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BDS Analyics Presents: Cannabis Trends and the Impact on Beverage Alcohol

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BDS ANALY TICS PRESENTS: CANNABIS TRENDS AND THE IMPACT ON BEVERAGE ALCOHOL

Presenter:

KATE SENZAMICI Account Manager BDS Analytics

BDS Analytics is a market research and insights firm focused on the global cannabinoid industry. It tracks retails sales across the U.S., conducts consumer research, and is the leading source of cannabis industry intelligence.

A growing, evolving industry

While legal cannabis is new in the U.S., cannabis itself has been a consumer-driven plant product for a very long time. It has become much more mainstream; as many as 80% of adults say they agree with some form of legalization, and 66% agree that marijuana has medical benefits. Legal cannabis consumers are all consumers—they cross generations, gender, socioeconomic backgrounds, motivations, need states and benefits and they seek premium, luxury and economy products. The myths around cannabis consumers (boomers only use it for medical purposes, soccer moms don’t inhale, connoisseurs are stoners) are just that: myths.

From inhalables to ingestibles to topicals, legal cannabis is available in many different product forms. BDS Analytics’ retail sales database tracks as many as 150 product categories and subcategories.

There is rapid innovation around this space as consumers seek faster onset and offset, more reliable dosing, smaller dosing, etc., and different cannabinoids are coming to the fore. CBD is currently the most prominent.

There is still a great deal of room for education. Only about 20% in US adults understand what cannabinoids are and know the difference between THC and CBD. The industry still battles

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BDS ANALY TICS PRESENTS: CANNABIS TRENDS AND THE IMPACT ON BEVERAGE ALCOHOL

stigmas (case in point, the preconceptions around a “wine mom” versus a “cannabis mom”).

The industry is challenged right now. Initially, it experienced rapid growth with deep-pocketed investors. Now cannabis companies are focusing more on profitability. There are layoffs, tightened budgets and federal-level regulatory hurdles. The illicit market continues to thrive because of the challenges in the legal market. Also, the vape market has been hit hard over vaping-related illnesses.

It’s outdated to think that cannabis is a one-to-one substitute for any type of alcohol. Cannabis need states range from 100% recreational to 100% medical and everything in between. Many of these need states have nothing to do with alcohol.

Consumer base grows as legalization spreads

Legal cannabis is a growing industry. As more and more states move to some form of legalization, the consumer base continues to

grow. The percentage of Colorado consumers has jumped 75% since the state legalized cannabis for adult use in January 2014; today, the highest percentage of U.S. consumers reside in Colorado and Oregon.

BDS Analytics projects legal cannabis will be a $43-billion global market in 2024. With 75% of the global market share, the U.S. is the biggest driver of global growth and will continue to be for the foreseeable future. In fact, many of the top 20 global markets are U.S. states: California is the #1 global market, followed by Canada, then Colorado.

In fully legal states, almost 70% of adults

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BDS ANALY TICS PRESENTS: CANNABIS TRENDS AND THE IMPACT ON BEVERAGE ALCOHOL

consume cannabis or are open to it (38% consume; 31% accept; 31% reject). This percentage has been climbing steadily over the past three quarters.

There’s more to legal cannabis than marijuana and THC. Looking at retail sales data, CBD is a megatrend across all forms and channels. THC and CBD are both cannabinoids found in hemp and marijuana; hemp is higher in CBD while marijuana is higher in THC. There are many other cannabinoids as well; 22 are registered—CBG, CBN and THCV among them—but potentially hundreds exist.

In the licensed dispensary channel, BDS Analytics projects $26 billion in THC cannabinoid sales by 2024 and another $5 billion in non-THC cannabinoids. Add $13 billion in non-THC cannabinoid sales in general retail and $2 billion in prescription cannabinoids and by 2024, the projected US total cannabinoid market will hit $46 billion.

CBD growth will account for about half of overall industry growth and will largely come from edibles (food, candy, beverages) and topicals (beauty, skin, wellness products). There is already a lot of brand crossover from the dispensary channel into the general retail market for CBD, which speaks to the evolution of the industry.

