Cool, Calm and Climbing: CBD Drinks Maintain Rising, Regardless of Look ahead to Regulatory Readability

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From a global pandemic to the war in Ukraine to a slew of economic challenges, 2022 is something of a golden age for anxiety and stress. In other words, it’s a good time to start selling CBD.

That may simplify the premise a bit, but the numbers seem to back it up. According to data from research firm Brightfield, CBD beverages are expected to continue growing, with the momentum generated after a 2020 slump showing significant legs. In 2021, the U.S. CBD beverage market grew by 50%, while that metric is expected to reach 62% this year and 65% in 2023, which will be worth around $657 million by then. Because of the attention and scrutiny the category has received in a short span of time, it’s easy to forget just how young the space is — and how much room it still has to grow, given the obvious question of its federal status.

However, those stats may obscure a more nuanced picture: Many of the top CBD beverage companies by brand share — names like VYBES, Weller, and Recess — are no longer exclusively in the CBD business. While their hemp-infused products are still in the early stages, these brands have already entered the platform and are looking to build brand awareness and product credibility through adjacent functional RTDs with ingredients such as magnesium and immune-boosting adaptogens. Meanwhile, the FDA’s inaction on CBD is impacting retailers as well. After seeing little fanfare for change in Washington, major beverage alcohol suppliers like Southern Glazer’s and Breakthru Beverage have just stopped waiting and have already made the leap into the CBD category.

Relaxation ascending

Within an overall US CBD market that generated $4.7 billion in retail sales last year, beverages remain one of the most attractive product segments. Driven by strong adoption among higher-income Gen Z consumers, potable CBD products represent the fastest-growing product type since 2018, generating $245 million in sales last year.

As you’d expect, CBD products that promise anti-anxiety and relaxation attract consumers with higher-than-average stress, which is over-indicated for beverages. In a fourth-quarter 2021 study, 24% of total CBD consumers self-identified as “stressed millennials,” compared to 33% among CBD beverage consumers. In the latter group, 10.3% identified as “attackers with chronic symptoms,” compared to 7.8% of total CBD users. Almost half of all CBD beverage consumers in the study were daily consumers, while a dosage of 51-100 mg was almost double the preference for a 0-20 mg dosage found in many current RTD products .

What do you expect from this type of dosage? According to Brightfield data, relief from anxiety, depression, and joint pain are the top three most sought-after effects among CBD drink consumers, and they are willing to pay a premium to get relief throughout the day. However, under pressure from an expanding functional beverage field, CBD beverage brands have sought to squeeze margins and push promotions to reach a price point more conducive to driving trials and encouraging bulk buying habits, even in the midst of one rising inflation and rising input costs.

“We’re seeing prices in this category steadily decline for the last 18 months or so amidst the biggest inflation we’ve seen as a country in decades, so it’s interesting that we’re seeing these divergent trends across cannabis and cannabis CBD, while the entire beverage market has to pass cost increases on to consumers. So with CBD coming down and everything else going up, this could give the category an opportunity to also more closely align with what’s happening across the functional beverage space.”

Without the backing of a national retailer, CBD beverages are still primarily an online game: This year, the segment is expected to generate $146 million in sales via e-commerce, compared to just over $20 million at grocery stores and $44 million in convenience and gas accounts. Independent accounts and health food stores have seen the most growth, but a few larger chains have so far been poised to enter the arena: Circle K and Yesway have both acquired Kill Cliff’s CBD drinks in some territories, while Mad Tasty is sold in some stores like 7-Eleven and Sprouts Farmers Market.

The arrival of strong national spirits retailers like Southern Glazer’s, Breakthru Beverage, and Republic National over the past year has also transformed the retail landscape, proving that it’s possible for wholesalers to build a CBD beverage portfolio that spans a range of uses and product types. Case in point: Last year, in addition to distributing Canopy Growth’s Quatreau line, Southern Glazer’s acquired carbonated water from Mad Tasty, recovery drinks for athletes from Defy, low-calorie sodas from CENTR, and Kill Cliff’s line of CBD-infused energy drinks. Those moves have also helped whet appetites at traditionally more risk-averse beerhouses, opening up opportunities for these small- and medium-sized brands to find partners, not to mention the commitments that big liquor conglomerates like Constellation Brands and Molson Coors have made to CBD over their relationships with cannabis producers Canopy and HEXO, respectively.

