Hemp THC beverages on tap to outpace regulated THC drinks

Cannabis-infused drinks might be a small product category right now, but it’s forecast to become a multibillion dollar market in just a few years. However, it isn’t regulated cannabis THC drinks sold at dispensaries driving the growth; it’s hemp-derived THC drinks.

According to Future Market Insights, the cannabis drinks market is estimated to reach $8.3 billion by 2032, driven by millennials shifting from alcohol to cannabis drinks. The theory is that these consumers  already use cannabis recreationally and want to drink less alcohol, creating a sweet spot of opportunity.

Euromonitor found that in 2023, sales of regulated THC cannabis beverages reached approximately $196 million in the U.S., just 1% of total retail cannabis sales. However, it’s also one of the fastest-growing category.

Market challenges

Experts attribute the small market size to several factors. When the products were first introduced, the onset of the psychoactive properties was long – almost two hours. In addition, the taste was terrible and consumers lost interest.

Fast forward to today, and technological advances in production have driven the onset time down to 15 minutes. Plus the taste has improved dramatically, and manufacturers are introducing more adventurous flavors.

That doesn’t mean there aren’t still challenges. The products take up a lot of shelf space in dispensaries, and some brands need to remain refrigerated. On top of that, Euromonitor determined that cannabis drink customers aren’t the people who go to the dispensary regularly, making it even less likely for dispensaries to devote much shelf space to the category.

Sales also tend to be seasonal, increasing in the hot summer months and then falling off again until the holidays, when sales pick up steam for Green Wednesday, according to Ayrloom Brands President Mark Hueber. Dry January also typically keeps sales elevated as many consider drinking a cannabis beverage within the confines of being sober.

Another challenge is that consumers are fickle about beverage strength, wanting either strong 100m milligram drinks or low dose 2.5 milligram options, which makes it difficult for the brands to cater to both. The drinks are also expensive. Four packs of low-dose THC seltzers can sometimes cost as much as $25.

On a positive note, cannabis beverages are often safe from illicit market competition. The upfront costs and machinery needed to create the products make them difficult to replicate.

Glass half full

If only people could buy a cannabis beverage in the same places they buy alcoholic beverages, say a liquor store, grocery store or even at a bar? Turns out you can – but it has to be a hemp-derived THC beverage, not one made from regulated cannabis.

The 2018 Farm Bill legalized hemp nationwide, so long as the naturally occurring THC in the plant didn’t exceed 0.3%. What has transpired since is an explosion of hemp products pushing the limits on the THC levels.

Typically called intoxicating hemp, these products show up in various form factors, including beverages. According to bevnet.com, the hemp THC beverage sector is projected to grow to and estimated market size of $500 million by 2026, up from $180 million in 2021.

Sales of hemp-derived THC drinks were up by 143% in 2023, according to data from the Brightfield Group. That year, hemp THC beverages brought in $98.1 million, below CBD drinks ($166.9 million) and well behind the marijuana-derived THC versions ($347 million).

But that was 2023. Hemp beverage sales are on fire this year and poised to surpass the regulated drinks. According to BevNet, hemp-based beverage sales, particularly those infused with hemp-derived cannabinoids like THC and CBD, continue to gain ground on regulated-cannabis products.

If you can’t beat ‘em…

Ayrloom Brands, which had been making regulated THC drinks, has branched out into making hemp drinks as well.

“We were hesitant to dip our toes into the hemp-derived market mainly because we had a New York adult-use license to operate, and we’re very much focused on that,” Ayrloom President Mark Hueber said. “But what we saw was that, after doing research in different states and different markets where this was allowed per the state’s regulations or statutes, we wanted to move forward in doing that. It allowed us to expand the Ayrloom beverage brand outside of the New York market without having to build a new THC beverage facility in every state we wanted to go into.”

The company also makes an alcoholic beverage called 1911 Hard Cider, and had already established distribution relationships in the alcohol world, making the transition an easier one. Hueber said they’ve seen the most success in the grocery and liquor store channels.

Hueber also believes that hemp beverages are a more approachable format for the canna-curious consumer.

“It’s the same fun (as alcohol) without the hangover,” he said.

Hemp on tap

Some states have gone a step further, allowing these beverages to be sold in restaurants. In Minnesota and Texas, consumers can even order them on tap in some locations.

Minnesota’s regulations allow for hemp beverages to be sold wherever alcoholic beverages are sold. In July, that was expanded to let businesses offer THC beverages on tap, as opposed to only in bottles and cans. As a result, consumers can drink THC beverages in social settings, such as bars and restaurants, rather than just at home.

The state’s THC beverage market has roughly 4,000 registered retailers and is worth nearly $200 million.

Texas has one of the most restrictive medical marijuana programs in the country, but it has given hemp products a big Lone Star State hello. For example, Howdy THC is a Texas-based cannabis-infused seltzer and is sold on tap at places like the Sportsman’s Bar & Lounge in Houston and Bretts BBQ in Katy. They are also sold in cans, and the company has expanded into Florida, Louisiana and Tennessee.

“There’s so much energy and momentum in this new category, and we’re at the front of the pack because we put a lot of consideration into the most enjoyable ways to incorporate these into the flow of your life,” said Ben Meggs, CEO of Bayou City Hemp Co., which makes the Howdy brand.

“The consumers are rapidly becoming more educated and refined, they know what they want, there’s no longer any stigma.”

Not so easy

Of course, nothing is ever easy in cannabis, and the same goes for hemp drinks. Some states have begun targeting intoxicating hemp products due to the sometimes higher than advertised THC levels and lack of age restrictions at many outlets – and the level of scrutiny varies from market to market.

For example, Florida’s legislators tried to restrict the products to protect the medical marijuana market, but the Gov. Ron DeSantis vetoed the bill. Arkansas ran into a similar situation when lawmakers wanted to block sales of delta-8 products, but a judge blocked enforcement of the law. That case is now in an appeals court.

Even more confusing is that states like Texas, which adhere to the 2018 Farm Bill definition of hemp having 0.3% THC, allow drinks from Howdy THC that advertise a 12-ounce canned beverage with 5 milligrams of hemp-derived THC and can cause a positive reading in a drug test.

Ayrloom had a great business in Pennsylvania, but then it got shut down.

“It’s definitely frustrating,” Hueber said. “But again, we went into the hemp markets with our eyes wide open. We knew that this was going to be a challenge and we went into it as disciplined as we could. We kept inventories low, having packaging that we could quickly change to meet each state’s requirements. But it’s definitely not a cakewalk.”