CBD OIL

STRATHROY, Ontario, Dec. 30, 2020 (GLOBE NEWSWIRE) — PRESS RELEASE — Eve & Co. Incorporated has announced that its wholly-owned subsidiary Natural MedCo Ltd has entered into a CAD$1M financing loan with a private consortium of lenders.

The CAD$1M financing has a two-year term and is to be received in two equal tranches of CAD$500,000. The first CAD$500,000 tranche has been received – net of issuance costs of approximately CAD$29,000 – and bears interest – payable monthly – at 15% per annum for the first year and 11% per annum for the second year. Monthly repayments of principal and interest can only be made during the second year of the term. The principal outstanding will be repaid to the Lender at the end of the two-year term.

The second CAD$500,000 tranche will be received from the lender upon five days written request from NMC. It will bear interest – payable monthly – at 15% per annum for the first year and 11% per annum for the second year. Monthly repayments of principal and interest can only be made during the second year of the term. The principal outstanding will be repaid to the Lender at the end of the two-year term. The second CAD$500,000 tranche will only be available for the first year and a facility fee of 0.5% per annum on this second tranche will accrue – and be paid – monthly to the lender. The loan is secured by the assets of the company and NMC and guarantees and is expected to be used for general corporate purposes.

This piece is intended to provide some considerations that current and potential license holders should think about as they work with advisors to make entity selection decisions or consider potential tax elections. Please note that this article is a high-level overview and is not intended to declare the best type of entity structure for a license holding entity. Although there are numerous tax variables that should be contemplated, tax issues are not the only concerns relevant to determining entity type. In addition, some states may tax entities differently than how the entity is taxed for federal purposes.

First, let’s look at the legal entity types that may be set up to hold a license, operate a business and what that may mean for how an entity is taxed. Often, entities are set up as either limited liability companies or corporations.

If a limited liability company is organized and the entity is owned by only one owner, a single member LLC, the default tax treatment would be that the entity is disregarded for tax purposes. In other words, it would not file a separate federal income tax return, except in some states including CA, TX, TN and RI. All the tax consequences of the activities within the legal entity are reported on the tax return of the owner of the entity.

If a limited liability company is set up and the entity is owned by more than one owner, a multiple member LLC, the default tax treatment would be that the entity is taxed as a partnership. An entity taxed as a partnership reflects the tax consequences of the activities within the legal entity on a partnership return. The partnership generally does not pay tax on the activity, but rather the taxable income and loss are passed through to the owners of the LLC. The owners of the LLC reflect the taxable income or loss on their tax return and are responsible for paying any resulting tax. In the rare instance of an entity being audited, there is a possibility that the entity may have to pay tax on the partners behalf, depending on the ownership structure. Either a single member LLC or a multiple member LLC may elect to treat the LLC as a C-corporation or an S-corporation for tax purposes.

The Taxation of C-Corporations & S-Corporations

The default treatment for an entity set-up as a corporation is the entity will be taxed as a C-corporation. An entity taxed as a C-corporation, including an LLC electing to be taxed as a C-corporation, pays the tax on any taxable income generated by activities within the entity.  Additionally, any distributions of earnings from the C-corporation to the owners of the entity are generally considered dividends which are required to be reported as taxable income by the owners when received. In other words, the earnings of an entity taxed as a C-corporation are potentially taxed twice. Once, as they are earned within the entity, and then again upon distribution to the owners of the entity.

An entity set-up as a corporation, a single member LLC or a multiple member LLC may elect to be treated as an S-corporation. Like an entity taxed as a partnership, an S-corporation does not pay tax at the entity level, but rather passes the taxable income and loss through to the owner or owners. Additionally, like a partnership, distributions from an S-corporation are not taxable as dividends to the owner when received.

Since we covered how different entities are taxed based on how they are set-up, and what elections they may or may not make, we will explore some of the issues that should be considered when making an entity selection. We will also address potentially electing to treat an entity one way or another for tax purposes. 

S-Corporations 

Advantages: The advantages of an S-corporation are limited to the avoidance of double taxation associated with C-corporations, as well as some potential benefits of lower Social Security and Medicare taxes.

Disadvantages: The primary disadvantage of an S-corporation for a license holding company is any non-deductible expenses resulting from 280E are passed through to the owner(s), which then reduces the ownership’s tax basis in its investment in the entity. A reduction in tax basis is determinantal to owners of an entity because the basis is used to reduce taxable income when/if the owner liquidates ownership in the entity.

Other disadvantages of S-corporations include but are not limited to restrictions on ownership of the entity, a requirement for reasonable compensation paid to owners and a lack of flexibility in the allocations of earnings among owners.

Partnerships

Advantages: The advantages of a partnership include but are not limited to the avoidance of double taxation associated with C-corporations, flexibility in the allocation of earnings and losses among owners, and flexibility in the type of owners of the entity.

Disadvantages: Like S-corporations, the primary disadvantage of a partnership is any non-deductible expenses resulting from 280E are passed through to the owner(s).

