Canopy Growth Corp. is betting that the secret to finding new marijuana consumers comes in a can.
The company’s emerging cannabis drinks are part of a strategy to attract new cannabis consumers with next-generation products, in this case by offering a substitute for alcoholic beverages.
While Canopy’s early sales of beverages look strong, whether they’ll succeed in attracting and retaining new cannabis consumers – something not seen yet in mature U.S. markets – remains to be seen.
Cannabis drinks “represent a fundamentally different business proposition” from most other marijuana products, according to John Fowler, former president and CEO of Supreme Cannabis and now a marijuana licensing and commercialization consultant through his Toronto firm Blaise Ventures.
“Because there is no global market to look at, legal or illegal, that shows that consumers enjoy consuming cannabis drinks in large numbers.”
Potential market size
Executives from Smiths Falls, Ontario-based Canopy, which is backed by U.S. beverage alcohol behemoth Constellation Brands, poured out their plans for the new cannabis-infused beverages during a June 22 investor presentation.
“Based on our research, 17% of Canadian adults who currently don’t consume cannabis say they intend to use recreational cannabis. … We see a significant opportunity to recruit these intended consumers through products like our drinks,” CEO David Klein said.
Canopy executives aren’t afraid to signal their high hopes for the potential size of that sector, estimating that Canada’s combined market for alcoholic beverages and functional liquids, such as sports drinks, is worth 26 billion Canadian dollars ($19.1 billion).
Capturing only 5% of that combined market would be worth CA$1.3 billion, although Canopy President and Chief Product Officer Rade Kovacevic told Marijuana Business Daily that’s not formally the company’s goal.
“What we’re showing is that it is a large market, (one) that, with resonating products, could be (captured),” he said.
Cannabis beverage sales remain underwhelming in mature adult-use markets in the United States: In Colorado, weekly market share for marijuana beverages ranged from 0.9% to 1.5% during the first half of 2020.
In Washington state, cannabis beverages captured around 1.4% of the marijuana market over the same time period.
“There certainly are companies that have made money in drinks, and I think there will be Canadian companies that make money in drinks,” Fowler said.
“But that is a path that you have to cut yourself, and I think from an entrepreneur’s perspective, that’s a very different risk-reward profile than selling products that, broadly speaking, already exist.”
Canopy’s beverage strategy
Consumer packaged goods consultant Rob McPherson sees no reason cannabis beverages shouldn’t succeed under the right circumstances.
“There’s a lot of overlap between how one might consume, or why one might consume cannabis, and why people already do consume beverage alcohol,” said McPherson, a former president of Bacardi Canada.
McPherson believes key requirements for a winning cannabis drink include good taste, sessionability (meaning reasonable quantities can be consumed over a given time period), an “enjoyable, safe and consistent” effect, regular availability in stores and pricing that reflects a desirable value equation.
Canopy claims to have met some of those criteria with its current slate of drinks, which includes a Houseplant-branded Grapefruit beverage with 2.5 milligrams of THC, Tweed’s Bakerstreet & Ginger and Houndstooth & Soda drinks containing 2 milligrams THC as well as a high-potency Deep Space cola with 10 milligrams of THC, the maximum under Canadian regulations.
Kovacevic, Canopy’s president, told MJBizDaily that the company’s intellectual property allows its beverages to offer “an onset time and an effect that’s akin to beverage alcohol,” making consumers comfortable with the beverage format.
In a Canopy-commissioned online poll of 201 consumers who tried the company’s Houndstooth & Soda beverage in May, 75% said they liked the taste, potency and effect and 73% said they would buy it again in the future.
“We’re very confident that once someone tries them, one, the majority of people will find that the flavor experience is something that they like, and two, that they will find that the benefits compared to beverage alcohol are something they’re interested in,” Kovacevic said.
Early sales promising, but challenges remain
During the June investor call, Canopy said it had shipped 530,000 beverage units to date and was boosting production to meet demand and end stockouts in stores.
It’s still unclear whether those early sales numbers represent sustained demand from new cannabis consumers, experimentation by existing consumers or a mix of both.
Canopy’s strategy of attracting brand-new marijuana consumers into the space is risky, Fowler said, “because their customer, currently, is not a cannabis customer.”
“So you need to convert people not only to your brand and your product, but to cannabis, full stop,” he added.
That requires enticing new consumers to shop at cannabis retailers, which have rolled out unevenly across different Canadian provinces.
Once shoppers get to those stores, Canadian cannabis equivalency rules prevent shoppers from buying large numbers of precanned cannabis drinks – for example, Canadians can buy only five cans of Canopy’s Grapefruit beverage at once before exceeding legal limits on public marijuana possession.
“What we require is a change to the equivalency table within the federal regulations,” Kovacevic said.
Canopy’s beverage pricing strategy is also unproven in the long term.
On the Ontario Cannabis Store website, Canopy’s Tweed drinks with 2 milligrams of THC retail for CA$3.95 per can ($2.90).
The 2.5-milligram THC Grapefruit beverage sells for CA$5.20, and the potent Deep Space beverage costs CA$9.20.
Kovacevic said the drinks’ value proposition offers “the same effect as beverage alcohol, but with health benefits such as not being negative for your liver and not causing a hangover, that traditionally beverage alcohol’s associated with.”
“And so, through that and our research, we believe consumers will pay a modest premium for beverage cannabis as an alternative but that we still need to be within an appropriate range of a craft beer purchase, for example,” he added.
For experienced cannabis consumers who might want Canopy’s heady Deep Space beverage, CPG consultant McPherson believes the price point is high.
“This isn’t the away-from-home, on-premise bar drink – I’m paying almost 10 bucks to be able to drink this at home,” he said.
The company expects to have enough data to determine whether Canadian consumers are repurchasing cannabis beverages and turning them into a habit by the end of fall.
Blaise’s Fowler is optimistic for the beverage category in Canada and believes Canopy’s plan to bring new consumers to cannabis could benefit the entire sector.
But adult-use legalization in Canada didn’t bring “that flock of new consumers that many brands had hoped for,” he said.
“Will Canopy do it? Maybe they will.
“Are they probably one of the best-suited companies in the space to try to do that, based on their financial backing and their support from Constellation (Brands)? Arguably yes,” he continued.
“But, there is a different risk profile in the success of their drinks business, as compared to other parts of their business.”
Solomon Israel can be reached at email@example.com