How THC-infused beverage brand Cann is capitalizing on Dry January

0:04Hello, everyone, and welcome to the Modern Retail Podcast.

0:30in many retail doors. It's just part of an overall big growth movement for this overall space. It's a space that I know very little about. And so I want Jake to talk me through it because it's seen a lot of shifts in a very short amount of time. And I'm sure Jake has some stories to tell about just how different laws change, how that goes. But also we're in January now. And we actually wrote a story at Modern Retail a year ago that quoted, I believe, actually Jake in it, about hemp-infused or THC-infused beverages doing marketing campaigns with Dry January. And I was reading up that Dry January is a big customer acquisition period for a beverage like Can.

1:06And so I want to talk about all of that and the overall just consumer base, how it's growing, all that jazz. But how are you doing, Jake? Doing great. Thank you for having me. Absolutely. So let's start with you. How did you end up getting into the weed-infused beverage space? Yeah, great question. So I kind of have an interesting journey to this industry. I had grown up in Colorado. And so as a Colorado native, I was sort of very closely following the adult use marijuana laws that rolled out there in 2013, 14. And I wasn't living in the state at the time, but I would go back there a lot, visiting family, et cetera.

1:43And I was often asked by friends to smuggle various products out of the dispensaries in the early days in Colorado. So I was very familiar with them, although they always struck me as a little bit strange. I mean, you were talking about like gummy bear candies and, you know, pieces of chocolate and things that didn't strike me as sort of the leading edge of this new wave of adult consumption, you know. And so that sort of stuck with me, that idea. And when I had done a bunch of boring jobs, I was investment banking analyst, management consultant, private equity associate. And through all of those boring jobs, I spent a lot of time with consumer brands, particularly towards the end state, right?

2:18When and their growth is slowed, or they're selling to another big brand, or going public, or whatever. And so I was fascinated with how brands are built, particularly all the little decisions that one makes that add up to the brand, whatever that means, right? And how those little decisions, each one taken individually doesn't do anything really, as you think about it in the context of the larger brand. But all of them added together do. And so that was interesting to me. So I wanted to go start a consumer brand. I applied to business school and my goal in my application, I said, I want to move back to Colorado and I want to start a marijuana business.

2:52And when I got to business school at Stanford, California, was the year that California passed its dispensary laws. And so I said, okay, maybe I don't move back to Colorado. Maybe I stay in California and I work on this idea. and I had remembered back to sort of the days in Colorado of smuggling these gummies out and it just didn't really strike me as where this industry was going. And so if I put on my management consultant hat, we were taught to think about analogs. So what are the analogs to THC? Well, it's a mild intoxicant. It's actually pretty mild. I think that's what makes it unique and special in this case.

3:24What are some other mild intoxicants we could compare it to? Caffeine, alcohol, come to mind. We drink them, importantly. And maybe more importantly, we drink them in micro doses. This was kind of the key insight, which is, well, why is the amount of caffeine in coffee, you know, X, and why is the amount of alcohol in a glass of wine? Why? And it had something to do, we thought, with the amount of time it took the body to metabolize that intoxicating, right? There's a reason I can have like three cups of coffee today, or the end of the day can have a couple of beers. It's because my body's actually working through that.

3:57There's an effect to it, but it gets metabolized and it processes it, right? And so what is the equivalent of that with THC? That was a big question. And we found through our work in testing this stuff on consumers that it was like two milligrams of THC, whereas every beverage on the market at the time was, you know, 100, maybe the lowest was 10 milligrams. I can't even drink a 10 milligram drink today after, you know, doing this for six years and consuming quite a bit of our products. And so that was the first big insight, which was if you take the dosing way down, it unlocks this social potential, right?

4:27Two thousands of years of human history, we socialize around drinks. For THC drinks to fit into that world, it's going to have to mimic the drinks that we socialize around over those thousands of years. And so it's going to need to be microdosed. That was important. And then the second one is sort of obvious, but maybe in the broader food and beverage landscape, it's not as followed, which is it has to taste great. This is something people enjoy. They're sipping it. They're savoring it. It's the end of their day. It's socializing with friends or family. The idea of drinking something which has a grassy sort of cannabis taste, not good, right?

