Despite all the anticipation about cannabis ingredients in food, and the ubiquity of shops of all kinds selling cannabidiol (CBD), the U.S. is no closer to their approved use in foods and beverages than when we devoted a cover story to the subject in June 2019.
The hype and end-of-Prohibition comparisons have been replaced with cautious optimism, delayed product launches and revised revenue projections for the overall cannabis market and the companies in it.
Market projections already were plateauing when the FDA announced last November: “Based on the lack of scientific information supporting the safety of CBD in food, the FDA is ... indicating today that it cannot conclude that CBD is generally recognized as safe (GRAS) among qualified experts for its use in human or animal food.”
Things went downhill fast. Jefferies Financial analyst Owen Bennett lowered his projection of CBD sales to $3.5 billion in 2022; some estimates had it above $20 billion. And stock prices of the biggest CBD and cannabis companies nosedived.
After hearings in May of last year, the FDA promised some guidance for at least CBD’s use in foods, but the agency has gone silent on the subject. A spokesman for the FDA told us the agency had nothing further to say on the subject.
To one former FDA associate commissioner for foods, it looks more likely that CBD will be classified by FDA as a dietary supplement and that the agency will not consider either CBD or tetrahydrocannabinol (THC) as a food ingredient until some company files a food additive petition.
“In many ways, that is how CBD is being used already,” as a dietary supplement, says David Acheson, M.D, who was the FDA’s associate commissioner 2002-2009 and is founder and CEO of food safety consultancy The Acheson Group. “It’s a very logical option.
“That and the fact that FDA already has approved a CBD ingredient as a drug [Epidiolex for seizures associated with epilepsy] will make it more difficult for the agency to consider it for foods or beverages,” he says.
And THC? “I think that will remain federally illegal for some time,” says Acheson. And that means it will not even be considered as a food ingredient until the federal government legalizes it nationally. There is one thing in its favor, however: THC’s lack of being classified as anything else – dietary supplement or medicine – in some ways might make for an easier path as a food ingredient, he notes.
A cottage industry
All those headwinds point to one clear truth at least for the present: CBD and THC products are the domain of small companies.
“The market right now is very tough for big players who need high volume and national distribution,” says Keith Villa, who has seen it both ways. He was the brewmaster who created Blue Moon for Coors, with the Belgian-style white ale becoming a high-volume hit disguised as a small-brewery craft beer. Now he’s doing it really small as co-founder and brewmaster of Ceria Brewing Co., which makes THC-laced non-alcoholic beers in Arvada, Colo.
Kiva Confections will never outsell Mars or Hershey in chocolate bars. But in the California market of CBD- and THC-infused products, the Hayward, Calif., company is selling chocolate bars, peppermint patties, chocolate-covered blueberries and coffee beans, as well as gummies, mints and caramels. Its “artisan confections” are sold in “hundreds of dispensaries in CA, AZ, NV, IL and HI.”
And that’s a big complication. Even in states where THC is legal, products must be sold in dispensaries. No one wants to hazard a guess when you’ll be able to pick them up in a grocery store. Canada has a couple options for retail sales, including government-run stores.
“CBD has gotten associated with wellness trends and natural remedies, so there’s desire to see it in foods and beverages rather than in pills,” says Kristi Knoblich Palmer, COO of Kiva Confections. “Edibles seem to be a natural carrier for THC.”
Likewise, David Klein created Jelly Belly jelly beans in 1976 but sold the business in 1980 as it took off. Now he’s back in the business, making CBD-laced jelly beans as Spectrum Confections. Despite the fact they’re miniatures and come in 38 fun flavors, he’ll probably never have to face-off against Jelly Belly. Each bean has 10mg of CBD, so they’re sold only in Colorado.
There are many complications keeping cannabis-infused beverages the domain of small companies. Yet, some of the biggest companies in the world – beer and alcohol makers – are investing heavily, hedging their bets (and their companies’ futures).
Alcohol companies belly up
The fear of cannabis-laced drinks replacing beer and harder alcoholic beverages has made certain companies the biggest investors in cannabis companies. But even in Canada, where cannabis is nationally legal, the going has been tough for big companies.