Other disadvantages of partnerships include potential self-employment taxes on earnings allocated to active owners, potential complexity in the allocations of taxable income and losses among partners in entities with many owners or different classes of ownership.

C-Corporations

Advantages: In contrast to S-corporations and partnerships, the tax basis resulting from the ownership’s investment in the entity is not subject to reductions from non-deductible expenses being passed through to owners. This protection of tax basis is particularly important to owners of license holding entities.

An additional advantage of C-corporation tax treatment may be a lower tax rate applied to taxable income.

Disadvantages: The most significant disadvantage of C-corporation tax treatment is the potential double taxation of earnings that might be applicable if the entity does have earnings that are distributed.

In addition to the items address above, the advantages and disadvantages of the entity type and related tax elections, additional considerations include:

1. How much of the 280E nondeductible expenses will the taxpayer be subject to?
2. How much earnings will the entity be distributing to the owners?
3. How complex is the entity’s ownership?
4. The lack of certainty regarding whether or not the qualified business income deduction (QBID) enjoyed by pass-through entity owners is allowable as a deduction by owners receiving pass-through income from an entity subject to 280E.
5. Are there plans for selling the entity and if so, what is the time horizon for doing so?

At Bridge West, we advise taxpayers to consult with cannabis advisors who have experience in the industry, can help navigate the complexities of tax compliance and Code Section 280E and are experienced with entity structures.

When Mike Howard (Director of Cultivation, The Grove) first caught word of the record-breaking cannabis yields being harvested regularly by fellow grow teams around the country (Lume Cannabis in Michigan and Green Life Productions in Nevada) he knew the game was changing. Once Howard dug deeper into the news, he discovered a common catalyst behind the success of his peers: both facilities were actively growing under the A3i LED grow light from Fohse. After hearing firsthand from the grow teams in Michigan and Nevada how they had increased yields over HPS by 31% and 100% respectively, Howard knew he had to get Fohse lighting into The Grove … and fast!

The Grove, a vertically integrated cannabis business with dispensary, cultivation, distribution, and production licenses, has been producing, sourcing, and selling high quality edibles, cartridges, and recreational cannabis products since 2015. Their 26,600-square-foot growing and production facility is state-of-the-art and eco-friendly. They strive to recreate the conditions that cannabis would find in nature and use only all-natural growing media and inputs as well as biological measures to control any pests or diseases. It only makes sense then that they would seek out and select Fohse products – the best lighting fixtures in the business – to match The Grove’s exacting standards.

The dry Las Vegas air makes for a challenging indoor growing environment for cannabis. Fohse fixtures operate at much cooler temperatures than standard HPS fixtures. At The Grove, this means that the humidifiers and cooling systems don’t have to work as hard, and that an equilibrium between temperature and humidity level can be more easily achieved and maintained. This has led to some of the record harvests being seen regularly at The Grove. Looking at how Fohse’s A3i 1500-watt fixtures compare to standard 1000-watt DE HPS fixtures in an “apples to apples” comparison reveals just how in sync these intelligent fixtures are with cannabis. The numbers from a recent, late fall harvest tell an impressive tale:

*Strawberry Cheesecake was the highest-yielding strain at 7.2 lbs/light, while Cookies was the lowest at 5.49 lbs/light

In the now-typical example above from Fall 2020, the A3i system generated an average of 27 percent more light as compared to the HPS fixtures. This additional light led to an increase in dry yield harvest weights by a whopping 65 percent. All of this, while using 16 percent less energy than the HPS lighting it was compared to and in the same physical footprint of space with the same number of plants.

Remarkable results like those at The Grove are not a fluke or an accident and they are not restricted to Mike Howard and his team alone. Growers all over are finding results like these to be the new norm, regardless of growing media and style of growing. Lume Cannabis has been tracking results of their Fohse A3i fixtures for over 40 hydroponic growing cycles and across 8 different strains of cannabis. Without fail, the team at Lume under Kevin Kuethe’s direction, reports higher yields under the A3i than those grown under HPS. For example, with Fohse fixtures they have harvested 7,130 lbs. versus 5,241 lbs. with the same strains grown under HPS. THC levels under Fohse lights have been 3 percent higher too; 20 percent versus 17 percent on average. In other words, the cannabis that Lume grew under Fohse lighting netted more than $2.5 million more than the cannabis grown under HPS.

Steve Cantwell at Green Life Productions also reports unbelievable differences since switching over to Fohse’s A3i and F1V fixtures as well. Green Life Production’s typical harvests under their previous lighting system was 80-90 lbs. The average harvest now using Fohse fixtures is 160 to nearly 200 lbs pulled from his 4×8, no-till, living, organic soil beds. Like Mike Howard’s team at The Grove, Steve and his team have the enviable logistics problem of figuring out where to put all of the bounty from these sky-high yields. All three teams, The Grove (coco pots), Lume Cannabis (hydroponics) and Green Life Productions (live soil), are blowing harvest records out of the water time and time again across three drastically different cultivation styles. These highly regarded and experienced cannabis producers are showing that the rules have changed and that Fohse lighting fixtures enable previously unobtainable and unthinkable results.