4:58A bitter taste that needs to be masked, not good. So we were really hyper focused on the ingredients. That was another sort of key part to it. And then the third thing is, it's a brand. It says something about you when you buy it, right? That's important to us. That was important to me. It's part of why I wanted to start a consumer company. And so I spent a lot of time investing in who is that brand? You know, what does it feel like to be around them and to want them to be a part of your life? And so we really tried to humanize that element of it as well. Got it. And so what was, given that it launched just around when you're seeing many more states legalize, what was the overall launch plan in terms of distribution?

5:34I mean, I can only imagine, you mentioned earlier that starting a brand is an amalgam of many, many small decisions, but when you have a layer of legality and distribution, that's a million small decisions, that's also a big decision. So walk me through that. Yes. So in the early days in this business, So early days being six years ago, we could sell in only dispensaries. We started in California, so our landscape was the California dispensaries. And as we grew, we were very lucky to launch with MedMen and Ease, which at the time were the two largest retailers of marijuana products in California.

6:05And we grew to all the other dispensaries and delivery platforms that we could sell through in the state of California. To go into another market was like going into a new country in lots of ways. You had to set up brand new manufacturing. You had all new partners. Your distributors were different. the product could not leave the state. It actually couldn't even leave a licensed supply chain of state-licensed players that we weren't one of them. So we couldn't even touch our products once it became infused with THC. So you can imagine it was very, very challenging. And when you grew into those new markets and spent all that time and effort setting up a brand new supply chain, you might have 100 dispensaries if you're lucky.

6:40Maybe not even that much, right? When we grew to Nevada, there weren't even 100. When we grew to Illinois, there weren't even 100. And so it was a really challenging sort of growth dynamic. We were lucky in that consumers really pulled these products through the channel. They found them. People that wouldn't have normally gone into a dispensary went in to buy our products because they desperately wanted this. This was serving a need that they had. We got lucky about two years ago. And this is sort of one of the interesting things that happens in startup world where we more or less pivoted the business over the last two years.

7:11Minnesota passed this law which said if you can extract the THC and CBD from hemp, it will be governed by a new set of laws. under the 2018 Farm Bill. And also Minnesota passed some laws saying you could only sell these products to folks that are 21 plus, which makes a lot of sense. And you've got to do some testing and labeling compliance. And the THC is capped. So you can only have five milligrams of THC per serving. Well, that was great for us because our core product is two milligrams. And we had a higher dose product at five milligrams. And so we said, well, let's make a product for this new, funny Minnesota market.

7:44Now it's one of our biggest markets. 20-something states have followed in Minnesota's footsteps passing regulations in this space for hemp-derived THC drinks. It's something like 90 % of our business today. What's amazing about this pivot is it's entirely based on extracting our active ingredient and the regulatory framework that we comply with in each state. The consumer, it's the same to them. At the end of the day, they're getting a can. It has two milligrams of THC. Whether that THC comes from marijuana or hemp doesn't actually influence the experience because it's pharmacologically, chemically the same.

8:14And so we were able to do this really funny thing where we opened up significantly more paths of distribution. I mean, we're selling today in liquor stores alongside alcohol. Our largest customer is Total Wine. That environment is a much better one for our drinks. Because like I said, from the beginning, it was really about how do we get people an option that's different from their traditional alcohol options? What are those other social beverages that world look like? And at the time, there weren't a lot of options. And now there are. And consumers, when given the options, will often pick products like can.

8:43Okay, that's super interesting. And I didn't actually, I know about the farm bill, but I never knew the idiosyncrasies of it being hemp-based as opposed to marijuana-based. Under that, with these 20-plus states that you're in, does that mean that you're sort of at the will of the three-tier system? You're pretty much operating as a liquor company? It's a good question because this is a debate that's playing out in state houses across the country. And one of the reasons that so many states we think, you know, have passed laws similar to Minnesota regulating the hemp channel, regulating our products and allowing them to be sold alongside alcohol is because for the first time, alcohol lobbying interests have showed up on the side of THC drinks.

