Herbal Profiles #67

Author

Lars Miller
December 13, 2024

Welcome Note

Welcome back Gardeners!

This week I asked y’all: You've never tried (or only 1 time) a THC beverage - Why?

This took me back to a recent conversation I was having with my sister at Thanksgiving. She tried about 3 different brands, she didn’t think they tasted horrible but she felt they weren’t good or enticing to want to drink a whole one. I have heard this a few times from beverages I think are great with or without the THC. Which makes me wonder, are we as an industry explaining what these drinks are and setting the proper expectations?

In case you missed it, I just launched a new podcast with David Gonzalez and the fifth episode was released last week with Lisa Hurwitz. So be sure to subscribe on Apple, Spotify, or wherever you get listen to podcasts. Also, be sure to rate us and maybe give the Youtube Channel a follow to if that’s your jam!

Just a heads up, The Free Spirits Podcast will be releasing 1 more episode in 2024 (next week) and then we will be regrouping for season 2 in 2025. Similarly, the Founder and Creator Spotlight’s will be making a return in 2025 as well.

The Happi Effect: Inside the Future of Functional THC Beverages with Lisa Hurwitz

Free Spirits with David Gonzalez & Lars Miller · Episode

open.spotify.com/episode/5Y2zARi1GAChHF87PeZDdH

Any comments or questions? Leave comment on this post or shoot me an email. Would love to hear from you!

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Hemp-Derived THC Beverages: A Growing Market at a Critical Crossroads

The hemp-derived beverage market stands at a pivotal moment, experiencing explosive growth while facing critical regulatory uncertainty. As Congress debates Farm Bill renewal, this emerging industry showcases both remarkable potential and significant operational challenges that could be addressed through thoughtful regulation.

Market Growth Defies Operational Challenges

According to market research firm Brightfield Group (via Sightlines), hemp-derived THC beverages have surged from 3.5% market share in 2023 to 11% in 2024. Industry projections suggest the segment will grow by $365 million over the next five years, reaching approximately $750 million. With a compound annual growth rate (CAGR) of 14.3% through 2029, it represents the highest growth potential across all cannabis and cannabis-adjacent products. For comparison, the next closest category - flower/pre-rolls - shows a projected growth of $275 million with a CAGR of just 7.7%.

This growth comes despite significant operational hurdles. Companies face restricted access to traditional distribution networks, with many carriers refusing to transport these products due to legal uncertainties. Even LTL (less than truckload) shipping proves challenging, as carriers worry about risking entire loads due to the presence of hemp-derived products.

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Consumer Adoption and Demographics

The consumer base for hemp-derived THC beverages is surprisingly diverse and sophisticated. While people in their 30s represent the highest usage, Brightfield's surveys reveal the fastest growth since 2021 has come from unexpected quarters: consumers in their 70s (+3.1%), 60s (+1.4%), and 20s (+1.3%). In the South, people in their 20s, 30s, and 40s all account for about +8% share over national averages.

This broad demographic appeal suggests these products are meeting various consumer needs:

  • Relaxation and stress relief

  • Sleep aid alternatives

  • Pain management solutions

  • Social alternatives to alcohol

Regional distribution tells another important story. The South, where traditional cannabis remains largely illegal, accounts for 57% of hemp-derived THC beverage sales. The Northeast, with its more permissive cannabis laws, holds just 16% of the market share. This disparity clearly demonstrates how hemp-derived products are filling a market gap in areas with limited access to traditional cannabis products.

Price Point and Market Position

These products have successfully aligned their pricing with premium alcoholic beverages, making them an accessible alternative for consumers. Current market examples include:

  • Tilray's 5mg hemp-derived drinks at approximately $20 per four-pack ($5 per 12oz can)

  • Marz Community Beverage's Unholy Water (10mg Delta-9 THC) at $55 for a 12-pack ($4.58 per 16oz can)

  • Wild State Cider's Birdie brand positioning between $4-5 per can

The success of this pricing strategy is evident in companies like Birdie, which reports hemp-derived THC drinks already accounting for 30% of total company sales in just their second year, with expectations to reach 50% by 2025. Their success comes from both competitive pricing and innovative flavors like spiced apple, honey lemonade, and tropical green tea.