@Keene.Media

Howard and the grow team at The Grove have achieved their amazing results by relying on the horticultural skills of their talented team, and also by utilizing two of Fohse’s premier products. They have predominantly been using the A3i model, Fohse’s workhorse grow light, to achieve their highest yields. The A3i is specifically designed to grow cannabis and that is exactly what it does. Its spectral distribution is custom-made to address the unique needs of cannabis. As evidenced in the remarkable yields outlined in the table above, the A3i’s output (of up to 4,970 µmol/s depending on configuration) can be adjusted to supply seasonably appropriate lighting depending on the growth phase of the crop. All of this while producing up to 156 percent more light per fixture and burning cooler (no hotter than dishwashing water) than traditional HPS grow lights. This means the A3i is safer to operate for both growers and their cannabis crops.

The A3i system is designed to handle the harsh extremes of a growing environment. The IP67-rated fixture will continue to operate at peak performance even with the moisture, dust, pests, and biological debris such as spores that are present in most indoor growing environments. Not many growers would expect their grow lights to still perform well after being submerged under several feet of water; the A3i can survive such a plunge and be relied on to deliver its photon payload as designed. Howard and his team at The Grove do not just rely on the A3i for their high yields. In their double-stack rooms they deploy Fohse’s lighter, more nimble F1V for its pound-for-pound power.

Just like the A3i, the F1V fixtures rely on industry-proven Samsung LEDs for their photon delivery. While almost the same dimensions as the A3i, at 38 pounds (17.2 kg) per fixture they are almost half the weight of each A3i (70 lbs./31.75kg each). Like the A3i fixtures, their power supply rating is +100,000 hours. Depending on the needs of the grower and the ability of the existing systems, Fohse offers 420W, 600W, and 800W versions of the F1V. In his own F1V rooms, Howard has reported similarly positive results as in his A3i rooms: 60%+ yield increases, increased utility efficiencies, and better labor efficiency. The team now does not have to “chase canopy” by raising and lowering the lighting fixtures to achieve late-flower PPFD intensities like they did with the old LED lights that they were using in those double-tiered systems.

Fohse lighting products outperform their competition not only at the Grove, but anywhere they have been put to the test. So why hasn’t every cannabis grower switched over to Fohse? Growers who have not yet seen the results firsthand still believe that LEDs cannot keep up with the high lighting demands of cannabis the way that HPS lighting traditionally has. The narrative had long been one of incremental change and an acceptance that two pounds of harvested yields per light fixture was the best one could expect. At the turn of the century, there was chatter that this didn’t have to be ‘good enough’. By 2015 growers both professional and amateur alike had proven that three pounds per light was achievable based on advancements up to that point, but no one thought it would ever get better than that. Until Fohse set out to prove them all wrong, and then did. They showed that higher light output does not have to mean higher heat and that Diode technology had come a long way in just a few short years. Mike Howard gives his take on this phenomenon:

“Everyone looks at LED lighting as still kind of a novelty; not something where it needs to be yet for cannabis growers. Having seen the evolution of LEDs that the Fohse team has created because of their cannabis mindset, it became obvious that we could focus on producing healthy plants.  A lot of other grow lighting companies are still looking at making and selling lights that can grow anything. Cannabis takes a lot of light and many companies and even growers don’t put enough light into commercial setups. Many cannabis growers never thought that LED technology was ever going to make it, but the power that comes out of Fohse fixtures is insane. Fohse lighting lets the grower focus on plant health and our yields show that. With Fohse LEDs, overtaking HPS, you can really push the limits of your grow.”

As Mike Howard said, Fohse fixtures are engineered with a “cannabis mindset”. HPS Light output has plateaued because the added heat load is both detrimental to the cannabis crop and uneconomical to counterbalance. With Fohse fixtures growers can focus more on the nuances of a high-intensity light environment instead of combatting heat. Ever since that first time Mike Howard oversaw production in the initial grow room where Fohse products were installed at the Grove, he immediately saw the results. He is now vowing to keep replacing The Grove’s less efficient HPS fixtures and outdated LEDs with Fohse lighting as they continue expanding. Find out how switching to Fohse fixtures will increase your cannabis production and about all of Fohse’s record-busting lighting at Fohse.com.

 

To say 2020 was a historic year is an understatement.

Arizona landed in a solid eighth place among the top ten most successful cannabis states thanks to its expansive medical cannabis program. To close out the year, voters approved Proposition 207, also known as the Smart and Safe Arizona Act (SSAA), making Arizona one of 15 states, plus Washington D.C., to legalize the adult use of cannabis, which is expected to rocket the state’s overall cannabis sales to new heights.