But even with these well-funded companies, the market hasn’t performed in the way some expected.

“What we are seeing in the market now is that so many companies were hoping that the market would consolidate and we would see that a smaller number of larger players would take a larger percentage of the market and really allow these economies of scale to develop . Unfortunately for everyone working in this category, we don’t really see that yet,” Gomez said. “There’s still more and more of these smaller to medium-sized beverage brands popping up, as well as many brands that make both CBD beverages and adaptogen-based beverages or other functional beverages, so they can play on both sides of CBD and the mainstream Functional beverage markets. But that means the market remains very, very fragmented and it’s difficult for many of these players to really scale.”

This leads back to the fundamental question: when will the FDA provide a definitive answer on the legal status of CBD as a food and beverage ingredient? Given the country’s tense political climate and array of geopolitical challenges, this is unlikely to be a priority for either party in a grueling election year. And while state-level regulatory changes recognizing CBD as an additive, as seen in California last year, offer another potential solution, most states are still looking to the federal government for an indication of when it’s safe to move forward.

“Honestly, it doesn’t feel like anything is imminent for us,” Gomez noted. “Whereas initially we thought we would see regulations, especially with a lot of safety studies being done on this category and stuff like that. But even with the competing priorities, we don’t see much urgency or momentum in these regulatory changes.”

An expanding platform

When the CBD beverage market first took off in the late 2010s, a variety of emerging brands struggled to position themselves as the new champion of the hero ingredient, crafting an identity and a voice that set them apart from other species differentiated from functional drinks that came before. But in 2022, while the industry is still awaiting the FDA’s move, many of these brands have been attempting to make a claim elsewhere in the meantime.

For some, going beyond CBD and hemp has always been part of the plan. Building on its belief in relaxation drinks as the next multi-billion dollar category, Recess has made a strong start for its first non-CBD line extension, magnesium-infused Mood, since launching in April. Two of the other top-sellers in the CBD category, Vybes and Weller, have also launched hemp-free beverages over the past two years, but with mixed results. The former has gained a foothold with major industry giants KeHE and UNFI with its adaptogen-infused, CBD-free mood enhancer drinks and is expected to generate up to 65% of the company’s sales this year, according to founder and CEO Jonathan Eppers.

But for Weller, the three-SKU line of immune-focused beverages launched in 2020 is being quietly phased out in favor of a new line of THC-infused fizzy drinks slated to launch in Colorado this spring. Speaking at this year’s Natural Products Expo West in March, Weller CEO John Simmons noted that the move brings the brand back to its core competency of making accessible and effectively dosed cannabinoid-infused beverages. All flavors in the three-SKU line will feature a 1:1 ratio of 5mg of THC and 5mg of CBD per 12 ounces. can.

Brands’ ability to expand from CBD into other categories can also help solve one of the ingredient’s biggest challenges: educating consumers about how and when to use the ingredient. Sports drink brand Defy, for example, has marketed its core CBD-infused line as a post-workout recovery drink since its launch, but pairing it with hemp-free enhancements — water and a caffeinated pre-workout drink — gives it a place in a broader health and wellness context. The same goes for British company TRIP, which launched sparkling drinks in the US after seeing its CBD oils become a hit in some of London’s trendiest department stores.

While these additions underscore how CBD has become part of the fabric of the overall functional space, they also help independent brands brace themselves for the struggles ahead. In addition to the aforementioned beer and spirits suppliers, PepsiCo has been particularly active in exploring potential ways to enter this category, whether through an existing IP — see Rockstar Energy’s hemp seed extract-infused Unplugged — or a new, internally developed brand such as Soul Boost or Drift Well.

From this position, Pepsi’s ability to make a game-changing leap into the CBD beverage space doesn’t seem like a long shot — but without the FDA’s green light, it’s unlikely they’ll step off the edge.