Bending the Curve: Canna-beverages and the Future of Pot

If you’re talking about today, you might be missing the point.

Canna-beverages are hitting the market, like Cann, Oh Hi, Keef and Mood33 (clockwise from top left).

Canna-beverages (drinks infused with THC, CBD, and/or other cannabinoids) could be massive. Various market research organizations seem to agree, pegging the market’s potential over $1 billion annually by 2024.

But there’s a number of industry leaders who really disagree. For instance:

I’ll admit, Amanda Chicago Lewis immediately got my attention with this tweet and her story on THC canna-beverages. Her story is well-researched, vibrantly written, and insightful into many dynamics in the space. But, unfortunately, it gets the opportunity in beverages entirely wrong:

“There’s only one problem: no one really wants or likes cannabis beverages. In legal adult-use marijuana markets, infused beverages make up a mere 2 to 3 percent of total sales.”

The tone generally persists throughout the piece: broadly negative on beverages (with a few exceptions) and somewhat judgmental of new entrants.

To be fair, Lewis fully admits she considers herself part of the existing market for cannabis and, thus, is less familiar with the motivations of the future consumers to come. It’s a vital distinction, and worth unpacking.

Who is the Cannabis Customer?

It’s a question that companies are really trying to understand. For the current discussion, let’s focus right now on recreational cannabis, as opposed to medical cannabis applications and cannabis for wellness (e.g. CBD).

With the advent of legal cannabis, we’ve rapidly moved away from a binary understanding of cannabis consumption (“stoner” or not) towards sophisticated market segmentations along demographics, psychographics, and behavioral dimensions.

An example market segmentation from New Frontier’s The Cannabis Consumer report

This effort is still in its early innings for cannabis, as the technology companies focused on capturing data on consumers’ habits are limited by their own market penetration (e.g. dispensary coverage, geographies of focus). But the implications are clear — understanding how different types of consumers approach their cannabis consumption is vital in building a go-to-market and long-term strategy.

Pareto Rules Everything Around Me

For simplicity’s sake, rather than striving to segment the market by customer personas, let’s instead view different segments by their potential level of consumption. In the era of illicit cannabis, the heavy consumers of cannabis flower were the primary target consumer, as they represented such a substantial portion of the market. With illegality constraining product research, brand development, and distribution channels, the historical focus was on what the black market could deliver to the “power consumer” — cannabis flower with the highest THC content possible (or high potency derivatives, like butter, wax and hash).

It’s a classic example of the Pareto Rule — a majority of the revenue attributable to a minority of customers. One might also further segment the market until the segments resembles a curve, as below.

Illicit market segmentation and consumption visualized as a curve

Social taboos and legals risks certainly constrained consumer’s interest. With the advent of legal cannabis, these factors have decreased dramatically and expanded the cannabis market. Even more importantly, research into all aspects of cannabis, innovation around delivery mechanisms, far improved accessibility, and the growth of formalized brands in the space are dramatically shifting the composition of the cannabis market.

You Vape, Bro?

Take, for instance, the growth of the cannabis vape. Vaporizing as a means to consume cannabis is not a new innovation. The Greek historian Herodotus wrote of ancient Scythians vaporizing cannabis via hot stones. The 20th century brought along a number of vaporizer patents, as well as the invention of classic products like the Volcano vaporizer. But it would be the 2003 invention of the modern e-cigarette by Chinese pharmacist Hon Lik that would supercharge the market. Derivatives of Hon Lik’s original design came to the U.S. in 2006 and grew in popularity as the technology developed, the idea became more familiar and recreational legalization efforts manifested in the 2010’s. By last year, concentrates represented a higher market share than flower in California, driven primarily by vapes.

But why? What drew people in? A few factors:

Control and efficiency: With a variety of brands offering differentiated experiences and precision control around dosing and heat, consumers can seek out a consistent vape experience that best fits their needs. Moreover, vapes can be a more efficient means to consume and allows for a more delineated process (i.e. more ability to consume over time vs. all at once).

With a variety of brands offering differentiated experiences and precision control around dosing and heat, consumers can seek out a consistent vape experience that best fits their needs. Moreover, vapes can be a more efficient means to consume and allows for a more delineated process (i.e. more ability to consume over time vs. all at once). Distinct, novel experience: For many consumers, the act of smoking cannabis was a barrier to consumption. The success of anti-tobacco efforts in many ways dirtied the image of smoking anything, and stereotypes around stoner culture dissuaded some. By creating a new consumption experience, vapes avoided some of these challenges.

For many consumers, the act of smoking cannabis was a barrier to consumption. The success of anti-tobacco efforts in many ways dirtied the image of smoking anything, and stereotypes around stoner culture dissuaded some. By creating a new consumption experience, vapes avoided some of these challenges. More flexibility in points of consumption: By simplifying logistics and offering a discreet consumption method, vapes expanded where and when you could consume cannabis. Rather than dealing with transporting a joint, using other smoking devices, or worrying about odors, vapes made for quicker and easier cannabis use.

Vapes, in many ways, have expanded the cannabis experience, catering to broader criteria than traditional consumption methods. In doing so, they’ve not only converted over some “power consumers”, but expanded consumption in other segments and even brought in entirely new customers.

N ot Just Bigger, But Different, Too

This move is true not just of vapes, but across all cannabis categories. The market has not just grown, but shifted meaningfully in composition. Consumers who were once afterthoughts now represent a more significant portion of the market.

Legality has not only grown the market, but shifted the composition towards new consumers.

Nevertheless, even with this new, more flattened curve, the “power consumer” is of primary focus, as their outsized consumption is still well understood. The largest new brand or product still might ideally capture demand from this highest consumption group, while also hopefully appealing to new consumer segments into the market.

Other, more targeted brands might seek to appeal to specific niches within other segments (chasing the Long Tail), but constraints around distribution, limited dispensary shelf space and sub-optimal discovery in online channels presents challenges for such companies.

Bending the Curve

The emergence of canna-beverages as a category could again shift the market. Just like vapes, canna-beverages represent a novel expansion of our interactions with cannabis. However, canna-beverages could be even more transformative, as they align with a few radical opportunities:

Unlike vapes, however, canna-beverages’ appeal may be rooted in the new consumer segments. Many of vaping’s benefits — portability, efficiency, and discreet use — still aligned with power consumers’ frictions, as well as new consumers. If Ms. Lewis is representative of that consumer, beverages may be too different an experience to be a meaningful element of their mix.

If so, canna-beverages could represent the most fundamental disruption yet seen in the industry. The change to our curve would not be a shift, but a full bend.

*To the tune of Aladdin’s “A Whole New World*

The implications are profound. Canna-beverages could upend the recreational market and set a new status quo on how America interacts with cannabis. Their disruptive potential is substantial because of its diversity, with realistic impacts on situations spanning from a substitute to traditional smoking to a new alternative where alcohol lubricates the social vibes to low intensity get-togethers like coffee chats.

It’s somewhat of a sacrilege to some — a future where cannabis legalization entails not only the acceptance of cannabis’ rich history and traditions by new consumers, but also an evolution of the market into products that differ so radically from the past. By launching the industry into broader acceptance and consumption than ever before, could canna-beverages act as the late stage gentrification of the industry, where trends dilute cannabis into something altogether unrecognizable? Everyone wants growth, but it’s sometimes tough to swallow when paired with radical change.

The future of cannabis will definitely be different. It’ll probably be really refreshing, too.