Cannabis Musings - March 12, 2025

Some thoughts on hemp drinks.

Friends – it’s that time of the quarter when I make a quick plea for your money. “Az men hot gelt, iz men i klug, i sheyn, i men kan gut zingen” (“With money in your pocket, you’re wise, you’re handsome, and you sing well too”).

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These days, you can’t swing a dead cat without hitting a hemp drink (which is what we’re going to call so-called “intoxicating hemp” beverages, i.e., drinks infused with some sort of THC derived from hemp). They’re everywhere, at least in the states that haven’t banned them yet. Particularly if you’re at Total Wine, the alcohol beverage chain with over 250 stores nationally, which has embraced these products. For example, a quick search shows 37 different hemp drink SKUs at a Total Wine store in Atlanta, 52 in Bloomington, MN, and 82 in Tampa. Granted, those numbers are dwarfed by the beer selections, and even the hard seltzer SKUs, but that’s still a lot of options.

We’ve talked about hemp drinks plenty of times before, but this time, we’re not going to discuss them in the context of the legal status of hemp or whether the 2025 Farm Bill, if that even happens, closes the hemp loophole (please don’t email me about calling it a loophole) and decimates the business. Instead, we’ll consider some of the business risks for hemp drinks.

There’s some breathless predictions about the future size of the cannabis drinks market, which seem to get quoted quite a bit in these discussions, but many of those estimates are done by firms that crank out projections on every single industry imaginable, hoping someone will purchase them to zhuzh up their PowerPoint decks. That’s not to say that there aren’t more thoughtful, rigorous projections done by industry participants, but those aren’t the ones that make LinkedIn post headlines. However, the hockey stick growth charts all show the same enthusiasm that we saw in projections for state-licensed (non-hemp) cannabis back in the mid-2010s (see, also, tech), but no one ever talks about the downside case.

So, let’s be the skunk-at-the-picnic for a moment. My mild skepticism began a few months ago, resulting from a spirited (pun sort of intended) conversation with Mike Cella, US Head of Consumer Investment Banking at Oppenheimer, who covers alcoholic beverage and cannabis, and Rebecca Stamey-White, alcohol and cannabis regulatory lawyer extraordinaire and fellow NU double alum, about the unknowns in the market for hemp drinks. Then, friends-of-the-newsletter, Cultivated Media, reported on comments last week by the CEO and the founder of Boston Beer Company (makers of Sam Adams etc.) about hemp drinks. I think these comments are worth quoting in their entirety:

“If we saw that the opportunity was there where we felt we could scale a profitable business in that space in the United States, we are prepared to do so. We just haven’t seen that at this time,”

“There’s been a lot of movement on it in even the last three or four months. And I’ve seen attitudes of, for example, beer wholesalers shift to hey, if it’s coming, I want it. And six months ago they were, I don’t want to touch this, it’s illegal and it could jeopardize my permits, my banking relationships, stuff like that,” he said.

“That can all get wiped out if they just take the legalization of hemp-based THC out of it. And it was certainly never meant to provide a precursor to, taking the THC molecule, isomerizing it from its relatively harmless or almost no psychoactive impact in hemp to something that’s the exact same molecule as you’re getting from cannabis.”

What I read into this is that one of the largest beer companies in the country has thoughtfully studied the hemp drinks category and understands it very well – not just the opportunities, but also the risks. In particular, that (i) the 2018 Farm Bill’s hemp loophole is indeed a loophole; (ii) there’s still some regulatory risk (I don’t know this for sure, but perhaps they were advised by an FDA lawyer that hemp drinks don’t comply with that agency’s Food, Drug, and Cosmetic Act); (iii) the market is not yet well understood; and (iv) all of this could go away with a new Farm Bill.

To me, this is the same reason why the largest beverage companies like Coca-Cola and PepsiCo avoided the hemp-derived CBD frenzy around 2019 – why poke the bear when it’s not clear how the regulatory landscape is going to play out? And for a large alcohol (or tobacco) company, the stakes are even larger – if you’re a multi-billion dollar multinational, why risk your federal licensing (and thus your entire business) for a few million in short-term revenues, when you can wait a year or so for things to play out, and then come in with your marketing infrastructure, relationships with the large alcohol beverage distributors, and endless supply of cheap capital, to transform the category? (Now, of course, I fully expect for a giant alcohol beverage company like InBev to launch a hemp drink a few days after this newsletter is published, which would be funny, and also not the first time that’s happened to us.)

I also wonder whether Boston Beer also hesitates because of the disappointment of the hard seltzer drinks category. You may remember how, back around the time state-legal cannabis really started to open up, hard seltzer had its moment. You couldn’t swing a dead cat without hitting a new hard seltzer brand. Sales peaked during the pandemic, falling in 2021 and 2022, and have remained challenged ever since. Certainly, hard seltzer hasn’t gone the way of consumer fads like cupcake stores, chain bagel shops, or Orange JuliusÔ, but the market was deluged with brands and consumers moved on to other choices. Hard seltzer was more than a novelty, but didn’t have the staying power that the adult beverage industry had hoped for.

