How this THC brand is fighting the ban

0:00What can and what our peers in the beverage industry have been screening about for years and have gotten really loud about in the last six months is the answer here is not continuing the status quo. The answer here is not extending another year. The answer here is we want regulations. Welcome back to The Curious Consumer. Today we wanted to learn more about something very timely, the impending hemp-derived THC ban happening this November and what that could possibly mean for the entire THC beverage category. So we went straight to the source. Jake Bullock, co-founder and CEO of Cannes, the brand that pioneered the microdose THC beverage category.

0:33We'll cover how Cannes was founded in the perfect regulatory window for hemp-based drinks, what Cannes was intended to disrupt, the current regulatory battle that now threatens the entire category, and Cannes' response to it all, a zero milligram beverage, zero MG, that launched just this week. Let's get into it. Jake, welcome to the podcast. Thank you for having me. I'm the co-founder and CEO of Cannes. We make a range of microdose THC and CBD infused drinks that are really meant to be alcohol alternatives. So folks, instead of having a couple of glasses of wine, wake up the next day feeling pretty hungover.

1:06We'll have a couple of cans, same amount of fun, but you wake up feeling great the next day. Absolutely.

1:11Jake Bullock:And can a test. Yeah. Can a test. Yeah, it works. It works. And I would also add, because you're probably too modest to say this, but like can really did kick off the ready to drink THC beverage landscape in a lot of ways and probably broke through a lot of regulatory barriers to get there, which I'd love to get into. We're partly having you on today to talk about an exciting new launch. So we'll have everyone stay tuned to hear about that. Let's back up a little bit and tell us about your founding story of Cannes and maybe walk us through some of the barriers that you had to push through to set the scene for this category.

1:48Yeah, yeah. I mean, you nailed it. We created this category. When we launched seven years ago, you could find THC-infused drinks. They're mostly in dispensaries, and they were 100 milligrams of THC. And I'm not even joking. That was what was most popular seven years ago. And actually, funny enough, if you go into a dispensary today, that's still what's most popular. People, for whatever reason, going into dispensaries, they want to get high. They want the highest THC for their dollar. And so those 100 milligram drinks sell pretty well for folks that are looking for that. We were not that. That was not me.

2:19That was not my co-founder, right? We were sort of like normal millennials getting into our thirties being like, wow, we really cannot drink alcohol like we used to be able to. And that was a problem for us in part because we wanted to still be social. Like we weren't ready to retire to the suburbs and like live a quiet life. But we also were recognizing that alcohol was getting in the way of our own priorities. And so you couldn't have a two day debilitating hangover and also be your best at work, right? And so I had kind of followed the emerging legal THC industry because I had grown up in Colorado.

2:52And I had seen these products that were like, you bite the head off of a gummy bear because if you ate the whole thing, you'd get way too high. And all my friends wanted me to smuggle them out of Colorado when I was home. And that didn't make sense either because we're kind of like, wait, wait, this is the new industry that everyone is going to say is going to be this huge thing. We're like eating the heads off of gummy bears. Seems unlikely. We learned at Bain & Company, me, my co-founder and I, how to think about new businesses or emerging businesses, right? You use analogs. And so we were like, well, what's a good analog for what we're trying to do here?

3:20What's happening with THC and CBD and these other cannabinoids? And the answer was, we actually have other mild intoxicants in our lives. If you think about it, caffeine is a mild intoxicant. Alcohol is a mild intoxicant. We actually drink them, interestingly, both, if you think about it, thousands of years of human history. We socialize around beverages and we drink them in microdoses. And this was kind of the key thing that I think we figured out early on, which was the reason that there's a certain amount of alcohol in a beer or a glass of wine or in a cup of coffee, there's a certain amount of caffeine.

