Why the Buzz From Cannabis Infused Beverages May Burn Investors?

Why the Buzz From Cannabis Infused Beverages May Burn Investors?

INVEST IN CANNABIS BEER

If you have been following the cannabis industry for the past year you have seen the uptick in startups and articles around cannabis infused alcoholic beverages.  Articles involving Province Brands in Canada developing the first cannabis-based beer (no hops, just cannabis bud used), to Constellation Brands buying a 10% stake in Canopy Growth out of Canada for close to $ 200 million.  Constellation Brands is the liquor company behind such brands as Corona, Modela, and Svedka.  On paper, cannabis and alcohol go together as ways to relax, just think of a “beer and a joint”.  In reality, combining the two into one product could turn fans of both substances off, and lead to poor sales and launches.

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Let’s look at some the problems these beverages could face as they try to win over the hearts and minds of not only cannabis fans, but also staunch alcohol fans.

  1.  Is there demand for this product?  In true “Lean Startup fashion”, test demand first before building out supply.  Is there a demand or need for a cannabis beer or cannabis wine?  I will say no.  Coming from and analytics world, there is just no search volume or demand for it, yet.  That is no uncommon for a product that has yet to be created, as you must teach people about your product first, and then have them write about it, spread the word, and then people will search for it.  That whole process is called marketing and it takes time and money.  The bigger problem in the room, and the elephant in the room as they say, is that these two products are complete opposites as far as health, experience, desired effect, and price points.   Cannabis users already have a fierce opposition to being lumped in with the alcohol bucket and the phrase “one is just as bad as the other” from anti-pot proponents.  In the same way traditional yoga devotees hated seeing their yoga mixed with other movements like cardio training and cycling, so too will many cannabis fans hate seeing the healing plant mixed with alcohol.  Cannabis is a plant that heals the body, helps repair brain cells, and acts an anti-inflammatory to muscular system.  Alcohol is a depressant, it dehydrates the body and brain cells, causes lives and kidney damage, not to mention the emotional toll that large drinkers take on families and relationships.  Again, both substance can penetrate the blood/brain barrier, so you feel their effects in your brain, but completely opposite in intent and purpose.
  1. The second biggest elephant in the room that no one seems to be able to answer is what is the effect of the drink, or what is the desired effect the user should feel and pay money for?  If there is alcohol in the drink, is the user suppose to feel buzzed or drunk after a few?  If there is cannabis infused or used as part of the ingredients, are they supposed to feel high?  If I drink one beverage with alcohol and cannabis, what should I feel, or hope to feel? How about drinking 3 or them?  There seems to be lots of open ended descriptions when you read the articles and interviews from companies describing their future drink.  Phrases like “highly intoxicating but healthier and safer than alcohol” and “A great tastes with a cannabis high in a beer bottle” seem to be floated around like we know what that means.  Highly intoxicating but safer than alcohol mean what?  I am intoxicated or inebriated, so how is it safer than alcohol?  I will not want to drive a car if I am high intoxicated on anything, so does that mean it is healthier than alcohol but not necessarily safer?

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Look to History

Beer and wine companies have always been trying to make their beverages lower calorie or healthier for the consumer.  Check out the selection of light beers and Skinny Girl cocktail mixes as there is a need for lower calorie drinks out there as consumers speak with their pocketbooks.  Lower calorie yes, but healthier, not so much.  Many attempts by alcohol companies to get healthier have fallen flat for the simple reasons that people don’t drink alcohol to be healthy, they drink it to relax, socialize, or “get bleeped up” if you listed to college kids.  Remember when Budweiser tried the “B to the E” project of mixing in ginseng and herbs into a Budweiser beer?  It was touted as a beer that would act as an energy drink at the same time, best of both worlds, right?  The fact you have no idea what I am talking about tells you how that went, and they are a billion-dollar company that can waste $ 50mil on testing.  How many cannabis companies can do that?

b to the e beer

History is littered with examples of “those two should work great together”, with chocolate falling into peanut butter being the utmost success.  A couple of examples include in the online betting space, one would think that fantasy football players would convert to being great gamblers or bettors on sports as they study stats all day, know tons about football, know the players inside and out, etc.  Turns out fantasy footballs don’t like traditional betting on football and basketball at all and didn’t covert well to sports betting. Gambling had to change in order to capture that market and now you can play fantasy football for real money at sites like Draft Kings and Fan Duel.  Fantasy football players had no interest in betting the Cowboys -7 over the Redskins as a football game, but let them draft Cowboy players and make their own teams, and they have no problem betting $ 100 a game or tournament at 1pm EST on Sundays.  Strange but true quirks exist out there.