9:24So if you remember way back, it was sort of alcohol is trying to figure out what do we do with this? Let's slow it down. We don't really know. We're not so sure. There may still be folks in the alcohol world that feel that way, but there are enough, like a growing consensus, particularly among the wholesalers, the distributors who are saying, wait, we want this on our trucks. These should be sold to 21 plus adults. We have a system for selling products to 21 plus adults. It's called the alcohol supply chain. Why don't we put these drinks on our trucks? They're drinks after all. And those interests are showing up in states and basically telling state legislators, hey, don't worry, we can regulate this.

9:56We've been doing it with alcohol for decades. and state legislators are basically saying, you're right, that makes sense to us. So in some cases, we are kind of in that three-tier system. In other cases, it's like a modified version of three-tier where you can sell into hemp license holders, but alcohol license holders can also be hemp license holders. So you have kind of like a dual market. But it is one of the things that I think will unfold over the coming years in terms of whether that looks like a pure alcohol tier three system or if it's some sort of modified version. And are all of your products now hemp-based, or do you have some that are marijuana-based and others that are hemp-based?

10:31Yeah, we still sell in a couple of the marijuana markets, California being sort of the largest one, our home, where we grew up. But it's something like 90 % hemp now. But, okay, maybe I'm being dense here. If it's hemp-based, couldn't you still sell that in the marijuana markets, or could you not? You would think, right? And each state is a little bit different. In Connecticut, for example, if you go into a dispensary in the state of Connecticut, you will see can. People buy a ton of can in dispensaries in Connecticut. It's our hemp product. It sells great, and consumers love it. That's because Connecticut has allowed hemp into its dispensaries.

11:07Not every state has done that. They probably should. I think there's some apprehension from the marijuana world around hemp because, for good reason, and it's worth mentioning, There are bad actors out there that are selling 100 milligram gummies with Disney princesses on the packaging in gas stations down the street from dispensaries. Like that should not be a lot. I mean, one, no one should be selling any products with that potency of THC and Disney princesses. That's ridiculous. But more importantly, you know, these higher potency products, hundreds of milligram packages of gummies, we have a place for that.

11:36They should be sold in dispensaries. You should talk to somebody that knows a thing or two about THC before buying this. Right. It should be more like a pharmacy in that way. For a two milligram drink, we don't think so, right? I think those can be sold along beer. They're safer than beer. Got it. One thing I wanted to know, just with this pivot and with this focus more, with 90 % being dissent-based, the consumer, the shopper at a liquor store is very different than the shopper at a dispensary or a head shop or whatever you call it. And it's definitely like they're probably looking for different products.

12:09They probably have a different understanding of how it works. In terms of marketing and packaging and all of that jazz, how has that shifted as you've gone to this pivot, focusing more on the hemp products? Yeah, it's a good question. It is a different customer. We've always said we sit at this intersection of sober curiosity and cannabis curiosity. And that curious customer maybe isn't as comfortable going into a dispensary. Or when they're in there, they don't actually feel like they know what's going on. I don't really know how to engage with all these acronym cannabinoids and the raw flour kind of gives me the heebie-jeebies.

12:44That person goes into liquor stores. They're very comfortable in the liquor store environment. They're very comfortable walking the aisles and inspecting packaging. And so in that environment, we've had to highlight different things, right? The focus on our products, clean ingredients, the focus on no regrets the next day, right? There's a lot of really kind of positive things, which we're doing now in dry January. So liquor stores love this because they tend to have a really strong October, November, December around the holidays. And then January kind of dips. And so we're coming to those retail partners and basically saying, let us tell your customer a story about it's a new year, it's new you, get healthy.