3:53It's about what your body can metabolize in an hour. It allows you to have multiple of them. It makes it really social. It kind of unlocks this potential of beverage. And so we said, well, wait, what would that equivalent be in THC? It's not 100, let me tell you. It's like two. And we tested this on a ton of consumers. And in doing that, we found that that two milligram was really that key sweet spot where people felt an effect from it. It wasn't overwhelming. If they liked it, they could have another one. You know, it's about a drink an hour in terms of how your body metabolizes it. So it felt a lot like alcohol and what we're used to in that world.

4:25And so we said, okay, great. Let's try to unlock the social potential of this ingredient in a beverage that would ultimately function like a one-to-one alcohol alternative. And you nailed it. I mean, like you got two consumers here. I think you did a really good job at putting it into the more social category, too. It felt like something you could have by the pool with friends, not just by yourself sitting on the couch and zonking out. Yes. I mean, that part of the market was there, right? It's still there. I think we were trying to do something different, right? We were not going to get you high.

4:55Just kind of like, you know, once you get drunk, like that's sort of the end of the party, right? We didn't want to, we weren't trying to get somebody to a place that they would feel anxious or paranoid. All the sort of negatives of THC. that you might hear a friend that had a bad experience with the pop brownie in college, right? Like we were the opposite of that in some ways. And it's because we wanted these products to be social, to your point, right? Like you should be able to have them alongside people that are also drinking alcohol. Some of our best consumers still drink alcohol, right? But what we're doing is we're taking them from what was way above average, and we're kind of bringing them back to average, something that feels a lot more normal.

5:31And that's like a big wellness move for so money, right? To go from over indexing on alcohol to being more moderate. And I think that's like a really powerful thing.

5:38Jake Bullock:I'm really interested in the fact that like this brand was founded 2018, coincided pretty nicely with the 2018 farm bill, which is the reason that so many of these brands are now able to be sold in stores and not just in dispensaries. Can you tell us a little bit about that? You obviously were entering a market that you didn't really know what the regulation would look like and you entered anyway and like how that has how that played out at first and what it looks like now yeah when we launched so we launched in california we started the company in venice beach california and we launched in the dispensary channel because that at the time you know was where we thought we could sell thc was being regulated in in states like colorado and in washington and oregon and california and they had dispensaries and so we launched with the largest dispensary chain in california at the time and also the largest delivery cannabis delivery platform, which was sort of a licensed dispensary model as well, but they would deliver it to your door.

6:33And let me tell you what, that was hard. The customer that's going into a dispensary is largely looking for a lot of THC. They're not looking for a two milligram drink. It was pretty amazing how we were able to convince these retailers to even take us in in the first place because they're kind of looking at us saying, well, wait, two milligrams? I would need to have 50 of these personally me in order to feel an effect. And that was just wild to us. It was a really big customer mismatch between who we were targeting and where we could actually sell. Now, we got over that hurdle by literally physically pulling people into the dispensaries.

7:04I mean, we were doing all sorts of crazy things where we would like stand outside Erewhon and give you a Barry's class if you would sign up for ease and place an order to deliver to your house. Or we set up a pop-up next to MedMen on Abikini and we said, well, we can't sell you anything here, but you can go next door. And if you go next door and buy a six pack, we'll give you a canned t-shirt. And actually, a lot of people did that. It was kind of amazing. So we did creative things like that to get people into dispensaries. But our core customer was never there. To your point, the Farm Bill created this really interesting opportunity where you extracted the THC and CBD from hemp.

7:35You were governed by a different set of rules, by the hemp rules. And those rules basically said you have to have under 0.3 % THC by dry weight in your product. A beverage, it's not that difficult to calculate what the dry weight contents of a beverage are. You evaporate the water and what's left is mostly sugar. So that meant you could put a decent amount of THC under these new hemp rules, but there were no regulations. Like what should have happened after the Farm Bill passed, which is really an agricultural standard, right? If you think about percentage by dry weight, we're talking about crop there, not consumer products, is there should have been a regulatory effort around the consumer products that, okay, we've got this new ingredient.

