From a global pandemic to war in Ukraine to a raft of economic challenges, 2022 is something of a golden age for anxiety and stress. In other words, it’s a good time to be selling CBD.
That may be simplifying the premise a bit, but the numbers seem to back that up. According to data from research firm Brightfield, CBD beverages are projected to continue growing, with the momentum generated after a dip in 2020 showing significant legs. In 2021, the U.S. CBD drinks market grew by 50%, while that metric is set to reach 62% this year and 65% in 2023, at which point it will be valued at around $657 million. Because of the attention and scrutiny the category has received in a short time, it can be easy to forget how young the space is — and how much room it still has for growth, considering the obvious issue of its federal status.
Yet, those statistics can obscure a more nuanced picture: many of the leading CBD beverage companies by brand share — names like VYBES, Weller and Recess — are now no longer exclusively in the CBD business. Even as their hemp-infused products are still in early stages, these brands have already gone platform, attempting to build brand awareness and burnish product credibility through adjacent functional RTDs featuring ingredients like magnesium and immune-boosting adaptogens. Meanwhile, the FDA’s inaction on CBD is also having an effect on distributors. Having seen little traction for change from Washington, major beverage alcohol suppliers like Southern Glazer’s and Breakthru Beverage have simply stopped waiting and made the jump into the CBD category already.
Within an overall U.S. 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 from higher income Gen Z consumers, drinkable CBD products represent the fastest growing product type since 2018, reaching $245 million in sales last year.
As you might expect, CBD products promising antianxiety and relaxation are attracting consumers with above-average levels of stress, but that over-indexes for drinks. In a Q4 2021 study, 24% of overall CBD consumers self-identified as “stressed out millennials,” compared to 33% among CBD drink consumers. Among the latter group, 10.3% identified as “chronic symptom attackers,” compared to 7.8% for overall CBD consumers. Nearly half of all CBD drink users in the study were daily consumers, while a dosage of 51-100 mg was preferred over a 0-20 mg dose — as found in many currentRTD products — by almost double.
What are they expecting from that kind of dosage? According to Brightfield data, relief from anxiety, depression and joint pain are the 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 a widening field of functional drinks, CBD beverage brands have looked to squeeze margins and push promotions to reach a price point more amenable to driving trial and fostering bulk purchasing habits, even amidst spiraling inflation and input costs.
“We’re seeing pricing in the category consistently decline over the last 18 months or so in the midst of the largest inflation that we’ve seen as a country in decades, so it’s interesting that we see kind of these divergent trends in cannabis and CBD, while the overall beverage market is having to pass on cost increases to consumers. So with CBD coming down and everything else coming up, that may give the category the opportunity to align more closely with what’s happening in the overall functional beverage space as well.”
Without the support 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 ecommerce, compared to just over $20 million in grocery and $44 million in convenience and gas accounts. Independent accounts and natural food stores showed the largest growth, but some larger chains have thus far been willing to enter the arena: Circle K and Yesway have both taken on Kill Cliff’s CBD drinks in some areas, while Mad Tasty is sold in some locations of stores like 7-Eleven and Sprouts Farmers Market.
The entrance of powerhouse national spirits distributors like Southern Glazer’s, Breakthru Beverage and Republic National over the past year has also altered the retail landscape, proving that it’s possible for wholesalers to build a CBD beverage portfolio that covers a range of use occasions and product types. Case in point: over the past year, alongside distributing Canopy Growth’s Quatreau line, Southern Glazer’s has picked up sparkling waters from Mad Tasty, sports recovery drinks from Defy, low-calorie sodas by CENTR and Kill Cliff’s line of CBD-enhanced energy drinks. Those moves have also helped stimulate appetite within traditionally more risk-averse beer houses, creating opportunities for those small and mid-sized brands to find partners, to say nothing of the commitments that major alcohol conglomerates like Constellation Brands and Molson Coors have made to CBD via their relationships with cannabis producers Canopy and HEXO, respectively.
