CANNABISTHE GREAT DISRUPTOR ARRIVES

TO FOOD AND BEVERAGE

It’s a topic of conversation around the country and in

every nook and cranny of the food and beverage world.

Depending on who you talk to, cannabis is primed to be

a golden goose for food and beverage companies – or

is a movement rife with risk and regulatory chaos. So,

which is it? If you’ve tuned into the topic of cannabis

in food and beverage in the last six months it won’t

surprise you to know that it’s well, possibly both. But

who is the consumer for these products? Where is the

real opportunity, and what’s coming next? Let’s dive in.

CANNABIS, CURRENTLY

The 2018 Farm Bill legalized

industrial hemp and its derivatives,

including cannabidiol (CBD). But

the FDA has not yet released or

implemented new rules for CBD, a

non-psychoactive chemical com-

pound found in cannabis.

As Sen. Ron Wyden points out

to Rolling Stone: “The bill legalized hemp and its deriva-

tives, which means CBD,” Wyden says. “The FDA just hasn’t

stepped up to affirmatively update its regulations so they

comply with federal law.”

In particular, although CBD is legal to consume -- it

remains unlawful for food-makers to put it into food and

beverage products. In February, the New York City health

department began to crackdown, seizing CBD products. And

the states of Maine and Ohio have warned retailers to pull

CBD-containing food and beverages from the shelves.

However, the enforcement tends to be minimal unless

health claims are made on label.

The FDA has public hearings scheduled for May 31, 2019

and as Food Processing points out, the agency “emphasized

that CBD is not allowed in food or beverage products at this

time.”

Businesses selling food and beverages infused with CBD have a message

for the Food and Drug Administration:

Regulate us, please.

-CNBC

VERNACULARCANNABIS: A genus of flowering plants that includes Cannabis ruderalis, Cannabis sativa, and Cannabis indica.

CANNABINOIDS: The chemical compounds found in the Cannabis plant. The best known are THC and CBD. Additional cannabinoids include CBN (Cannabinol) and CBG (Cannabigerol).

CBD (CANNABIDIOL): One of 100+ molecules called cannabinoids found in cannabis. In recent years CBD has some health benefits attributed to it. Unlike THC, CBD has no psychoactive (high-inducing) properties.

INDUSTRIAL HEMP: While “hemp” and “cannabis” are technically synonymous, industrial hemp specifically refers to the variety of cannabis sativa with low levels of THC, (less than 0.3 percent of THC on a dry weight basis) grown as a fiber or seed crop.

MARIJUANA: A slang term for the cannabis plant.

TERPENE: Organic compounds produced by plants that have a strong aroma. They are constituents of essential oils.

THC (TETRAHYDROCANNABINOL): The most recognized psychoactive (high-inducing) cannabinoid in cannabis.

A DISRUPTOR IN THE MAKING Cannabis is on the precipice of causing some big

changes in the food, beverage and healthcare

industries. Says Euromonitor: “Within the next decade,

some form of cannabis will be a part of consumers’

daily routines, either as a functional ingredient

in foods, beverages and beauty or as a wellness mood

enhancer in health.” In fact, the legal cannabis market

is expected to grow to $166 billion by 2025.

LEGISLATIVE LIMBO NOT SLOWING MOMENTUM

The regulatory ambiguity is not stopping the big

brands scooping up cannabis start-ups – or the brands

already jumping right into the CBD pool. And with

good reason: consumer interest in CBD infused

products is huge and enormous growth is anticipated

– as Iconoculture notes that “82% of U.S. consumers

believe that cannabis

products can offer

wellness or therapeutic

benefits.”

IT SEEMS A DAY DOESN’T PASS WITHOUT NEWS OF A BIG MERGER OR PURCHASE IN THE CBD WORLD…

• Estée Lauder and Martha Stewart are

developing CBD beauty products.

• Constellation Brands, which owns Corona and

other beers bought a major stake in a Canadian

cannabis company.

• Molson-Coors has also invested heavily in

cannabis and Heineken-owned Lagunitas

launched a THC-infused beverage in

California.

• Pharma/cannabis company Tilray Inc. is

partnering with Authentic Brands to sell CBD-

based products including foods such as mints.

BIG BRANDS: EDGING OUT THE SMALL GUYS?

The arrival of huge brands is going to completely change the cannabis

industry, even before CBD is legalized in food and beverage federally.

Forbes predicts that as “billions of dollars pour into product

development, marketing and manufacturing, these companies will be

looking to create big brands with the market share to match.”

One concern that some have is that the regulatory limbo is creating an

environment where smaller brands will suffer while bigger brands

succeed. Basically, bigger brands can afford to “fight city hall” in a way

that start-ups and small business can’t.

Until the FDA makes up its mind, the spoils will be

left to the giants.