8:09It's now legal. You can have hemp. It's not a controlled substance. That's what the Farm Bill 2018 said. Then the FDA should come in and give us rules. Tell us, well, what types of products can we have? Can we put this in food or not? And the reality is the FDA didn't do that, right? They said that, well, because of these esoteric reasons that we've approved some forms of these cannabinoids in drugs, you're not allowed to put them in food. And that hasn't actually been tested. There's some legal back and forth on whether that argument actually went out or not. But what states started doing, and the first state to do this was Minnesota, is said, well, we see this new ingredient, and the FDA is not stepping in to provide rules, so we're going to provide rules because we want to have a regulated marketplace.

8:44And they said things like, well, you have to sell these products to people that are 21 plus. you need to test all the products and demonstrate that what you say is in the product is actually in it and there's nothing else in there like heavy metals or pesticides that shouldn't be in there and you have clear labeling so if we put two milligrams of THC in the can that's actually what should be in the can consumers should know that when they buy it and so all of those rules came into effect and Minnesota said if you follow that set of regulations you can sell in our liquor stores well in Minnesota the way that alcohol works is it's a separate premises so beer wine spirits are all sold together.

9:16Grocery stores will have like a companion store next door. You can kind of go take your cart around and get your alcohol at the end of your shopping trip. What that really meant for us though, is it meant that Minnesota was saying you can sell can everywhere alcohol is sold. And that was huge for us. This was in 2023 where there, you know, we had kind of been pushing the rock up the hill in dispensaries. It was really hard. The core customer wasn't there. We grew to a bunch of different states in the dispensary market. I think we are peaked at seven different dispensary states. Every one of those states, You had to create a new manufacturing supply chain.

9:45Your accounts were different. Your distributors were different. There was no really economies of scale. That totally changed in Minnesota because all of a sudden we could make this product. We could sell it in Minnesota liquor stores. We could do it at scale. And it was where our core customer was because they were on their normal shop, right? And they were looking, oh, are we going to have alcohol tonight? They're grabbing a bottle of wine. Maybe they grab some NA beer and they grab a can. That's a party. That's what socializing looks like now in this new era. So we took advantage of that. We figured out very quickly how to extract THC and CBD from the hemp plant.

10:14We made the version of our products that had hemp THC and hemp CBD. It's kind of an interesting pivot, right? Because we didn't change anything about the consumer experience or the actual end product, right? Like the flavor was the same, the chemicals in the product that had the same exact effect, right? But we pivoted our regulatory structure. We pivoted our route to market and our distribution and started going to market through an alcohol supply chain. Very quickly, other states saw what Minnesota was doing. And they said, well, wait, we should do this too. And so we moved across the country, largely on the back of some retail partners, including Total Wine and more, who has really been a leader in this category and opening up a bunch of states.

10:50So they would go to a new state we would follow. And that kind of created an almost national footprint for the brand and then have continued to grow from there. It's such an insane story because you obviously, like when you started the brand, you never

11:02Jake Bullock:could have predicted any of this. And the fact that you ended up creating this category by accident in this exact time feels almost faded. I'm curious. Obviously, you can't really go back in time and see what this would have looked like. But when you made this business, was the plan then going to be like, we will always sell through dispensaries? It's funny that you ask this because in our very first fundraising deck, we had a slide that addressed this question of like, What do you ultimately think the route to market and channels will look like for this product? And we had a slide which showed, we thought that there would be about 60 % of it would be sold direct to consumers online.

11:4130 % would be in retailers and 10 % would be in dispensaries. And the 10 % in dispensaries would really be kind of like your local wine shops where you're not really going there for the best price. You're going there because they're going to have a really interesting selection. And they probably have a shop person who may be the owner who loves wine and you talk to them about wine and they share all this information. And it's kind of like an education experience more than anything. That's kind of how we think about dispensaries still to this day. I think that probably is how the role that they'll serve is like, it really is like a, an exploration and education experience to go into.