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Consumer Adoption and Demographics

The consumer base for hemp-derived THC beverages is surprisingly diverse and sophisticated. While people in their 30s represent the highest usage, Brightfield's surveys reveal the fastest growth since 2021 has come from unexpected quarters: consumers in their 70s (+3.1%), 60s (+1.4%), and 20s (+1.3%). In the South, people in their 20s, 30s, and 40s all account for about +8% share over national averages.

This broad demographic appeal suggests these products are meeting various consumer needs:

  • Relaxation and stress relief

  • Sleep aid alternatives

  • Pain management solutions

  • Social alternatives to alcohol

Regional distribution tells another important story. The South, where traditional cannabis remains largely illegal, accounts for 57% of hemp-derived THC beverage sales. The Northeast, with its more permissive cannabis laws, holds just 16% of the market share. This disparity clearly demonstrates how hemp-derived products are filling a market gap in areas with limited access to traditional cannabis products.

Price Point and Market Position

These products have successfully aligned their pricing with premium alcoholic beverages, making them an accessible alternative for consumers. Current market examples include:

  • Tilray's 5mg hemp-derived drinks at approximately $20 per four-pack ($5 per 12oz can)

  • Marz Community Beverage's Unholy Water (10mg Delta-9 THC) at $55 for a 12-pack ($4.58 per 16oz can)

  • Wild State Cider's Birdie brand positioning between $4-5 per can

The success of this pricing strategy is evident in companies like Birdie, which reports hemp-derived THC drinks already accounting for 30% of total company sales in just their second year, with expectations to reach 50% by 2025. Their success comes from both competitive pricing and innovative flavors like spiced apple, honey lemonade, and tropical green tea.

Supply Chain and Production Complexities

The industry faces unique challenges across its entire supply chain:

Production Challenges:

  • Limited expertise in cannabinoid potency stability

  • Few qualified co-packers

  • Complex quality control requirements

  • Need for specialized testing protocols

Distribution Hurdles:

  • Restricted carrier options

  • Risk of cargo seizure

  • Limited warehouse partnerships

  • Insurance complications

Business Infrastructure Gaps:

  • Banking restrictions

  • Insurance coverage limitations

  • Traditional distributor hesitancy

  • Complex compliance requirements

The Farm Bill's Critical Role

The renewal of the Farm Bill represents a crucial opportunity to address these challenges. Current proposals in both chambers suggest significant changes:

Senate Version (Rural Prosperity and Food Security Act of 2024):

  • Redefines hemp to address Delta-8 THC

  • Addresses the "THCA loophole"

  • Maintains some flexibility for non-intoxicating products

House Version:

  • More restrictive approach to hemp-derived THC

  • Controversial Miller Amendment limiting product scope

  • Potential impacts on broader hemp industry

A properly structured Farm Bill renewal could provide:

  • Clear regulatory frameworks for carriers and distributors

  • Standardized testing requirements

  • Protected interstate commerce

  • Easier access to banking and insurance services

  • Development of industry best practices

  • Quality control guidelines

  • Training program standards

Looking Ahead

The hemp-derived THC beverage market stands at a crossroads. With strong consumer demand and impressive growth trajectories demonstrated by Brightfield Group's research, the industry has proven its market viability. However, sustainable growth requires addressing operational challenges through thoughtful regulation rather than prohibition.

The industry needs regulations that protect consumers while allowing legitimate businesses to operate efficiently. This includes:

  • Clear standards for product testing and labeling

  • Defined parameters for interstate commerce

  • Protection for compliant businesses

  • Age restrictions and other consumer safeguards

As Congress debates Farm Bill renewal, the industry watches closely, knowing that the right regulatory framework could transform these operational challenges into opportunities for innovation and growth. The future of this promising market may well depend on finding the balance between consumer safety and business viability through proper regulation.

The remarkable growth in this sector, despite significant operational challenges, suggests strong underlying consumer demand. With proper regulatory support, the hemp-derived THC beverage market could become a significant player in the broader beverage industry, offering consumers safe, legal alternatives while creating substantial economic opportunities.

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