-FORBES

CONSUMER PERCEPTIONIn the midst of regulatory confusion and brands chomping at the bit

to make money are consumers. On the whole, consumers have a

positive perception of hemp-derived CBD. The roots behind this positive

perception is in the health halo that CBD enjoys. FONA recently asked a

panel of shoppers about their experience and impression of both CBD

and THC. You can see that full piece here. But the general lesson is that

the average consumer is operating from a knowledge base of mostly

positive information, much of it anecdotal or experiential.

Other research reveals a similar

theme as our shopper panel un-

covered: Consumers view CBD

positively. In fact, a press release

from High Yield Insights points

out that 40% of U.S. adults are

interested in trying CBD.

Accessible forms strike the fancy

of interested consumers,

especially chocolates and baked

goods. According to Iconoculture,

“CBD gummies” was the third

most popular food-related

Google search in 2018 —

following unicorn cake and

romaine lettuce.

...when your friend’s dad who hasn’t eaten anything two days after

chemo starts eating regularly after using cannabis, you can see how the product has evolved past its

stereotyped stoner roots.

-THEO H., FONA SHOPPER PANELIST

INCREASING POPULARITY OF CBD

BROAD CONSUMER BASE WITH MIXED MOTIVATIONSDefining the “cannabis consumer” could be a flawed

undertaking. Research shows that the consumer base

spans the spectrum. “Based on the convergence of

key values like relaxation and serenity ascending for all

consumers… cannabis products are poised for growth

with a broader swath of consumers than marketers

realize,” points out Iconoculture. Research from A.T.

Kearney shows that the belief in cannabis as a therapeutic

tool spans ages and demographics; around 80%

of consumers at every age believe in its wellness value.

Consider the path that plant-based food and beverage

has taken. Or clean label products. Consider super foods

and functional proteins. When consumers perceive that

an ingredient or product will truly help them with

wellness goals – be it relaxation or focus – they will

purchase. And they will change the industry as they do.

However, as we mention in the next section, it does not

mean that the path forward is risk-free for CPG brands.

OF THOSE INTERESTED IN CBD...

64%56%

79%

FEMALE

35 YEARS OR OLDER

ATTENDED COLLEGE

Source: High Yield Insights

KNOW THE RISKS

Of course,

the space is

not without

potential

pitfalls. To

prove the

actual health

effects of

CBD may require more time and more

studies. Says Steve Mister, of the

Council for Responsible Nutrition,

“Scientific evidence of health effects

needs to keep pace with consumer

frenzy…the industry will do well to

commit itself to study carefully this

golden goose.”

There is simply a lack of in-depth

scientific research on the topic. Jake

Black and Ryan Beigie of Treehouse

Hemp agreed in a recent Prepared

Foods webinar, at least in part. They

point out that there is more study

needed overall in the CBD space,

particularly for “full spectrum,” a term

often used to describe a product using

multiple cannabinoids (i.e., CBD with

CBG or CBC.)

The key for brands looking to avoid risk

but still capitalize on CBD in the near

future? Transparency and careful

positioning. We advise to educate

consumers whenever possible what

is known (and not known) about the

effects of CBD consumption. And if and

when you’re able to move forward--

be transparent about how much CBD

is actually in your product. It may save

hassle (and protect consumer trust) in

the long run.

Just because you read it on the internet doesn’t mean that it’s true… any finding that should be believed should be in a scientifically published

journal that has been peer-reviewed. Otherwise it’s just anecdotes at best.

There are no known peer-reviewed, published studies conducted on the

safety and efficacy of edible cannabis.

-JACK BLACK, TREEHOUSE HEMP

-CAROL CULHANE, INTERNATIONAL FOOD FOCUS TO FOOD TECHNOLOGY

NOT AT RISK? BRAND REPUTATION

Research from A.T. Kearney suggests and analysis from Bloomberg’s Sarah Halzack

confirms –consumers in general will not judge an established brand for entering into

the cannabis fray. There may be risks in adding cannabis to your product portfolio,

but a tarnished reputation is unlikely to be one of them. When asked, “if a large,

well-known company were associated with cannabis, would your perception of that

company change?” — the vast majority said their perception would either improve or

remain unchanged.

KNOW THE RISKS, CONTINUED

Where they are legal, THC edibles are proving to have a greater likelihood of overdose. As

the New York Times noted recently. THC-infused edibles cause a disproportionate num-

ber of ER visits. The reason stems from the fact that it takes longer to feel the “high” from

THC when ingested instead of inhaled. Consumers eat more to speed up the result and

then accidentally overdose.

THC OVERDOSE MORE LIKELY IN EDIBLES

TASTE IS YOUR OPPORTUNITYYou see it every day in the industry news.

There is innovation going on in the

cannabis market. From Recess, a hemp-

infused seltzer to CBD jelly beans from Jelly

Belly founder David Klein, there are brands

capitalizing on the market, and new

products being added every day.

For a brand looking to dive in to the

market in the near future, where is your

opportunity? Bars, protein powder,

confections? At FONA, we say that the

priority should not only what you create –

but how you do it. There is a huge quality

gap in some of the products on the market,

according to the Wall Street Journal and

Treehouse Hemp.