12:12But over time, we sort of felt that our business would look a lot like it does today, where we have a pretty robust online business. That's a little bit more than half the business. And then, you know, we sell largely through retailers again, because this is where our customer is like, this is how the consumer of today shops. If you really think about your own purchasing behavior, you know, you're buying mostly stuff online and then you're going into store for some very specific things, particularly like grocery goods and things that you need for tonight or for the next day. Right. And that's ultimately where we think this will probably continue to look.

12:42Now, obviously, we've got some big regulatory challenges on the horizon that that I'm actively, you know, fighting to keep this category alive and to get actual regulation at the federal level. We have it in most of the states that we operate in today, which is great, but there's still some real challenges ahead. but assuming we can overcome those, that's going to be kind of how this industry will look. You'll have some component of online, you'll have some component of in-store, and then I think, you know, there will still be dispensaries selling the higher dose products.

13:07Jake Bullock:Very, very interesting to see like how it did end up playing out. So you alluded to the fact that things are changing. Can you walk us through that? For someone who is very new to the cannabis regulation situation, situation, how would you describe what's going on in 2026? And how would you describe what the category is doing to respond to it? Yeah, so there's actually a lot going on. I'll try to disaggregate some of it. So first, there's a bunch going on in the marijuana world. So marijuana and hemp are both versions of the cannabis plant. A lot of times people will say cannabis because that's how a lot of these state programs were initially described when they were passed.

13:46Folks didn't want to use the word marijuana for all sorts of reasons we could get into, but it's actually becoming more popular now is we're using the two terms to distinguish between what's actually hemp, what's actually marijuana. So the marijuana efforts that are underway are happening at the federal level, and they're all related to rescheduling. Currently, marijuana sits on schedule one, which means there's no approved medical benefit that we recognize for these products. That's obviously false, right? Like we have medical marijuana programs in all sorts of states. You know, folks are relying on these products for things like pain management and all sorts of other things.

14:16So the government is looking to change that. They've already done it for medical applications. And now they're going through a process right now to see if that could be extended to adult use products as well. So recreational consumption. We'll see. There's been some hearings on that this summer. That probably is a more like a few month timeline to understand whether that will actually happen or not. But folks think that there's a pretty good shot. That's all marijuana. The old world that we were in, the dispensary world. Now we live in the hemp world, which is the 2018 farm bill that you discussed.

14:44In November of last year, if you remember, we had a government shutdown. Everyone's trying to figure out, is the government going to reopen? It was the longest shutdown in the history of the country. A bill, a compromise was struck between Republicans and Democrats in the House and the Senate to reopen the government. In that bill, there was some language that was snuck in by folks that were trying to ban hemp products that basically said, in a year, we're going to change the definition of hemp. It's no longer 0.3 % by dry weight. It's actually 0.4 milligrams. And any product that has more than 0.4 milligrams in it is considered marijuana.

15:16It's Schedule 1 drug. and is no longer legal. That goes into effect in November 13th. And the industry since last November has been fighting in DC to try to change those rules or prevent that from happening to protect beverages like can to protect the hemp products that people rely on. Now, the original premise of why folks were pushing for that ban language of what's effectively a ban, right? Even your most popular and effective CBD products, full spectrum CBD products that people rely on have some amount of THC and it's more than 0.4 milligrams. You know, maybe it's three milligrams, maybe it's two milligrams, something like that.

15:48Those products all go away too. It will be an effective ban on the hemp industry. And the reason that this came up, right, was largely not because of two milligram drinks like can, right? It was because of highly intoxicating, almost always synthetically derived THC products that were, you know, often gummy candies or like Oreos with infused with THC or Skittles spelled with Z. I mean, pretty like bad stuff. You should not be legal under even our most liberal dispensary laws and are being sold in gas stations, right? To, you know, some people say to minors, I actually think they're being sold to adults, but the adults that are, you know, acting like kids in some ways, like who would buy these products?