It’s essential to this conversation that we clarify the two sides of this rapidly growing industry. Medical cannabis is a form of treatment, the adult use and consumption of cannabis is a choice. During the pandemic, in many medical cannabis states, the medical cannabis industry was deemed an essential service and allowed to continue providing valuable medicine to patients and caregivers. As medical cannabis programs continue to provide safer therapeutic options which are complementary to or serve as an alternative to many traditional treatments and narcotics, especially opioids, patients can be confident the need for medical programs will continue. Arizona’s adult use cannabis program imposes greater limitations on quantity and potency, while also requiring higher standards for packaging. We saw a trend during the pandemic as again, many states prioritized and allowed their medical programs to continue, while limiting adult use facilities, in the same manner as other non-essential businesses.

It’s also worth noting that we have seen many inevitable changes in patient behaviors during the pandemic, including an increased need for medical cannabis. There was a patient demand for convenience, safety and no-contact services, increased online ordering, scheduling and curbside pick-up or delivery. Many of these services were already on the rise in popularity throughout the various legal states. While Arizona’s recreational program prohibits delivery until at least 2023, retail adult use consumers will expect some of these services to extend to the new market. As life after the COVID-19 pandemic continues on and the need for some of these safer more convenient options also continues, we hope to see them more permanently implemented from a legal and regulatory perspective. For now, here are the highlights we’ll see come into play in the first few months of 2021 as Arizona adopts its new adult use cannabis program.

Smart and Safe Arizona Act (Prop 207):

• Legalizes the sale, possession (one ounce) and consumption of adult use cannabis for adults at least 21 years old.
• Adds a 16 percent excise tax on adult use cannabis sales, in addition to the state’s 5.6 percent, totaling a 21.6 percent tax.
• Allocates an estimated $300 million in Arizona revenue to be divided between community college districts, municipal police, sheriff and fire departments, fire districts, highway funds, public health programs, infrastructure, and a new Justice Reinvestment Fund.
• Allocates more than $30 million annually for addiction prevention, substance treatment, teen suicide prevention, mental health programs, and justice reinvestment projects.
• Provides opportunities for expungement of certain lesser cannabis-related crimes such as possession, consumption, cultivation or transportation.

But of course, state law is just one part of the equation. Adult use cannabis facilities must be licensed separately from state to local levels, including counties to cities to local municipalities, all of which may also adopt rules and requirements through zoning and land use ordinances. Swift and certain timelines established by the Smart & Safe Act dictate the speedy launch of this new program, first utilizing the existing medical cannabis infrastructure.

Many Arizona consumers are under the impression that they’ll be able to walk into a dispensary on January 1, 2021 and buy cannabis. But that is not the case. They’ll have to wait until the Arizona Department of Health Services (AZDHS) completes the early applicant licensing process, which begins in January 2021. Currently, local and multistate operators are waiting for AZDHS to complete the rules and regulations for the adult use cannabis program. Here are two of the most significant steps to be navigated in the upcoming weeks:

Smart and Safe Arizona Act (Prop 207) – Step 1: The Rulemaking Process

AZDHS has been tasked with developing the rulemaking process for the Smart & Safe Act. The first draft of the adult use cannabis program rules has already been released, primarily consisting of the application requirements for the early applicant process.  AZDHS collected its first round of public comments for consideration on Thursday, December 17, 2020.  The exact details and parameters of the adult use cannabis program will not be finalized or known for certain until AZDHS completes the rulemaking process. We anticipate the next draft of adult use cannabis rules to be released sometime in early January.

Smart and Safe Arizona Act (Prop 207) – Step 2: The Application Process

AZDHS will begin accepting early applicants under the Smart & Safe Act on January 19, 2021, closing the process on March 9, 2021. Current medical cannabis license holders who apply for and acquire an adult use license in the early applicant process will be authorized to a dual-licensed dispensary (both medical and adult use license), as well as one offsite manufacturing facility (which may later be amended to include both medical and adult use manufacturing license), and offsite cultivation.

Early adult use license applicants are reserved for those that currently hold in good standing at least one Medical Marijuana Registration Certificate (“Medical Marijuana License”) and applicants applying to counties with no current operating dispensaries. Any county with a single operating dispensary (a medical cannabis dispensary) will be allocated an adult use license (dual license) as long as the medical license holder is in good standing for the application.  All adult use licenses allocated to those counties without a current operating dispensary must keep that dispensary within that county.

AZDHS will have 60 days to process each application. Adult use licenses for counties without a current operating dispensary will be allocated through a random selection process, if more than two applications are received for that county. Additionally, upon the conclusion of the early applicant process, any adult use license that has not yet been awarded through that process, will be available to the general public and allocated through a random selection process.

This brings us to later phases of implementation of the Smart & Safe Act: within approximately six months of the adoption of the initial recreational program rules, AZDHS must develop and adopt the rules and regulations for the Social Equity Ownership Program (SEOP). The primary goal of the SEOP is to allocate 26 adult use licenses to “communities disproportionately impacted by the enforcement of previous cannabis laws.” In other words, communities disproportionately and negatively impacted by cannabis criminalization. Smart & Safe is light on the exact manner and process at this point, so Arizona voters and cannabis companies will look to AZDHS for the development and implementation of this important part of the adult use program. Stay tuned.

