Cannabis Beverages Are Bubbling Up in Legal Markets

Executive Summary

Cannabis beverages are quickly becoming one of the most interesting niche categories in cannabis. This report covers the ins and outs of this category, looking at overall growth over time, seasonal trends, price movement, consumer flavor preferences, and the the category’s sub-segments. It offers insight to anyone interested in how consumers are using Beverages, as well as anyone interested in producing and selling them.

Introduction

When cannabis was first legalized, few people thought they’d eventually be reaching for cannabis-infused bubbly water. Now, stoney soda water isn’t just a reality, it’s being produced and marketed by none other than Lagunitas Brewing Co., one of the biggest names in craft brewing. Obviously, cannabis beverages are entering the mainstream.

But before Lagunitas entered the market, there were plenty of producers in legal states tinkering with drinkable pot, like Washington’s Mirth Provisions or Colorado’s Dixie Elixirs. While beverages aren’t a massive share of the market, they are a category that displays consistent growth. 

The market share of edibles grew about 0.5%, give or take, in each state, between 2017 and 2018. No state’s Beverages market commands more than 2% of the overall market share, but that will likely change by next year. The general trend among consumers is shifting away from Flower and traditional, combustion-based methods of consumption to more niche products. Vape Pens, Capsules, and Beverages all benefit from that.

Within the Beverages category, we see some clear consumer preferences emerging. Certain beverages do better in certain seasons—hot chocolate isn’t exactly a summertime classic—and consumers in different states gravitate towards different flavors. Whether those state to state differences will remain as the cannabis industry becomes a nationwide one is an interesting question, but they’re there for now. We also see significant differences in what sub-segments are popular in each state, likely influenced by which brands have become entrenched there.

Beyond that, there are some noteworthy generational and gender differences in Beverages, and a few interesting notes about prices. While most prices are stable across the states, we see spikes in certain segments in certain states. Again, likely due to which brands have a hold on the market.

Overall, the category has a lot of insight to offer. Trends in flavor should be interesting not just to people looking to make the Coca-Cola of cannabis, but anyone who makes an edible cannabis product. While consumer preference for fruit punch flavors might not translate to, say, brownies, it’s definitely useful to have a broad understanding of the prevalence of citrus flavorings. Data for Beverages also highlight just how pronounced seasonal trends can be, another phenomenon that affects the entire cannabis market. Needless to say, information in this study should be of interest to alcoholic beverage and soft drink manufacturers outside the cannabis industry. We hope you’ll leave with a better understanding of not only how consumers approach Beverages, but how they approach the cannabis market as a whole.

Methodology

Data for this report comes from real-time sales reporting by participating Colorado, Nevada, and Washington State cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. This report is based on data collected from retailers on in 2017 and 2018. That data is cross-referenced with our catalog of over 310,000 products to provide detailed information on market trends. 

Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.

Beverages Are Burgeoning

Across all three states in this report—Washington, Colorado, and Nevada—the total market share for beverages grew by at least 0.5%. In Nevada and Washington, it was .6%. This might sound like peanuts, but Beverages make up between 1-2% of the overall market in each state, so a full half percentage gain is a big deal. This is consistent with a steady, gradual shift away from flower as the primary focus of the cannabis industry. Specialty categories like Beverages aren’t becoming ubiquitous by any means, but they are gaining ground. They enjoy their greatest popularity in Washington, where they make up 1.9% of the market, as compared to 1.4% and 1.2% in Colorado and Nevada, respectively.

Tis The Season…For Cannabis-Infused Cocoa

Another interesting aspect of the Beverages category’s growth is that it is very, very seasonal. Sales are relatively slow from January to May, and then begin to skyrocket in the summer, when ice-cold infused soft drinks start to sound really, really good. Sales climbed even higher in the tail end of 2017, perhaps due to the holiday boost. Data up to June 2018 match the previous year’s trends so far. Breaking down this trend a bit further, we see that it is somewhat driven by seasonally themed products. Both Iced Tea and Lemonade products and Tea, Coffee, and Hot Cocoa products show low growth in January, when retail is slow across the board. But Iced Tea and Lemonade products bounce back first, and growth remains solid all the way through until September. Tea, Coffee, and Hot Cocoa products, conversely, grow very little throughout the year, but see a massive spike in November and December. Apparently people are leaving Santa something a little more special than just milk nowadays.

Gen X and Juice

Surprisingly, Millennial consumers do not dominate the Beverages category. Only in Nevada do they account for more Beverages market share than Gen Xers—1% to 0.7%, respectively—but Baby Boomers there still buy more at 1.2%. In both Colorado and Washington, Gen Xers and Baby Boomers both buy more than Millennials, which is very much the opposite of how things go with Flower. Even the Silent Generation, not known for their cannabis spending, outpace Millennials in Nevada and Washington. This suggests that increased consumer interest in niche consumable and topical categories will not be driven by Millennials, who seem to prefer Flower, Vape Pens, or Concentrates. Also going against the grain here is the fact that women tend to outspend men on Beverages in all three states, which is not the case for the cannabis industry as a whole.

Conclusion

Beverages are definitely a category to watch, especially as the market develops and flower’s dominance begins to erode. While flower is a huge part of cannabis’ heritage, the popularity of Edibles, Topicals & Tinctures, Vape Pens, and other non-combustible categories continues to grow. Beverages is definitely poised to join that list. It’s also an interesting category because it is currently so small. At less than 2% of the total market in most states, there’s a ton of room for expansion. And it is expanding, as evidenced by those 0.5% or higher leaps in market share. The market seems to be most established in Washington State, with the largest overall market share. However, Colorado has very solid segment diversity, which suggests that consumers are open to Beverages.

Segments are especially interesting in Beverages, because they tell us so much about how consumers respond to these products. When cannabis beverages first appeared, and were largely limited to sodas and the occasional infused Keurig cup, consumers just bought the mas a novelty. Now, with a broader array of products, seasonally appropriate beverages are finding their niches. A cup of infused hot cocoa sounds horrible in July, but can you imagine anything better on Christmas morning, amidst the maelstrom of wrapping paper?

Because segmentation hasn’t occurred as much in Washington or Nevada, those markets are ripe with potential for entrepreneurs in segments outside of the respective top sellers: Carbonated/Elixirs and Syrups. Flavor will also be an interesting aspect of the industry, as most Beverages products aren’t marketed by flavor, except in Washington, where sodas dominate the market. The flavor data from Washington might be instructive to anyone looking to tap into the soda or fruit juice market in other legal states, as it is likely a much better reflection of what flavors consumers prefer in those segments. Of course, any coffee entrepreneur will tell you that their flavor wheel is Just as complex, if not more, but it will likely be awhile before we see infused artisan roasts.

That said, a market with space for such things is clearly coming. Beverages aren’t going to singlehandedly transform the way we consumer cannabis, but trends within the Beverage category can tell us a lot about shifting consumer interest. People are starting to branch out past what they can put in their bongs or pipes, and smart cannabis entrepreneurs are lining up to provide them the alternative products they want. Beverages very much included.

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