca-Cola had reportedly engaged in negotiations with Aurora Cannabis in September, according to multiple sources. Unlike with Constellation and Canopy that are looking to develop weed-infused beer, Coca-Cola is reportedly interested in crafting beverages that will offer relief to some physical ailments. According to the sources, Coca-Cola also had talks with Leamington and Aphria as it explores more options.

This has also been the direction being taken by Heineken's Lagunitas with its THC-infused sparkling water. Molson Coors, meanwhile, created a joint venture with Hexo to craft marijuana-infused beer.

The cannabis-infused drink could be sold anywhere

Canaccord Genuity projects that revenue from cannabis-infused drinks can eat up the majority of the market compared with medical cannabis and other variants of recreational marijuana. The investment banking and financial services company said the new industry could dominate 20% of the marijuana edibles market by 2022.

The reason behind this could be availability. Medical cannabis could only be accessed in pharmacies provided a buyer could present a doctor's prescription. Other forms of recreational cannabis are only available in dispensaries which the licensing process could be extremely complicated.

A cannabis-infused beverage meanwhile could be sold in supermarket chains. This is the direction being taken by Aaron Keay, chairman of the Scottsdale, Arizona-based The Alkaline Water Co.

The Alkaline Water Co. is known for its Alkaline88, high-PH bottled water which carries many health benefits. The company has also been developing its A88 Infused Beverage Division of which product line includes Hemp-Derived CBD Infused Alkaline88 Water, Vitamin-infused CBD Alkaline88 water, Sparkling CBD Alkaline88 water. It is the fastest growing alkaline water company and fastest growing premium water brand in the US.

Currently, the company's flagship product, the unflavored Alkaline88, is being sold in all 50 states through 47,500 supermarket chains and grocery stores like Safeway/Albertsons, Walmart, Kroger and CVS. Once its CBD-infused beverage products begin rollout, the company could make them available in these supermarket chains. Its distribution network also comprises more than 150,000 stores, which include 9 of the 10 largest retailers in the US and two of the biggest retailers in the world.

"Do I just want to be a C BD player in the dispensary market? Absolutely not. I want to be a CBD player in the supermarket places, which we already dominate, and then branch out into more mainstream from there," Keay told Bloomberg.

In 2017, The Alkaline Water Co. generated nearly $20m in revenue. Keay said he sees revenue rising to $100m of which as much as a quarter will be delivered from its CBD products.

People are more willing to spend on legal cannabis products

One key driver of growth is that potential consumers of these pot-laced beverages are not shy spenders. In Los Angeles for example, consumers are paying an extra $5 to have a few drops of CBD in their tequilas, according to Faith Popcorn, founder and chief executive officer of BrainReserve.

Popcorn believes that the Baby Boomers would account for the majority of the market share in terms of consumption. After all, this demographic were the ones who had used marijuana back in the time when it was strictly illegal.

Nothing can stop the Baby Boomers from spending now given that many states have legalized cannabis. Millennials and Gen Zs would be next as they are the ones expected to enjoy an era where cannabis is largely allowed.

If legalization is, in fact, changing the behavior of consumers, then we could look forward to double or triple the market potential since the Agriculture Improvement Act of 2018 or Farm Bill has already been passed in December last year. The bill essentially widens the definition of what constitutes hemp. To be exact, the legislation redefines hemp to include extracts, cannabinoids and derivatives. The move took out hemp from the Controlled Substances Act.

Ricky Wright, President and CEO of The Alkaline Water Company said: "This is a significant step forward for consumers who are looking to access CBD and CBD-infused products."

People's willingness to buy legal cannabis-infused drinks is driving it to be the next big thing For instance, The Alkaline Water Company has seen massive growth last year.

"We have just closed our third consecutive quarter of accelerated growth with sales of $7.69m, a 102% increase in revenue as compared to last year," Wright said in a press release.

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