Cannabis-infused beverages may only represent a small portion of the overall legal market in the U.S. and Canada now, but there are several reasons to believe that may change, and quickly.

Several companies—from cannabis giants like Canopy Growth and Acreage Holdings to historic, household brands like Pabst Blue Ribbon (PBR)—have placed their bets on cannabis-infused beverages, announcing releases (or plans to) in Q4 2020.

In the case of PBR, which agreed to allow the independently operated Pabst Labs to use its brand for its new THC-based drink, the company and many others are fueling a growing niche within the cannabis beverage niche–THC-infused tonics.

And if the popularity of sparking water brands like La Croix and alcohol-based hard seltzers are any indication, these bubbling beverages may be the drink that takes this edibles segment to the next level.

Poised for Growth

The edibles market represents 15% of all cannabis sales in the U.S., according to a recent webinar hosted by industry research firm BDSA, and beverages make up just a small portion of edibles sales at 5%. In Canada, those figures are 6% and 3%, respectively, according to BDSA. But there is evidence of growing interest.

Of U.S. cannabis consumers, nearly a fifth consume beverages and 8% prefer them, according to BDSA.

A Brightfield Group Q2 2020 survey of 3,500 U.S. cannabis consumers showed similar trends, as ​22% reported consuming a cannabis-infused drink. That’s compared with 57% consuming flower and 41% consuming gummies, according to Brightfield. 

But, “the category has seen significant growth year over year. In Q3 2019, only 14% of cannabis consumers were using drinks,” Bethany Gomez, managing director of Brightfield Group, said in an email to Cannabis Business Times and Cannabis Dispensary. “We do expect this growth trajectory to continue year over year, but given that products are generally sold as a single serve product, the percentage of the overall market is quite low.”

That’s one problem that cannabis beverage brands are trying to solve by offering drinks in multipacks, similar to soda and beer.

The brand Cann Social Tonics, which is available in California, Nevada and Rhode Island, sells its products in six-packs and 24-can “party packs.” The idea was to make a drink that looks and feels just like any other beverage you’d take to a party and share with others, mimicking other consumer packaged goods, said Cann co-founder Luke Anderson in an interview with Cannabis Business Times and Cannabis Dispensary in September.

“I think carbonated beverages are having a moment,” Anderson said. “The sparkling water market’s evolution over the last few years is a sign of people looking for something that has a little bite to it and a little bit of texture. So we want [Cann] to integrate in the same social settings and have people think about them the same way they do a beer, a light beer, a hard seltzer or a craft cocktail in a can.”

Part of the challenge was making something that wasn’t overly sweet taste good, and not relying on “hundreds of calories to mask the taste of cannabis,” said Cann co-founder Jake Bullock. They also wanted to create a beverage that allowed people to control their dosages more easily and where they could enjoy a couple and not be overly intoxicated.

“If you think about products like other mild intoxicants—caffeine, alcohol—we consume them in a beverage, and most importantly, in that beverage, we consume them in a microdose,” Bullock said. “We’re not running around drinking eight shots of espresso or Everclear grain alcohol. When you bring the dosing way down, it becomes approachable for new consumers, it becomes social, it can integrate and behaves as the same strength as a glass of wine or a light beer.”

Cann offers flavors such as lemon lavender, grapefruit rosemary and blood orange cardamom, and each can contains 2 mg of THC and 35 calories, one of the lowest in both categories in the cannabis beverage market. According to BDSA, Cann is now the third highest-selling cannabis beverage in legal markets in the U.S. 

“That’s really our vision is just to continue to produce approachably dosed, nothing more than five milligrams, THC beverages that welcome in a whole new wave of consumers,” Anderson says.

Familiar Brands Fuel Acceptance

Combining cannabis with a familiar “form factor,” beverages are one avenue to further destigmatize cannabis use and can attract consumers who may not be comfortable with smoking, vaping or other consumption methods. When you integrate a brand that’s been around for 175 years with cannabis, that can encourage people who may be unfamiliar with cannabis or had a bad experience in the past to try again, said Austin Stevenson, chief innovation officer of Vertosa, which helped develop Lagunitas Hi-Fi Hops, a “hoppy sparkling water,” and Pabst Blue Ribbon Cannabis-Infused Seltzer. 

“PBR is over 175 years old, and so what having a brand like PBR does is it crosses generations of cannabis consumers,” Stevenson said. “We know, aside from millennials, that people over the age of 55 are one of the fastest-growing segments of cannabis consumers, and to be able to have your 20-something-year-old get a PBR and go home to their grandparents and say, ‘Look, here is the brand that you grew up consuming,’ but now with a cannabis function, it only helps to normalize and destigmatize the industry.”

Mark Faicol, brand manager of Pabst Labs, which was founded by a group of beverage experts and former PBR employees, said although one target customer is brand loyalists, he sees PBR further contributing to the wider acceptance of cannabis.