Says Ryan Beigie of Treehouse Hemp: There’s

still a ton of room for businesses to come in

and make their mark. Really what the market

is looking for is a high-quality product – or

even just a well-executed product.”

He points out that there are many issues

with the products on the market, from

water solubility to proper homogenization.

The greatest problem however may be

taste. As the Wall Street Journal puts it,

there is a need to dial down the ‘oily grass’

flavors and notes of dish soap and urine.

As Beigie notes, established brands have an

opportunity to capitalize on that trust and

deliver a wellexecuted product. Of course,

as we alluded to – keeping trust is not

always a given. Helping consumers achieve

clarity around potential CBD benefits and

clear labeling of CBD content should be a

priority in future development.

There’s a ton of issues with the current products on the market…

Even for those that have great water solubility and

homogenization, then you run into taste issues.”

-RYAN BEIGIE, TREEHOUSE HEMP

SOURCES• A.T. Kearney Cannabis Survey

• Food Technology

• Iconoculture

• Euromonitor

• CBD 101 – Prepared Foods / Treehouse Hemp

• Wall Street Journal: Cannabis Drinks Confront a Serious Buzz Kill –

They Taste Terrible

• https://teens.drugabuse.gov/blog/post/what-is-hemp -

• https://www.ers.usda.gov/publications/pub-details/?pubid=41757

• https://www.foodprocessing.com/industrynews/2019/fda-cbd-

hearing-may-31/

• https://www.fda.gov/NewsEvents/PublicHealthFocus/ucm421168.htm

• https://www.nytimes.com/2019/03/25/well/eat/marijuana-edibles-

may-pose-special-risks.html

• https://www.washingtonpost.com/food/2019/03/19/no-cbd-infused-

jelly-beans-definitely-wont-get-youhigh-heres-why/

• https://www.nytimes.com/2019/03/01/business/martha-stewart-

cannabis-pot.html

• https://www.rollingstone.com/culture/culture-features/cbd-cannabis-

pot-legal-fda-803567/

• https://www.fooddive.com/news/study-looks-at-how-cannabis-will-

disrupt-food-and-beverages/549276/

• https://www.crescolabs.com/glossary/

• https://www.neha.org/sites/default/files/eh-topics/food-safety/

Cannabis-101-Glossary-Related-Terms.pdf

• https://www.prnewswire.com/news-releases/40-percent-of-

us-adults-interested-in-trying-cbd-high-yieldinsights-study-

finds-300818424.html

• https://www.fooddive.com/news/study-40-of-us-consumers-would-

try-cbd/551373/

• https://www.naturalproductsinsider.com/herbs-botanicals/science-

cbd-and-prisoner-s-dilemma

• https://www.forbes.com/search/?q=cbd#20aab817279f

• https://www.forbes.com/sites/bethkaiserman/2018/12/29/cbd-food-

and-drink-2019/#396a5cc11668

• https://www.forbes.com/sites/alanjbrochstein/2019/03/10/investing-

in-cbd-stocks-offers-opportunity-butrisks/

• https://www.forbes.com/sites/emilyprice/2019/03/24/these-cbd-

drops-use-the-power-of-terpenes-to-helpyou-sleep/#14dd1b0e37af

• https://www.cnbc.com/2019/02/27/the-cannabis-industry-is-

begging-the-fda-for-some-cbd-regulations.html

• https://www.forbes.com/sites/nickkovacevich/2019/03/25/

government-crackdowns-puts-smaller-cbdvendors-in-jeopardy/

THE TAKEAWAYSWhat’s next for cannabis in food and beverage? The FDA scheduled hearings

for May 31, so regulatory clarity may finally be on the horizon. Research and

study is also needed according to both the FDA and industry experts. The

potential opportunity in the space may be worth the wait, of course. We’ll say

it again – prioritizing taste and overcoming technical challenges will be the

winning move for brands in the cannabis space. Equip yourself with the right

partners to combat bitterness, off-notes and solubility – and you’re primed

to win. We’ve seen it time and time again – taste is THE #1 purchase driver

for consumer purchase. After overcoming the technical challenges, careful

positioning and clear labeling will help you get – and retain customer trust.

What does true partnership look like? You deserve a flavor partner ready to turn these trends into the tangible.

Let FONA’s market insight and research experts get to work for you. Translate these trends into bold new ideas for your brand. Increase market share and get to your “what’s next.” Our technical flavor and product development experts are also at your service to help meet the labeling and flavor profile needs for your products to capitalize on this consumer trend. Let’s mesh the complexities of flavor with your brand development, technical requirements and regulatory needs to deliver a complete taste solution.

From concept to manufacturing, we’re here for you — every step of the way. Contact our sales service department at 630.578.8600 to request a flavor sample or chat us up at www.fona.com/contact-fona/

YOU DESERVE MORE. LET’S GET STARTED.