Yet even with those deep-pocketed companies involved, the market hasn’t developed as some have expected.
“What we see in the market now is that so many companies were hoping that the market would consolidate, and we would see a smaller number of bigger players taking a larger percentage of the market and really allow for these economies of scale to develop. Unfortunately for everybody operating in the category, we’re really not seeing that happen yet,” said Gomez. “There’s still more and more of these smaller to midsize drinks brands that are kind of popping onto the scene, as well as many brands that are creating both CBD beverages and also adaptogen-based or other functional beverages, so they can play on both sides of the CBD and more mainstream functional beverage markets. But this means that the market remains very, very fragmented and difficult for a lot of these players to really scale.”
That goes back to the fundamental question: when will the FDA provide a definitive answer as to CBD’s legal status as a food and beverage ingredient? Considering the country’s fraught political climate and array of geopolitical challenges, it’s unlikely to be a priority for either party during a grueling election year. And while regulatory changes on a state level that recognize CBD as an additive, as seen last year in California, offer another potential solution, most states are still looking to the federal government for an indication of when it’s safe to move forward.
“Quite frankly it doesn’t feel like we’re that there is anything imminent on that,” Gomez noted. “While we initially had been projecting that we would see regulations, especially with a lot of the safety studies being done on the category and things like that. But just with the competing priorities, we don’t see a lot of urgency or momentum on these regulatory shifts.”
An Expanding Platform
When the CBD beverage market first started bubbling up in the late 2010s, a host of upstart brands jockeyed to position themselves as the hero ingredient’s new champion by developing an identity and voice that distinguished them from other types of functional beverages that came before. But in 2022, as the industry still waits for movement from the FDA, many of those brands have looked to stake a claim elsewhere in the meantime.
For some, moving beyond CBD and hemp has been part of the plan all along. Built on the belief in relaxation beverages as the next multi-billion dollar category, Recess has enjoyed a strong start for its first non-CBD line extension, the magnesium-enhanced Mood, since launching in April. Two of the CBD category’s other top-sellers, Vybes and Weller, also introduced hemp-free drinks over the past two years, but with different results. For the former, its zero-CBD, adaptogen-fueled Mood Enhancer drinks has given it a foothold with broad-line giants KeHE and UNFI, and is expected to generate up to 65% of company revenue this year, according to founder and CEO Jonathan Eppers.
But for Weller, the three-SKU line of immunity-focused drinks that it introduced in 2020 is being quietly phased out in favor of a new line of THC-infused sparkling waters set to arrive this spring in Colorado. Speaking at this year’s Natural Products Expo West show in March, Weller CEO John Simmons noted that the move brings the brand back to its core competencies of creating approachable and effectively dosed cannabinoid-infused drinks. All flavors of the three-SKU line will feature a 1:1 ratio of 5 mg of THC and 5 mg of CBD per 12 oz. can.
Brands’ ability to stretch 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 has marketed its core CBD-infused line as a post-exercise sports recovery drink since its launch, for example, but pairing it with hemp-free extensions — water and a caffeinated pre-workout beverage — gives it a place within a broader health and wellness context. The same goes for U.K.-based TRIP, which rolled out sparkling drinks in the U.S. off the back of seeing its CBD oils become a hit at some of London’s trendiest department stores.
While these extensions underscore how CBD has become part of the fabric of the overall functional space, they are also helping independent brands to steel themselves for the battles ahead. Beyond the aforementioned beer and spirits players, PepsiCo has been notably active in seeking potential avenues to enter the category, whether through an existing IP — see the hemp seed extract-infused Unplugged from Rockstar Energy — or a new in-house developed brand like Soulboost or Driftwell.
From that position, Pepsi’s ability to make a game-changing leap into CBD beverages doesn’t seem like much of a reach — but without the FDA’s green light, it’s unlikely they’ll take a step off the edge.