“We have a unique—call it competitive, advantage—but really a history in the market, being around for so long … as a trusted well-respected brand,” Faicol said, adding that Pabst Labs has the opportunity to leverage that.

Pabst Labs launched its cannabis-infused seltzer in California with one simple, “easy to understand” flavor – lemon, which is also part of the company’s strategy to appeal to a diverse, wide audience. Each can contains 5 mg of THC, 4 grams of sugar and just 25 calories, and they come in four-packs. Although more flavors may be introduced, Faicol said the initial goal was to, “Do one thing, and do it well, and really be very simple and approachable. Lemon is [a flavor] that is very sessionable and most widely accepted, at least that’s what our data pointed toward.”

Responsible dosing was another focus for the company, Faicol said. Although many consumers still purchase based on price per milligram in an attempt to get the most value out of products, that can lead to negative experiences. He also points out that while people may have had one – or many – hangovers, they continue to drink alcohol, but one bad cannabis experience can drive a consumer away for good.

“That’s something that the brands in beverages are really kind of working together on, to educate on proper dosing,” Faicol said. “And I think it will only help the category at large.”

While more consumers may be coming on board, there are challenges in distribution logistics and placement in dispensaries, especially in legacy markets that were built to merchandise flower, edibles and other traditional products, and may not be configured to include refrigerators displaying drinks, Stevenson said.  

“They weren’t built like a 7-Eleven for beverages,” Stevenson said. “They haven’t invested in it. They don’t have the floor space either because of regulations … or those investments haven’t been there.”

However, as newer markets in the Midwest and East Coast continue to grow, Stevenson says he sees new opportunities to encourage cannabis companies to build and develop dispensaries with beverages in mind—and get the buy-in from regulators, too.

“[Vertosa] is looking at Illinois, at Michigan, Massachusetts, these big beer-drinking markets where they’re getting cannabis regulation for the first time. When we have brands like Lagunitas, like PBR, when we enter these new markets, we want to make sure that the consumer retail experience highlights these opportunities to have a more approachable type of product,” he said. “In these new markets, you’re going to build retail experiences that have cooler spaces that have displays. I work at both the state level and the local level on some regulatory policies to help promote and make consumers and business operators aware that cannabis beverage is here, but the retail channel needs to be able to support product placement like any other traditional retailer.”

Catering to Experienced Consumers

While low-dose beverages can serve as an entry point for those who are curious but hesitant to try cannabis, offering a wide variety of products is important to reach the more seasoned consumer, too, Stevenson said.

“For your introductory consumer, you’re going to go with a low-dose product, 5 milligrams of THC, and that can be had any time during the day,” Stevenson said. “Now how you differentiate is you look at the [Lagunitas] Hi-Fi Hops portfolio, and they have a THC product that is 10 milligrams, and then they also have a CBD product that’s [18 milligrams CBD]. And so the CBD product is more for the relaxation.

“And so by building a beverage portfolio, that’s how you start to address the different consumer functional needs by changing the different ratios of cannabinoids of THC versus CBD or high-dose versus low-dose.”

Brightfield Group’s Bethany Gomez said thinking about who your consumer is and how they want to experience your product is important when building a brand.

“If you are pitching [a] cannabis beverage as an alcohol substitute, it needs to be effectively positioned for the same occasions that people are using alcohol,” Gomez said in an email. “But many consumers use cannabis and alcohol quite differently, in different [times of day] or during different moments of consumption, [such as] before a workout or to inspire creativity, which makes it not as straightforward a substitute.”  

However, just because a beverage is marketed a certain way doesn’t mean that’s how it will be consumed. Take the example of Cann. Although the founders couldn’t predict the coronavirus pandemic nor the effect on sales of a drink they envisioned being a “social” tonic, it did not have a negative effect on company growth, Anderson said. 

“The toughest part of this company was the first year on market, our sales were relatively flat. Consumers loved the product, but they couldn’t really understand how to think about it because alcohol was dominating their social [lives] and bars were open,” he said. “You could have a Cann at a pregame. You could have a Cann on a weeknight, but come Friday, you’re trained to go out and you’re trained to just drink whatever is available to you on tap.”

Once states began instituting stay-at-home orders and closing bars, that’s when things changed, Anderson said. Sales increased 10 times what they were before the pandemic, he said. 

“This idea that people were buying a bunch of cannabis to ease their anxiety was the first wave of the sales spike,” Anderson said. “People were enjoying the fact they could feel a buzz and hang out and laugh and have a good time, but not feel like crap the next day.”

Paying attention to these consumer preferences and how they evolve is an important part of driving innovation and sales, Faicol said. 

“[PBR] made a conscious decision to change. We’re a beer brand through and through, but we made a decision many years back that, the consumer is going to want something else. And America is going to look very different … five years from now,” Faicol said. “But I think that’s going to be a critical driver, is the ability for brands to continue to innovate, and really keep it exciting, which we’re committed to do.”

This article has been updated from its original version to clarify that Hi-Fi Hops is a nonalcoholic, hoppy cannabis-infused sparkling water, not a nonalcoholic, cannabis-infused beer. 