This is a real risk that the hemp drinks industry is going to need to grapple with, particularly as they’re not only competing with each other, but they’re also competing with plenty of other inexpensive beverage choices in an uncertain economic period. And we’re certainly in the phase of consumer choice – it seems like a week doesn’t go by without seeing a press release about a new hemp drink being sold in Total Wine, let alone all of the direct-to-consumer (DTC) products that are ambitiously advertised on social media.

How do you distinguish yourself from the slew of other brands? Getting on the shelf at a large beverage store chain is one way, but only the larger hemp drinks companies are able to attract the attention of the handful of large alcohol distributors, leaving smaller operators to rely on DTC for sales. But, as the wine industry will tell you, DTC is really hard to sustain. Sure, the margins are great – you’re not having to sell to a distributor (which then sells to the retailer) at a wholesale price, but you need to be constantly attracting new customers because of the churn (loss of customers), which accelerates during a downturn.

If you’ve ever vacationed in Napa Valley or Sonoma County or the Willamette Valley, you may have noticed hundreds of small, family-owned wineries that you’ve never heard of, whose wines don’t show up on the shelves of wine, alcohol, and grocery stores and restaurant wine lists across the country. That’s because they simply can’t access robust alcohol distribution networks, which are dominated by a few massive operators. So, they’re mostly reliant upon DTC, with wine club subscriptions being the main driver of sales, and that’s hurting them right now.

Aaron Nosbich, founder of hemp drinks company, Brez, noted recently that the vast majority of hemp drinks revenue comes from DTC. To drive DTC sales, you need to spend a lot of money to attract customers – Nosbich disclosed that, in January 2025, Brez spent $2.07mm in advertising to acquire 20,522 new customers, with $4.6mm in total revenue for the month. That’s an acquisition cost of about $100 per new customer. Granted, that’s very rough math based on a LinkedIn post, and Brez may not necessarily be representative of the industry, but that’s a lot of money being spent to attract customers into a product that’s not inexpensive to purchase and have shipped. These DTC issues aren’t unique to hemp drinks, but they need to be understood and addressed if the product category wants to maintain robust growth.

Another risk I see is whether hemp drinks customers are sticky. I’ve been looking, but I haven’t seen any sort of data on whether people are trying them and coming back to them, or are customers trying them as a novelty and then moving on (if anyone has seen this kind of data, please let me know to help the discourse). There’s anecdotal evidence of some operators building large subscriber portfolios, and certainly the revenues are there, but I worry about this not only because of what we saw with hard seltzer, but particularly because of cannabis’ variability.

Alcohol is the same in every alcoholic beverage out there, so the consumer generally knows what to expect when they consume. On the other hand, everyone’s endocannabinoid system is different, meaning ten people will likely have ten different reactions to the same cannabis cultivar. There’s no standard or consistency as to what hemp cultivars are used for hemp drinks, so, for the consumer who’s new to hemp drinks (which, because of the nascency of the product, is pretty much everyone), it’ll take a lot of trial-and-error to find one that hits their endocannabinoid system just right. Further, the consumer doesn’t know whether their favorite hemp drink will consistently contain the same cannabinoid profile over time – there’s no standardization of the hemp that’s used for drinks. And, if they don’t like their first try (either the way it tastes, or the way it makes them feel, or both), will consumers have the sustained curiosity (patience) to try other hemp drinks? The variability of hemp and how different people react to cannabinoids is an additional challenge to keeping customers coming back.

Finally, hemp drinks risk being regulated by the federal government the same way that alcoholic beverages are regulated. That would provide the category sustainability, but, as Rebecca Stamey-White astutely pointed out to me, there’s a whole regime of labelling and advertising rules surrounding alcohol that, if applied to hemp drinks, would dramatically change the way they’re marketed. Consider all of the claims that you see in hemp drinks ads about health, wellness, effects, sociability – these would be severely limited, if not outright prohibited, if hemp drinks were treated the same as alcohol. From the perspective of the alcohol industry, why should hemp drinks enjoy more leeway than alcohol? In other words, shouldn’t hemp drinks be subject to the same rules on labels and advertising that, say, wine or beer or hard seltzer are? Given that the chances of Congress easing up on the rules for alcoholic beverages are fairly slim, the risk is more likely on hemp drinks labels and ads getting much higher scrutiny and regulation.

Of course, all of this is speculation, but that’s the privilege of writing this newsletter. We can inject the discourse with theory, but if we’re wrong, well, there’s always the next newsletter. Di pen shist erger fun a fayl (“the pen stings worse than the arrow”).

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© 2025 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.