Why Dispensaries are the Wrong Channel for THC Beverages

Want to learn more about THC beverages? Visit: www.drinkhemp.com 

Cannabis beverages have had a long and difficult road to market. While many dreamed of the day when they could be distributed like alcohol, initially cannabis beverages had to be distributed through recreational and medical dispensaries. But in 2018, the US Farm Bill opened up a pathway to derive THC from hemp, allowing operators to sell their beverages in liquor and grocery stores, and even online through e-commerce platforms.

The last few years have proven the hemp pathway to be the superior distribution method, as THC beverages are slowly becoming more ubiquitous in the US.

There are now more than 250+ brands operating in the space, alcohol distributors and retailers are working hard to make products available nationwide, and Americans’ attitudes and openness to hemp/cannabis use have never been more favorable.

As THC beverages are slowly exiting dispensary channels, here are 5 reasons why I believe cannabis dispensaries were always the wrong channel for beverages.

1. THC beverages are adjacent to alcoholic beverages, not other cannabis products.

Hemp-derived THC beverages at Total Wine.

Currently, we are seeing an explosion in non-alcoholic beer. The non-alcoholic beer market is valued at over $20 billion globally.

Now imagine if you had to go to a special store that was not where you bought the rest of your beer and groceries, and it was usually out of the way and more expensive than anywhere else you shopped.  You probably wouldn’t pursue NA beer that much.  This is what the dispensary system has felt like for cannabis beverages for years! 

Cannabis beverages are supposed to be an alternative, replacement, or supplement to alcoholic beverages. Hence, they need to be sold right next to those products so consumers can easily try them. The THC/non-alcoholic/alcoholic beverage categories are meant to compete!

We already have a massive distribution system designed specifically to move adult beverages with efficiency.  It’s all set up and more or less works like a well-oiled machine.  Many brands are hoping this can eventually be fully leveraged to bring about the widespread adoption they dream about.

2. The target consumer is likely not a current dispensary shopper, and dispensaries can be unfamiliar, unfriendly, and inconvenient for novice users.

We are already convincing people to try a drug/product that they have little experience with, but now on top of that, we want them to through one of the strangest retail experiences ever created?

This is no shade to any dispensaries, I know they are just following the insane regulations set up by state commissions. But most cannabis dispensaries are like walking into a foreign country for a new shopper.  There are no windows, high amounts of security, you have to show your ID three times before finally getting inside, and the buying process can be confusing and feel impersonal with a big push for ordering on digital tablets.  This is a huge hurdle for a new consumer to overcome when they are already trying a new product and doesn’t make them feel welcome.  Some consumers are still self-conscious of even being seen at a dispensary, as they are worried about what their friends, family, or employer might think. 

Dispensaries also have downsides due to physical location.  Many dispensaries are often in strange/out-of-the-way places because towns have forced them to be out of sight of the public.

Another aspect to consider is that the target demographic for cannabis beverages is not limited to current cannabis users.  I believe a huge chunk of this market will be made up of current alcohol drinkers, or sober curious people who have not yet made the leap to THC. They don’t shop in dispensaries, they are at supermarkets and convenience stores looking at non-alcoholic beers or hop-waters, and if there are no cannabis beverages then they are probably not trying them.  This is why hemp-derived THC beverages have exploded as they become more available in traditional retail channels.

The people who do shop in dispensaries are looking for high-dose items, so a 2.5mg or 5mg drink is not going to catch their attention.

3. Dispensaries are not set up properly for beverages, they price them too high, and many don’t prioritize the category (I don’t blame them).

I was a part of a brand that initially focused on the Massachusetts recreational dispensary market.  While not every state is the same, here are some of the tough obstacles we faced:

  • The tax structure is very unfriendly to dispensaries.  Tax code 280E makes it impossible for dispensaries to write off a number of standard business expenses.  This means that they often require a 50% retail margin, which jacks up the average beverage cost to $7 or $8 a can, which is more than most craft beers. 50% of a $7 - $8 item is also not that much money to them. Sales tax on cannabis is also generally high and only adds to this cost.

  • Many states require “vault space”, which is a hyper-secure area to store inventory. Most dispensaries were not designed with beverages in mind, so they are not too thrilled about the idea of storing a product large in volume that sells for much less than vapes, gummies, and flower.

  • They don’t prioritize beverages. Beverages historically make up 1% of national dispensary sales and are seen as a low-ticket add-on item.  Most dispensary shoppers come for flower, vapes, and gummies that are high in THC, so it makes sense to push these products more.  It takes a lot of time, effort, money, semi-bribing, and even begging just for many beverage brands to get on the shelf.

4. Marketing and promotional opportunities are limited by a fragmented retail space and an anti-cannabis social media landscape.

Many cannabis dispensaries are mom-and-pop style or are a chain that has 5 - 10 locations at most in a given state. This means that it is very hard to create streamlined promotions because there are so many different parties to communicate with. They also are more focused on paying the bills and being profitable, so marketing is often an afterthought when inventory, labor, and operations are their top priority.

From a digital marketing standpoint, unfortunately, platforms like TikTok and Instagram hate terms like cannabis, marijuana, or THC.  Brands and dispensaries are constantly getting their posts taken down and accounts deactivated, and besides X (Twitter) no other platform allows paid advertising. However, through playful workarounds, hemp-derived THC brands have found some success in breaking past these barriers. Some brands will scrub “THC” from the imagery of their cans, and in ad copy will replace the term with “infused” or “high”.

5. It inadvertently creates a fractured supply chain and manufacturing environment, and brands cannot leverage economies of scale.

Cannabis is federally illegal, which means that each state-regulated market acts like its own separate ecosystem. Interstate commerce is not allowed, so everything from manufacturing, testing, logistics, retail, and anything else is separate from state to state. No other industry operates like this, and it would be foolish to do so.

When a brand wants to expand into other legal markets, it has to find a new co-packer, new distributor, and partner with new retailers to get going. Ingredients and materials have to be separately shipped to each co-packer in every state, which is an operations nightmare and increases the risk of poor quality control. Some larger retail chains also exist in other states, but more likely than not brands will have to begin the haggling process again of trying to get their beverages on shelves.

I have a ton of respect for what dispensaries are trying to do and the obstacles they have to overcome, but the channel is far too restrictive for the masses to access low-dose THC beverages. Dispensaries are limited in locations, many don’t do delivery, e-commerce is non-existent, and they do not provide friendly shopping experiences for novices. In contrast, there are liquor stores, grocery stores, and C-stores littered across the country already selling alcoholic beverages. Millions of people shop at these stores and many go on a weekly or daily basis. The results seen in Minnesota and beyond from THC beverages being sold in these outlets have proven traditional retail to be a superior channel.

About Me

Hey! I’m Daniel, a Boston native and cannabis beverage enthusiast. I worked directly in the cannabis beverage space for a year and a half, and have been involved in a variety of startups through my professional career. I am passionate about cannabis/NA beverages, sustainability, fintech, CPG, and consumer-facing brands with meaningful missions.