Want another sure fire, can’t go wrong, and then it missed idea?  When online casinos where coming of age, many operations thought that adding sexy or nude models to their websites would enhance the user experience since most online gamblers were men between the ages of 18 and 34.  All the websites that added sexy models to the back of their playing cards or slot machines ended up changing them out within a few months.  The message was that guys came here to play cards or gamble, not look at girls.  There is a reason you don’t see sexy images and nude girls in Vegas in the actual casino or on playing cards or slot machines.  Gambling is gambling time, sexy time is sexy time, and the two should not intersect.  Gambling with cards requires concentration and the study of numbers and other people, not the time to look at bikini clad women.

Just like when someone goes to Morton’s or Ruth Chris and orders the 48-ounce ribeye with a baked potato and sour cream, he doesn’t ask if the sour cream is low fat.  At that moment, you want the enjoyment that comes from eating that meal.  If someone buys a 6 pack of beer or a Friday night or to watch the game on Saturday, they want a desired effect from that beer.  In the same sense, if someone wants to pack a bowl and chill, they want a certain effect to happen from smoking that bowl.  The effects from alcohol and cannabis are completely different and mixing them together will create an overall question of, “Why am I drinking this, to feel what?” and whatever your answer is, it is done better by just using alcohol or just using cannabis.

alcohol verse cannabis

Have you seen the stats for legal cannabis states on liquor sales?  To ballpark it, liquor sales drop 15% in legal cannabis states.  That means people are choosing cannabis at certain price points and NOT buying their usual liquor purchase, or at least 85% of their usual.  Separate but equal at its finest.

The other problem facing the infused crowd is that cannabis beverages already exist and are getting better each year.  If you want the effect of cannabis going through your liver as opposed to your lungs, you can do that with a variety of drinks and edibles already in the market.  Some of the CannaPunch brands pack a powerful cannabis shot in liquid form, and new cannabis sodas are coming on the market each quarter.

Which begs the question for investors to ask?  What “pain” does this product solve so that someone will take out their wallet and spend $ 5 or $ 10 to have this drink take away that pain for them?  If you want to get high or use CBD, you can use any form of cannabis. If you want to get buzzed or drunk, you can use over 1,000 different options on the market?  Who wants both together, and what are you supposed to feel after drinking a cannabis alcohol beverage?  High? Drunk?  Cannabis and alcohol have opposite effects on the body, but because they can both pass through the blood brain barrier, people think they should go together.  Would you try a beer laced with aspirin?   Why not?  Aspirin is an anti-inflammatory and could help with brain dehydration and a hangover.  Why haven’t we seen Budweiser infused with Tylenol created and market as “a great beer with no hangover!”.

Separate but equal.  (and the consumer didn’t want it and would not pay for it, that’s why.)

Another problem for sales growth with be drug testing.  Many users of alcohol will not be able buy a beer or wine with THC in it as it would show up on a drug test.  Having too many beers on Friday night will not get your fired on a Monday morning drug test, having THC and CBD in your body very well could get you fired.

If you are looking at the market for a cannabis infused alcoholic drink you need to remove 1. The people who love cannabis and think it should never be paired up with alcohol 2. Anyone who has to pass a drug test or works for the government or the school systems 3. People who enjoy alcohol already and have no interest in THC or cannabis getting in their booze (think Southern Conservatives – whiskey and scotch are great, but not that devil weed!) 4. Baby boomers – the focus on health as you get older and the decline of drinking alcohol will only push this group to straight cannabis options – think doctors office checkup. 

I am not saying all cannabis infused beverages are dead on arrival, but I don’t see the mass appeal that some investors are hoping for and counting on to “go to the moon with cannabis beer, everyone will want one!”

Make sure you do your due diligence and really look at what sales projections are on the spreadsheets and the “assumptions” about future growth.  Does the slide deck show 30% growth year over year?  Ask them who is going to buy this product and why?  What effect should a user feel after 1, 3, and 5 of their drinks?  Is someone going to pay a premium price for that effect when straight cannabis or alcohol alone could deliver the same?

Don’t count on seeing “B to the C” anytime soon.

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