American spirits company Constellation Brands, which has annual sales of about $9 billion, somehow found $4 billion in 2018 to invest in Canadian cannabis company Canopy Growth. But the pot company’s continued losses and the slow development of the Canadian market have dragged down Constellation’s bottom line.
Constellation owns at least 39% of Canopy, has warrants to increase that to at least 50% and has four directors on Canopy’s seven-member board. Last year, Constellation engineered the removal of Canopy’s founder and co-CEO. He was replaced as CEO this January by Constellation’s CFO, David Klein (not Jelly Bell’s David Klein). Constellation reportedly is funding the construction of a 150,000-sq.-ft. beverage facility on the grounds of Canopy’s Smiths Falls, Ontario, headquarters, and Canopy has received the necessary license from Health Canada to produce beverages there. But the product rollout is behind schedule.
Calling its edible products rollout “Cannabis 2.0,” Canopy expected a January launch of its Distilled Cannabis brand of THC-containing beverages – Tweed Houndstooth & Soda, Houseplant Grapefruit, and Houseplant Lemon – with additional beverages following this month.
Another new factory is the result of a partnership with Hummingbird Chocolate. “Canopy Growth is producing high-quality, bean-to-bar craft chocolate infused with specific amounts of specially formulated cannabis,” the company reports.
Elsewhere in Canada is the headline of a Toronto Star story: “Tilray, AB InBev to launch CBD drinks in late 2019, THC drinks need more time.”
AB InBev, through its Canadian subsidiary Labatt Breweries, in late 2018 joined with Tilray, a large Canadian cannabis company, to create Fluent Beverage Co. Its CEO, Jorn Socquet, told the Star that while the joint venture has figured out how to formulate beverages with CBD, THC has proven more difficult.
“When you put CBD or THC into a beverage, it has a tendency to degrade over time... And so we’ve figured it out [for CBD], but we didn’t figure it out for THC yet,” he told the Star. And as a result, he didn’t have a timeline for when he expects Fluent’s THC beverages to be ready.
Molson Coors Canada in August 2018 created a joint venture with Canada’s Hydropothecary Corp. (also called Hexo) to develop non-alcoholic, cannabis-infused beverages for the Canadian market. The joint venture, Truss Beverage Co., launched a CBD-infused water at the end of last year and reportedly is readying THC drinks.
When initially set up, Molson Coors Canada had a 57.5% controlling interest in the joint venture, with Hexo having the remaining ownership. “Canada is breaking new ground in the cannabis sector and, as one of the country’s leading beverage companies, Molson Coors Canada has a unique opportunity to participate in this exciting and rapidly expanding consumer segment,” Frederic Landtmeters, president/CEO of Molson Coors Canada said at the launch.
“While we remain a beer business at our core, we are excited to create a separate new venture with a trusted partner that will be a market leader in offering Canadian consumers new experiences with quality, reliable and consistent non-alcoholic, cannabis-infused beverages,” he added.
The beverage action in the U.S. is more low-key … and state by state. Heineken NV, for example, through its Lagunitas Brewing Co. offers cannabis-based “beers.” Hi-Fi Hops is “an IPA-inspired sparkling water...made using everything Lagunitas knows about hops and is infused with THC and/or CBD depending on your vibe.” But it’s only available in California dispensaries.
Keith Villa of Ceria Brewing Co. thinks he’s found a path for success. At the moment, his Grainwave beer is only available in his home state of Colorado. But he’s struck an agreement with a California co-packer that will enable him to sell in California, starting this month in the south and hopefully migrating north. “Then hopefully we’ll do the same in Illinois and then Michigan,” he says.
With his small-company perspective, he thinks the business has been going great – “Maybe a little better than we expected,” he adds. “We worried that once cannabis became legal, the sole reason for using it was to get high, and that would probably mean smoking it. But people are learning to enjoy cannabis in a social way, to unwind in an acceptable way. And that’s how our beers have caught on.”
Gummies and chocolates are getting some traction, he admits, but beverages will be the sweet spot. “In Western culture, you celebrate with beverages. You can’t toast the bride and groom with a gummy bear. You don’t socialize with friends by passing around a bowl of laced chocolates. Maybe you don’t want to get high, but you want to relax a little and socialize in a way everyone is comfortable with, and that means drinks.”