Whether they are heavy or light consumers, what all cannabis consumers have in common is the desire for a good experience. The vast and growing variety of products and the pace of innovation make it easy for them to find a product that meets their need states and gives them the good experience they seek. Cannabis as industry disruptor Cannabis consumption is multi-purposed and multi-faceted. BDS Analytics reports that 74% of cannabis consumers do so for

recreational and social purposes, 60% for health or medical reasons, and 32% for both. Some consume multiple forms in one day—perhaps a high-CBD/THC topical rub following a long run, then a joint later while watching a movie with a significant other. The diversity in applications means cannabis has the potential to be disruptive across all consumer industries. That said, pharma and over the counter (OTC) are at much greater risk than the alcohol industry.

Cannabis beverages

While inhalables are still number one in terms of consumer use and preference, BDS Analytics is seeing edible categories, including beverages, gain share.

Cannabis beverages are rapidly evolving. Some of the top brands are Ripple, a pre-dosed dissolvable powder; Rebel Coast, a no-alcohol wine-type product offered at several THC levels; Kikoko cannabis-infused teas; and several nonalcoholic beers, including Hi-Fi Hops, Two Roots and Ceria.

The canna-beverage category is still small, accounting for just 6% of total cannabis edible

sales, but there are a lot of shifts within this category that make it worth watching. Sales are up 21% (23% for CBD-based beverages, 64% for low THC and 48% for powder). Many of the original cannabis beverages were high dose; newer products are skewing to lower doses as consumer want a good experience with manageable, reliable dosing. (Senzamici noted that CBD dosing is different than THC dosing. It’s debatable whether the 5 to 10 mg dose that’s typical in canna-beverages delivers any therapeutic benefit. There is crossover from the dispensary channel with products like sparkling water with 25 mg CBD.)

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BDS ANALY TICS PRESENTS: CANNABIS TRENDS AND THE IMPACT ON BEVERAGE ALCOHOL

General market hemp and CBD beverages are just getting started, posting sales growth of 168% in 2019 over 2018, according to IRi. The most prominent brands include Sprig, Vybes, Recess and Wyld. By 2022, BDS Analytics projects the total opportunity for cannabinoid beverages in the U.S. to reach $1 billion.

Cannabis’ impact on beverage alcohol

States with legal cannabis show cross-consumption between alcohol and cannabis; 48% of alcohol consumers report they also consume cannabis, up from 36% in 2018, while 69% of cannabis consumers also consume alcohol. The main takeaway is that the opportunity for shared occasions and substitutable occasions is growing as consumption habits shift.

Wine is more insulated from risk than beer. Comparing alcohol-exclusive consumers to dualists (those who consume both alcohol and cannabis), alcohol-exclusive consumers are more likely to consume wine (66%) while dualists will consume other types of alcohol.

Wine + cannabis dual consumers share similar demographics with typical wine consumers but are perhaps a little more on trend, more technology-oriented, willing to try new products, and socially conscious. How they consume cannabis is in line with other typical cannabis consumers. Among the 71% who consume ingestibles, around 20% consume canna-beverages.

Almost half of dualists say cannabis and alcohol are suited for different times and days. That 47% of the market is protected. The other 53% are the at-risk percent; these include 15% who

consider cannabis and alcohol good for the same occasions and 38% who report they can go either way. Of that 53%, 14% say they frequently pair cannabis and alcohol, and half of those 14%, in turn, say they consume less alcohol when pairing. While the overall total percentage is small, it’s too early to tell how much the risk will grow as there becomes more overlap.

Consumers say when they do pair cannabis and alcohol, they tend to do so in small group or solo settings. High-energy events like bar nights have less negative impact on alcohol consumption.

Pairing and substitution occasions tend to be oriented around daytime fun, unwinding, and hanging out in small groups. “Unwinding” time (at home, solo or with immediate family) is becoming more oriented toward cannabis, as upwards of half of cannabis users say they consume specifically to relax. “Just hanging out” (a small get-together like a cookout, round of pool or watching a big game) is typically a moderate- to high-alcohol/moderate cannabis occasion that poses more threat to beer/craft beer than other alcohol categories. These settings are primed for a canned beverage substitution.

“Daytime fun” (hiking, biking, fun in the pool with friends) offers opportunities for cannabis and alcohol to exist as different parts of the same occasion.

For now, behavior is mostly unchanged. The majority of dualists say they have not decreased alcohol consumption across categories (liquor/spirits 59%, beer 24%, wine 19%, craft beer 21%). Senzamici noted, however, that the risk increases as legalization continues to spread, and the beverage alcohol industry needs to keep up with changes.

Visuals for Senzamici’s presentation are available here:

https://resources.BDS ANALYTICSanalytics.com/vinexpo-march2020