16:27Hundreds of milligrams of synthetic Delta 8, Delta 10. There's a whole alphabet soup of these synthetic cannabinoids that are manufactured in a lab and are, we just don't know about them, right? Like we may find out in 30 years, they're not dangerous, but they are very potent. And so we shouldn't be allowing these products to be sold. CBD, THC, naturally just derived from hemp we've been consuming as humans for thousands of years, they're very safe and mild. And so how do we figure out how to get rid of all those products without throwing the baby out with the bathwater, which is what this regulation did, right?

16:55And it did it in a way that was really underhanded because you basically had to vote to keep the government closed, right? That was the vote that everyone had on this topic. And so no one was going to do that. Everyone's going to open the government. And so that also just seems like from a process standpoint to be the wrong approach. But we still have to go figure out regulations, like what can and what our peers in the beverage industry have been screening about for years and have gotten really loud about in the last six months, is the answer here is not continuing the status quo. The answer here is not extending another year.

17:25The answer here is we want regulations. And many states have models for this. Let's take the best models that are out there. You know, interestingly, we spent 100 years regulating a mild intoxicant that's in an adult beverage. Maybe we borrow from the alcohol rules and create a level playing field. So our alcohol supplier friends who often criticize hemp drinks because they think we're competing with them unfairly. We are competing with them to some degree, right? Like we talked about the shift in consumer preferences away from alcohol towards alternatives. We should have a level playing field.

17:54Give us alcohol's rules and we will abide by them. That seems like a good model. So there actually have been a few bills that have been circulated that are trying to do this. Hopefully we'll get introduced here in the coming weeks and we'll have a real legislative path. I think we're doing a good job of winning the policy argument here that the lowest dose safest products like beverages should be allowed. They should be regulated like alcohol. There are other low potency hemp products that seniors rely on CBD, full spectrum CBD products. The president has actually spoken a lot about this and has a series of executive orders and directives to Congress to try to fix this problem so that we can protect the program that the CMS Center for Medicare Studies does that allows seniors to reimburse CBD products, $500 on their Medicare.

18:34That seems like a great program we should protect. If this law goes into effect in November, it will be gutted. None of the effective full spectrum CBD products will be allowed either. So we need to do something to fix these issues. And we're optimistic that something will get done, but it's gonna be a fight here in the next five months.

18:49Jake Bullock:That was such a helpful walkthrough. It is an extremely complicated and nuanced regulatory environment. and sneaky the way that it was presented. I'm certain that consumers don't know this is happening. And even people within the industry, there's still a lot of learning to do. It sounds like Can is getting pretty involved on the regulatory side, which is also great. But I imagine there's also some bet hedging to do just in case this doesn't work out. And not to say that is the reason for a new product that you are introducing, but I would love for you to talk about the new product that you are launching and maybe where it fits within this conversation.

19:30Yeah. Yeah. So very excitingly, we are, we're launching our first ever uninfused product. Um, actually it's not entirely true. We used, we used to sell a product called unspiked in a few markets, which was also an infused, but we've been making this product for a long time. These are, this product that we use in, in, in demos, right? We have an uninfused version of product. We always thought, well, should we, should we launch that? People love people come up to me all the time jake i would drink can every day at lunch if it didn't have thc in it it's so delicious the flavor is amazing i said yeah but you know it sort of feels like it maybe it's a glorified you know sparkling water or something like that that never made sense to us in the last six months or so since the band we've done a lot of thinking about our customer and actually a lot of them have come and reached out to us and said jake we can't we don't know what to do if can gets banned like we're not going to go back to alcohol this has become such a huge part of our lives.

20:16We've made these shifts toward wellness by consuming less alcohol, and it's made us better in all sorts of ways. Can't save my marriage. I'm slower to snap at my kids. I mean, like pretty incredible stuff, they've told us. We thought a lot about this consumer, and we said we cannot leave them high and dry. We really can't if this ban goes through. And also importantly, this is, even though we're talking about a federal ban, which will go into effect in November if nothing changes, we have had state-level bans in a number of our key markets over the last couple of years. So California very famously put in emergency rules to ban hemp drinks from the liquor stores in that state.