13:19Everyone that has these New Year's resolutions makes lists about how they're going to be healthier. And for a lot of folks, their choice in social beverage is at the very top. If I could just drink a little bit less alcohol, it would change everything. I'd work out more, I'd make better food choices, whatever. And so we lean into that marketing, I think, a little bit more about the sort of health and wellness lifestyle that you can lead if you're reducing your alcohol consumption. Maybe our products help you do that. And then I think the aisle is different, right? When we were in the dispensary, we're surrounded by primarily stuff that looks a lot different than us.

13:52We were one of the very few drinks that was available. There were others, but not that many. Now we're in a retail environment where not only are there drinks everywhere, we are competing for shelf share with the biggest global brands. I mean, it's kind of wild, right? These beer companies are huge. These spirits companies are huge. They have been doing this branding for longer than my parents and grandparents have been alive. So, you know, we have to learn really fast. We have to be really creative in how we stand out in that environment, how we tell the story of the brand and what it can do, the impact it can have in people's lives is a real challenge.

14:27Got it. Got it. And so I want to get into this past year and also what's going on throughout January. But I also want to, I always think of, especially in terms of new industries or new landscapes in terms of sort of eras or epochs. And I feel like cannabis is a really interesting one. Like when you launched, I feel like it was very different than it is now. It seems like most states are at least open to it. You're in many more states. How many states are you in actually right now? So we sell in liquor stores in about 20 or so states today. And then we sell online in a few more, like I think 35 or 36 now.

15:00Got it. And so how would you describe where we are now? And when do you think we're going to get to a much more nationalized and ubiquitous era where you can sell everywhere? Yeah, it's a great question. I mean, when we started the business six years ago, investors would ask me, you know, federal legalization of marijuana. When is it coming? How do you see the world? And I kind of said, you know, we see the pace of change accelerating. That makes me feel comfortable that in three to five years, we'll have some sort of federal legalization. I will tell you now, I will be surprised if that happens while I am in business.

15:31I mean, I didn't really fully appreciate, I think, you know, six years ago, the challenging political dynamics around specifically marijuana, right? There's a there's this torrid history, the war on drugs, you know, the failure of the war on drugs, its application in ways that are are often very racist and not great from a social justice, criminal justice standpoint, that you have to sort of rectify. If we're going to all of a sudden say marijuana is legal, well, how do we deal with all the past sort of effects of the illegality of it, right? Those are challenges that just aren't presented in this new pathway, right?

16:04We joke a lot, but it's sort of true. When you're seeing the hemp industry grow, it's growing in places you would never have expected there to be widespread marijuana adult use. These are places that probably won't have dispensaries. They don't really want dispensaries. And so what it's doing is it's giving estates an option for safe access to the cannabis plant through the hemp version of it, right? In a very specific way, right? In a way that says, well, if we cap the amount of THC, we feel comfortable allowing the sale of this in more places. And that's ultimately the goal here, right? When we talk to our marijuana partners and friends in that industry that often are frustrated with sort of the hemp marijuana dynamic, I often say, well, if you were willing to cap your amount of THC at five milligrams, I think they would be okay with that too, right?

16:48It's nothing against the plant per se, right, or the version of it, right? It's the potency. It's the risk profile. We're willing to say, hey, for these drinks, which are really, really low potency, really, really low risk, do we feel comfortable selling them through the alcohol supply chain? And most states, I think, are saying, yeah, we do. We do. Honestly, if anything, it's a safer product than alcohol. We'd rather folks drink more of these canned drinks than drink booze. And so we're seeing that conversation play out. I think that is exciting in a lot of ways because we do have a political path to what you're kind of describing, which is broad-based, legal, safe access to some form of cannabis across the country.

17:25You know, right now, the farm bill has made hemp legal. And so what we're doing legally, you know, from a federal standpoint is acceptable. But we would like to see additional regulation. I mentioned those bad actors, right? We all agree, my marijuana friends and everyone else, that we should not have 100 milligram gummies available in gas stations, right? Like that just shouldn't happen. the whole premise behind the hemp movement is that it's low dose it's low potency we're limiting the amount of THC and in doing so we can put it in more places and feel comfortable that we can keep it out of out of the hands of children and all that all that important all those important things that need to happen so I'm more optimistic that you will see additional regulation regulation from the FDA that helps set some of this these standards federally that respects the existing state programs which have been in place and are working really well for those states and then may ultimately allow other states to step in in a safe and regulated way.