Cannabis-infused beverages may only represent a small portion of the overall legal market in the U.S. and Canada now, but there are several reasons to believe that may change, and quickly.

Several companies—from cannabis giants like Canopy Growth and Acreage Holdings to historic, household brands like Pabst Blue Ribbon (PBR)—have placed their bets on cannabis-infused beverages, announcing releases (or plans to) in Q4 2020.

In the case of PBR, which agreed to allow the independently operated Pabst Labs to use its brand for its new THC-based drink, the company is not subbing alcohol for THC and creating a beer, like Lagunitas Brewing Company (and parent brand Heineken) did in the case of Hi-Fi Hops. Instead, PBR Labs and many others are fueling a growing niche within the cannabis beverage niche–THC-infused tonics.

And if the popularity of sparking water brands like La Croix and alcohol-based hard seltzers are any indication, these bubbling beverages may be the drink that takes this edibles segment to the next level.

Poised for Growth

The edibles market represents 15% of all cannabis sales in the U.S., according to a recent webinar hosted by industry research firm BDSA, and beverages make up just a small portion of edibles sales at 5%. In Canada, those figures are 6% and 3%, respectively, according to BDSA. But there is evidence of growing interest.

Of U.S. cannabis consumers, nearly a fifth consume beverages and 8% prefer them, according to BDSA.

A Brightfield Group Q2 2020 survey of 3,500 U.S. cannabis consumers showed similar trends, as ​22% reported consuming a cannabis-infused drink. That’s compared with 57% consuming flower and 41% consuming gummies, according to Brightfield. 

But, “the category has seen significant growth year over year. In Q3 2019, only 14% of cannabis consumers were using drinks,” Bethany Gomez, managing director of Brightfield Group, said in an email to Cannabis Business Times and Cannabis Dispensary. “We do expect this growth trajectory to continue year over year, but given that products are generally sold as a single serve product, the percentage of the overall market is quite low.”

That’s one problem that cannabis beverage brands are trying to solve by offering drinks in multipacks, similar to soda and beer.

The brand Cann Social Tonics, which is available in California, Nevada and Rhode Island, sells its products in six-packs and 24-can “party packs.” The idea was to make a drink that looks and feels just like any other beverage you’d take to a party and share with others, mimicking other consumer packaged goods, said Cann co-founder Luke Anderson in an interview with Cannabis Business Times and Cannabis Dispensary in September.

“I think carbonated beverages are having a moment,” Anderson said. “The sparkling water market’s evolution over the last few years is a sign of people looking for something that has a little bite to it and a little bit of texture. So we want [Cann] to integrate in the same social settings and have people think about them the same way they do a beer, a light beer, a hard seltzer or a craft cocktail in a can.”

Part of the challenge was making something that wasn’t overly sweet taste good, and not relying on “hundreds of calories to mask the taste of cannabis,” said Cann co-founder Jake Bullock. They also wanted to create a beverage that allowed people to control their dosages more easily and where they could enjoy a couple and not be overly intoxicated.

“If you think about products like other mild intoxicants—caffeine, alcohol—we consume them in a beverage, and most importantly, in that beverage, we consume them in a microdose,” Bullock said. “We’re not running around drinking eight shots of espresso or Everclear grain alcohol. When you bring the dosing way down, it becomes approachable for new consumers, it becomes social, it can integrate and behaves as the same strength as a glass of wine or a light beer.”

Cann offers flavors such as lemon lavender, grapefruit rosemary and blood orange cardamom, and each can contains 2 mg of THC and 35 calories, one of the lowest in both categories in the cannabis beverage market. According to BDSA, Cann is now the third highest-selling cannabis beverage in legal markets in the U.S. 

“That’s really our vision is just to continue to produce approachably dosed, nothing more than five milligrams, THC beverages that welcome in a whole new wave of consumers,” Anderson says.

Familiar Brands Fuel Acceptance

Combining cannabis with a familiar “form factor,” beverages are one avenue to further destigmatize cannabis use and can attract consumers who may not be comfortable with smoking, vaping or other consumption methods. When you integrate a brand that’s been around for 175 years with cannabis, that can encourage people who may be unfamiliar with cannabis or had a bad experience in the past to try again, said Austin Stevenson, chief innovation officer of Vertosa, which helped develop Lagunitas Hi-Fi Hops and Pabst Blue Ribbon Cannabis-Infused Seltzer. 

“PBR is over 175 years old, and so what having a brand like PBR does is it crosses generations of cannabis consumers,” Stevenson said. “We know, aside from millennials, that people over the age of 55 are one of the fastest-growing segments of cannabis consumers, and to be able to have your 20-something-year-old get a PBR and go home to their grandparents and say, ‘Look, here is the brand that you grew up consuming,’ but now with a cannabis function, it only helps to normalize and destigmatize the industry.”

