Cannabis beverages have burst onto the scene, becoming one of the fastest-growing segments of the legal cannabis industry. While still only a small portion of the overall cannabis market, drinks infused with Tetrahydrocannabinol (delta-9 THC) are also becoming popular. What’s driving their adoption, and what can we expect to see from this market segment in the near future? Let’s take a closer look at the cannabis beverage space by the numbers.
Cannabis beverages: A small market, but rapidly growing
Today, cannabis beverages make up between just one percent and three percent of all cannabis sales, but are one of the fastest-growing segments with triple-digit year-over-year (YoY) growth in some markets. According to data from Headset, the popularity of cannabis beverages has grown by 40% in North American markets since 2021.
The value of the global cannabis beverage market is already substantial at $1.23 billion in 2023, according to market research from Future Market Insights (FMI), and it’s still poised for rapid and significant growth. FMI analysts project that the market segment will grow to nearly $5.9 billion in value by 2033, a healthy compound annual growth rate (CAGR) of 17 percent.
Growth factors driving the cannabis beverage market
Why such an optimistic outlook for the continued growth of cannabis beverages? The following important contributing factors highlight the product type as an emerging niche that has not yet found its peak.
Quality cannabis beverages are more widely available than ever
A major reason for the growth of cannabis beverages is that they are simply more widely available than they were in years past. That trend is likely to continue as more states legalize cannabis and regulations evolve in states where cannabis is already legal but beverages are not yet available.
As cannabis beverages became more widely available, the product quality has dramatically improved. The challenge in producing cannabis beverages is that cannabinoids like THC and Cannabidiol (CBD) don’t bind well with water-based mixtures. In the early days of cannabis beverages, manufacturers would use heavy syrups that resulted in overwhelming tastes, excessive potency, and less-than-ideal consistencies, hindering cannabis beverages from gaining widespread appeal.
Today, by employing techniques like nanoemulsification, manufacturers can create cannabis beverages that have a great taste, sippable potency and a consistent experience each time. Nanoemulsification involves the use of an emulsifying agent to help bind groups of cannabinoids in a water-based solution. Pressure or sound waves are used to break up the groups of cannabinoids into small clusters, which ensures the solution is homogeneous and contains the same amount of cannabinoids in every sip. These superior products have made cannabis beverages more popular among consumers who previously hadn’t tried or even heard of them.
Americans are drinking less alcohol and want alternatives
Cannabis beverages have burst onto the scene at the right time, when consumers are changing their drinking habits. According to a 2021 Gallup poll, fewer Americans are drinking alcohol and those that do have fewer drinks per week on average. In that poll, 60 percent of respondents said they drink alcohol, down from 65 percent in 2019. The average number of drinks per week has fallen as well, from 4.8 to 3.6.
And who’s at the forefront of this trend? The youth. From 2002 to 2018, the share of college students who abstained from alcohol altogether grew from 20% to 28%. According to Berenberg Research, Gen Z has consumed 20 percent less alcohol per capita than millennials did at their age.
Still, plenty of Americans who are drinking less alcohol or none at all are looking for an alternative for those nights where they find themselves at a party or with friends at the local bar. This “sober curious” demographic reportedly consumes non-alcoholic alternatives at least once per week and could be as large as 23 million people. That’s where cannabis beverages are already finding a significant foothold.
Cannabis beverages are most popular with a younger demographic
Young consumers who are shaping the future of the market are increasingly turning to cannabis beverages. Millennials represent 46.2 percent of all cannabis beverage sales, according to the Headset data. Gen Z still remains a small demographic as they’ve not fully entered the market, only accounting for 10.3 percent of cannabis beverage sales. However, industry experts believe there’s reason to expect they’ll gravitate toward cannabis beverages.
For example, Gen Z is less likely to smoke than other generations. They’re also highly familiar with flavored seltzers, making cannabis beverages a natural product type to try. Gen Z also widely prefers cannabis over alcohol. A survey from New Frontier Data found that 69% of consumers aged 18 to 24 would rather consume cannabis. Additionally, Gen Z consumers are more likely to have never consumed alcohol at all.
Both millennials and Gen Z are searching for healthier alternatives to sugary soft drinks and alcoholic beverages as well. According to a Research 3 Insights analysis, 60 percent of Gen Z and millennials prefer brands that offer lower alcohol by volume (ABV) products and those with health benefits. For these types of consumers, cannabis beverages could be a better way to get a buzz.
Cannabis beverage competitive landscape
The immense growth potential of the cannabis beverage space has attracted a lot of competition. Since January 2021, the number of cannabis brands has grown by 65% in the U.S, according to the Headset data. In the Canadian market, competition has become even more fierce as the number of beverage brands vying for market share grew by 300% during the same period.
Some top selling cannabis beverage brands in the U.S. market include:
- Cann: In Q1 of 2021, Cann drove $3.4 million in sales throughout the U.S. It is the top selling cannabis-infused beverage in the country.
- Select: Select is a leading seller in the cannabis beverage space, driving an average of $210,264 in monthly sales.
- Wynk: In June 2022, Wynk’s average monthly sales in all available states reached a strong $76,907. The brand also accounted for 10 percent of all beverage sales in Michigan.
- Heavy Hitters: A California brand, Heavy Hitters drove $86,653 in monthly sales in June 2022 and was one of the top 20% beverage brands in terms of total sales in the state.
- Keef Cola: In Q1 of 2021, Keef Cola drove $2.9 million in sales. Keef Cola is a cannabis beverage pioneer, working in the space for 10 years.
With so many brands entering the cannabis beverage space, there remains significant opportunity. Future consolidation is highly likely, as some brands become dominant and look to strengthen their market share through acquisitions.
Keep your eye on cannabis beverages
The cannabis beverage market is a dynamic one centered around an innovative product that appeals to a different type of cannabis consumer. Young consumers and those who are “sober curious” may especially drive this market segment forward, especially as it becomes available in more states. Despite the opportunity in beverages, the space is increasingly crowded by brands competing for market share. As the space stabilizes and some clear winners emerge, expect segment-wide consolidation and an increase in mergers and acquisitions. One thing is for sure: cannabis beverages are just getting started.
