Cannabis Beverages in Canada Won’t Pop

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Guest
post
by
Marc
Solby, 
founder
of

Lighthouse
Consulting

On
the
eve
of
Cannabis
2.0
in
Canada,
with
the
addition
of
edibles
and
beverages,
investors
and
producers
are
excited
by
the
potential
growth.
With
the
rock
star
alliances
between
major
brewers
and
Licensed
Producers,
the
level
of
investment
and
the
hype
you
would
think
that
it
is
a
big
deal.
It’s
not.

First
let’s
consider
a
critical
regulation:
The
container
cannot
contain
more
than
10mg
of
THC.
So,
whether
it
is
a
wine
bottle
or
a
skinny
can
or
a
tetra
Pak
juice
box,
it
has
the
same
kick.
Which
is
to
say,
not
that
much.

For
perspective,
pre-rolls
are
commonly
half
a
gram
(500
mg).
If
they
contain
potency
of
20%
then
you
are
holding
a
joint
with
100mg
of
THC
versus
your
beverage
with
one
tenth
of
that.
It’s
not
all
perfectly
equivalent,
and
it
is
a
personal
choice
on
how
much
and
how
you
choose
to
ingest,
but
having
10mg
of
THC
has
a
material
impact
on
what
the
Producer
can
charge
for
the
serving.
The
retail
price
in
Colorado
for
a
10mg
serving
is
around
$CDN
6.50
and
of
course
it
is
a
significant
premium
to
flower.

While
drinks
may
be
a
premium
product
and
brand
power
can
drive
premium
pricing
(think
Lagunitas
Hi-Fi
Hops
Cannabis
bev),
regulations
have
shut
that
door
as
well.
There
will
be
no
cross-branding
with
alcohol
brands
or
breweries.

Now
let’s
consider
the
cost
side.
Nothing
creates
manufacturing
cost
like
small
production
runs.
These
runs
will
make
your
local
craft
brewery
look
like
Budweiser
in
July.
The
container
will
also
be
non-standard
because
it
needs
to
have
a
childproof
mechanism.
A
plain
old
skinny
can
won’t
cut
it.
Lastly,
the
high-quality
THC
derivative,
however
it
is
created,
is
in
the
early
stages
of
development
and
scale.
It
will
not
be
inexpensive
as
an
“active
ingredient”.

Some
industry
players
may
claim
that
the
relatively
high
early-stage
costs
are
a
natural
part
of
the
growth
curve
and
margins
will
improve
with
volume
growth.
This
explanation
assumes
that
there
is
ample
consumer
demand
for
it
and
cost
can
be
worked
out
over
time.
Based
on
some
US
market
data
from
Q4
2019
from
Headset,
the
beverage
share
of
the
cannabis
market
is…”a
sliver”.
That
is,
too
small
on
the
stacked
column
chart
to
get
a
number.
Colorado
operators
that
I
have
spoken
to
have
pegged
the
beverage
share
in
that
long-established
market
at
two
percent.
Not
so
fast,
niche
marketer!
The
most
popular
sku’s
in
Colorado
are
in
100ml
single
serve
bottles,
like
the
popular
Olala
cannabis
sodas.
So,
go
ahead
and
factor
down
the
potential
Canadian
market
size
to
take
out
any
higher-potency
offerings.

There
are
long-tail
niche
categories
that
can
still
succeed
with
the
instant
breadth
of
distribution
and
convenience
that
online
commerce
provides.
This
may
be
case
for
for
gummies,
oil,
tinctures,
capsules,
flower
etc.
Bulky,
heavy
beverages
are
at
a
profound
shipping
disadvantage.
Beverages,
then,
are
perhaps
best
distributed
in
physical
stores
and
“on-premise”
bars
or
cafés
where
they
can
be
well-merchandised.
Of
course,
the
national
bricks
and
mortar
retail
infrastructure
is
still
in
its
first
trimester
of
life.

Ultimately,
Canada’s
THC
beverages
are
a
product
that
is
constrained
by
regulations,
at
a
cost
disadvantage,
cannot
leverage
existing
brands,
have
little
natural
consumer
demand
and
virtually
no
distribution
opportunities.
If
you
think
that’s
tough,
try
doing
it
with
CBD
rather
than
THC.


About
the
author:

Marc
Solby
is
the
founder
of

Lighthouse
Consulting

in
Toronto
and
the
Cannabis
Consumer
Update,
Canada’s
first
syndicated
study
of
the
cannabis
consumer.
He
has
led
market
research
and
consulting
with
the
world’s
leading
beer,
wine
and
spirits
companies
and
is
a
former
Director
of
Marketing
at
Labatt
Breweries.

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