Mark Faicol, brand manager of Pabst Labs, which was founded by a group of beverage experts and former PBR employees, said although one target customer is brand loyalists, he sees PBR further contributing to the wider acceptance of cannabis.

“We have a unique—call it competitive, advantage—but really a history in the market, being around for so long … as a trusted well-respected brand,” Faicol said, adding that Pabst Labs has the opportunity to leverage that.

PBR launched in California with one simple, “easy to understand” flavor – lemon, which is also part of the company’s strategy to appeal to a diverse, wide audience. Each can contains 5 mg of THC, 4 grams of sugar and just 25 calories, and they come in four-packs. Although more flavors may be introduced, Faicol said the initial goal was to, “Do one thing, and do it well, and really be very simple and approachable. Lemon is [a flavor] that is very sessionable and most widely accepted, at least that’s what our data pointed toward.”

Responsible dosing was another focus for the company, Faicol said. Although many consumers still purchase based on price per milligram in an attempt to get the most value out of products, that can lead to negative experiences. He also points out that while people may have had one – or many – bad hangovers, they continue to drink alcohol, but one bad cannabis experience can drive a consumer away for good.

“That’s something that the brands in beverages are really kind of working together on, to educate on proper dosing,” Faicol said. “And I think it will only help the category at large.”

While more consumers may be coming on board, there are challenges in distribution logistics and placement in dispensaries, especially in legacy markets that were built to merchandise flower, edibles and other traditional products, and may not be configured to include refrigerators displaying drinks, Stevenson said.  

“They weren’t built like a 7-Eleven for beverages,” Stevenson said. “They haven’t invested in it. They don’t have the floor space either because of regulations … or those investments haven’t been there.”

However, as newer markets in the Midwest and East Coast continue to grow, Stevenson says he sees new opportunities to encourage cannabis companies to build and develop dispensaries with beverages in mind—and get the buy-in from regulators, too.

“[Vertosa] is looking at Illinois, at Michigan, Massachusetts, these big beer-drinking markets where they’re getting cannabis regulation for the first time. When we have brands like Lagunitas like PBR, when we enter these new markets, we want to make sure that the consumer retail experience highlights these opportunities to have a more approachable type of product,” he said. “In these new markets, you’re going to build retail experiences that have cooler spaces that have displays. I work at both the state level and the local level on some regulatory policies to help promote and make consumers and business operators aware that cannabis beverage is here, but the retail channel needs to be able to support product placement like any other traditional retailer.”

Catering to Experienced Consumers

While low-dose beverages can serve as an entry point for those who are curious but hesitant to try cannabis, offering a wide variety of products is important to reach the more seasoned consumer, too, Stevenson said.

“For your introductory consumer, you’re going to go with a low-dose product, 5 milligrams of THC, and that can be had any time during the day,” Stevenson said. “Now how you differentiate is you look at the [Lagunitas] Hi-Fi Hops portfolio, and they have a THC product that is 10 milligrams, and then they also have a CBD product that’s 10 milligrams. And so the CBD product is more for the relaxation.

“And so by building a beverage portfolio, that’s how you start to address the different consumer functional needs by changing the different ratios of cannabinoids of THC versus CBD or high-dose versus low-dose.”

Brightfield Group’s Bethany Gomez said thinking about who your consumer is and how they want to experience your product is important when building a brand.

“If you are pitching [a] cannabis beverage as an alcohol substitute, it needs to be effectively positioned for the same occasions that people are using alcohol,” Gomez said in an email. “But many consumers use cannabis and alcohol quite differently, in different [times of day] or during different moments of consumption, [such as] before a workout or to inspire creativity, which makes it not a straightforward a substitute.”  

However, just because a beverage is marketed a certain way doesn’t mean that’s how it will be consumed. Take the example of Cann. Although the founders couldn’t predict the coronavirus pandemic nor the effect on sales of a drink they envisioned being a “social” tonic, it did not have a negative effect on company growth, Anderson said. 

“The toughest part of this company was the first year on market, our sales were relatively flat. Consumers loved the product, but they couldn’t really understand how to think about it because alcohol was dominating their social [lives] and bars were open,” he said. “You could have a Cann at a pregame. You could have a Cann on a weeknight, but come Friday, you’re trained to go out and you’re trained to just drink whatever is available to you on tap.”

Once states began instituting stay-at-home orders and closing bars, that’s when things changed, Anderson said. Sales increased 10 times what they were before the pandemic, he said. 

“This idea that people were buying a bunch of cannabis to ease their anxiety was the first wave of the sales spike,” Anderson said. “People were enjoying the fact they could feel a buzz and hang out and laugh and have a good time, but not feel like crap the next day.”

Paying attention to these consumer preferences and how they evolve is an important part of driving innovation and sales, Faicol said. 

“[PBR] made a conscious decision to change. We’re a beer brand through and through, but we made a decision many years back that, the consumer is going to want something else. And America is going to look very different … five years from now,” Faicol said. “But I think that’s going to be a critical driver, is the ability for brands to continue to innovate, and really keep it exciting, which we’re committed to do.”