18:17So we're optimistic that, you know, we'll see something even this year coming from the FDA, but we'll see. So what's keeping you from being in all 50 states on the hemp side of things? Is that just an issue of scale and, you know, growing is hard or is it just some markets you don't want to be in yet? It's a combination of factors. So you have a few states, not many, but a couple that have banned us. So Governor Newsom in California did this end of last summer, which was disappointing because that's sort of our home ground in the California market. I think we like to think about California on the forefront of marijuana policy and being really a leader.

18:52And sadly, it's fallen to the very bottom of the list, along with Idaho as being the worst. And so that's too bad. We're optimistic that we can inspire some California legislators to bring California back to the front of innovation as it relates to cannabis policy. But we will see if we're successful in doing that this year or not. There are other states which just have very complicated frameworks and what they allow it, but they basically say, well, you got to jump through this hoop and that hoop and another hoop. And we kind of look at it and we say, you know, for one state, it just doesn't make sense for us to jump through all those hoops.

19:23So that's another category. And then the rest have, for the most part, had these debates in their state houses. Some will continue to have them, you know, this coming year. And we like that. We like when there's an out-in-the-open debate in the state legislator about these questions. You know, what is the right amount of THC that should be allowed in a serving or a package, right? You know, we really like when states require testing and labeling guidelines that are clear and verifiable, right? We put all of our testing results online. These are the types of things that help, you know, protect against those bad actors.

19:54And many states have decided to put excise tax on this category and are raising a lot of revenue for the state. I mean, Minnesota, for example, has raised more money in a year taxing hemp beverages in their liquor stores than California has raised on beverages since it kicked off its marijuana program. So, you know, it just goes to show you there's a strong sort of economic argument at the state level as well here. So let's talk about the past year. What has been the major focuses and milestones for CAN in 2024? Yes. So a lot of expansion into new states. Like I said, I think we're up to 20 states now in liquor stores.

20:30And that was maybe three at the beginning of the year. So pretty substantial growth on that front. And into places that have become really great businesses for us that we would have never imagined we would be selling in North Carolina or Tennessee. And not only are we selling there, it's selling really well. And consumers love these products. And so that's been a real big milestone for us. We launched our roadies, which are liquid packets. We really like these products. Consumers love them because they can take them on the go, bring them to restaurants, sneak them out and pour them in a seltzer water and have an infused drink at the restaurant.

21:04So that's been a really popular product and one big success for the business this year. So we've been excited about the expansion there. And then we continue to grow online. We've been able to do some fun stuff with the online business. We brought back our Yuzu elderflower flavor, which is our best-selling, highest-performing flavor ever. We don't sell it that often because yuzu juice is expensive, but we love it and consumers love it. So we did that as well, and that was a super fun win from the year as well. Got it, got it. So when you're entering, you entered 18 or whatever, 15 new retail stores this past year.

21:38When you're thinking about shelf placement and product education, how do you go about that? I imagine in North Carolina, maybe there are some other hemp beverages, but not that much. Where do you try to get placed? And how do you make sure you have the most propensity for sell through? Yeah, it's a great question. The biggest hesitation that folks have around our products is unfamiliarity and hesitancy around THC. How high is it going to get me? How many of these can I have? Will I embarrass myself in front of my friends, right? These are sort of core salient emotional questions. So we try to answer them.

22:12And it's hard to do, right? Because you basically have a shelf facing. You can put your products on that shelf, right? If you're lucky, you hold that shelf share. And so we do fun things like on our boxes, for example, we have these active phrases like take me to a party or bring me with friends. And the idea is that we're trying to incept some of those behaviors. The other thing we can do is with the actual packaging design itself, right? So our cans are little. If you've seen the two milligram core product that we have in the market, it's just in a little eight ounce can. They're pink and yellow and orange.