Navigating Distributor Partnerships in the New Frontier of THC Beverage Retail Channels

A few years ago, working with the likes of Total Wine, Spec’s, and big alcohol distributors was just a pipe dream for people in the THC beverage space. But fast forward to today, it is now arguably the most important channel for these brands, with E-commerce following right behind.

While many entrepreneurs and pioneers in this space come from a beverage background and may be familiar with bevalc distributors, plenty of others also found themselves here because of a genuine passion for the cannabis/hemp plant, and have little to no experience working with these types of organizations.

The THC beverage space is approaching true ubiquity each day as more retailers and distributors are joining the market, so it is important for brands to understand what a distributor is and what a distributor is not. I have already heard stories of brands not quite understanding their responsibilities versus the distributor’s, so today we will be covering all the ins and outs of working with distribution partners. While I have some basic knowledge on this topic, most of the content in this piece comes from the Head of Growth at Hemp House, David Gonzalez.  I also spoke with two leaders of distribution companies, one was Chris Fream from Hohenstein’s Distributing in MN, and the other asked to remain anonymous.

Responsibilities of the Beverage Brand

The number one priority of the brand – once they enter a relationship with a distributor – is making sure they can meet demand and get product to their distributor in a timely manner. The fastest way to burn bridges with a distribution company is to leave them sitting around waiting for product so they can restock retail partners.

Brands also need to be responsible for having good/professional branding, and develop a product that can sell itself on the shelf.  In the early days it was enough to simply put THC in a drink, slap a label on a can, and bring it to market, but because there are so many beverages popping up each day brands must focus on building a unique look, flavor profile, and customer experience.

Compliance is a highly important element as well, and brands should make sure that their product is compliant with the federal rules provided by the Farm Bill, as well as any extra regulations imposed by state authorities. COAs (certificate of analysis) should be easily discoverable from a link or URL code on beverage packaging, and these should be straightforward to find on the brand’s website. Variance of THC dosage should never be above 10% more or less than the stated dose.

Finally, the brand must be prepared to support the distributor throughout the selling process and out in the field. They need to have marketing collateral, sell sheets, training for distributor reps on how to sell, tastings, and field reps of their own.  The importance of boots on the ground in each market that is attacked is extremely important, and will help to forge relationships with retailers and customers, and gain new insights into the market’s demographic and consumer preferences.

Responsibilities of the Distributor

The distributor’s main responsibility is to expand the retail footprint of the brands by getting them into more accounts in new markets. They must work to leverage existing retailer relationships to get products into stores.

They also must service existing accounts, with the main priority being to make sure that shelves are never empty.  This involves regular communication through in-person check-ins, and phone and email conversations so they can maintain visibility and preserve the relationship. A distributor’s goal should be to improve sales velocity over time, provide retail marketing collateral, and work to offer tastings.

Distributors should also be sharing as much data back with brands as possible like number of accounts, sell-in rate, sales by SKU, orders, sales velocity, and grade of account (A, B, C). An important rule for brands to understand is the 80-20 rule (80% of revenue comes from 20% of accounts), and distributors should be collaborating with brands so they can devise a strategic plan on how best to attack each market.

Chris Fream (Hohenstein’s Distributing): “In short, Distributors are responsible for Points of Distribution and the brands are responsible for the Rate of Sale/Pull Through.”

Anonymous Distributor: “I personally feel the brand should reach out basic information at first (who they are, where are they from, what they are looking for, product line up) just basic information. Once I review I usually ask for samples and any other high level information (pricing, SKUS they want to launch, initial market support). If I need the marketing info or which celebrity is drinking their product, I can ask for that at a later time. That isn’t the information I need right away.”

What Distributors Look for In Prospective Brand Partners

• Are they filling a gap in the portfolio? IE not just another seltzer, but a product with a new combination of flavors, functions, or dosages.

• Do they have good branding that seems thoughtful and will resonate with consumers?

• Do they have a professional team that the distributor can trust to deliver and have a long-term relationship with?

• Do they provide support? Do they have a sales team or field marketer or anyone who can help push sales?

• Is there existing demand or an existing customer base for this kind of product?

• Do they know their customers and how to segment them?

• Are they fully compliant and do they possess COAs?

• Do they have a solid online presence?

Chris Fream (Hohenstein’s Distributing): “At this point, a complete brand.  Meaning all the pieces are in place and a solid route to market plan has been created.   Distributors are not in the business of throwing a bunch of stuff at the wall and seeing what sticks.  They will want to see a cohesive plan, and even more so, a plan for when things do not work out to plan.  Eliminate their risk and they are more likely to listen.”

Anonymous Distributor: “Product line up, dosage, market support, are they national or local, who is producing for them, pricing.”

Common Misconceptions

“Distributors should get me into as many accounts as possible.”

This is not a wise strategy. Brands should absolutely focus on volume, but it should be inside key accounts, not spraying and praying to any or all retailers that will take them. The 80-20 rule is important. Selling at a retailer like Total Wine or another major liquor or grocery outlet will increase the odds that a brand/distributor will have higher volume, repeat orders, and better sales velocity.  This will likely play out much better than a hodgepodge approach that works with random gas stations or smoke shops, who only buy a case or few at a time and may never reach out to a brand again.

“Distributors are the best people to sell my products, I don’t need a sales rep.”

Distributors get products on shelves, but it takes additional support to make sure consumers actually buy off the shelves. Brands cannot hand off their product to a distributor with no support and expect it to perform well. It makes a big difference to have a local sales rep who can support distributors, and help with tastings, marketing, and pitching new accounts.  It is important to understand that the combination of internal employees and distributor partners is what leads to the most success.

"My product kills it in Market A, it will for sure kill it in Market B".

Consumer preferences in different regions of the country, and even states inside those regions vary tremendously. Different cultures have different pallets and different taste preferences. Just because a brand has found success in one market does not mean that it will automatically translate to the next. It is important to take time to work with distributors who understand the market they serve and figure out how to approach it best. This is also another big reason for brands to have their own employees physically located within the market.

Chris Fream (Hohenstein’s Distributing): “There are many!  One of the biggest ones for me would be that we pick favorites.  We don’t.  In fact, we like to think we are the ultimate equalizer in that we give big brands and small brands the same opportunity to gain distribution, and that wouldn’t happen without us.  Big brands will do everything in their power to stop competition, but they can’t stop us from carrying a brand and giving it attention.  There are exceptions to every rule of course, but this is an overarching idea.”

Anonymous Distributor: “That we run a very “loose” operation. They think we just bring the product in tomorrow and will sell 500 cases in 1 week. It is a process to on board a new supplier at a distribution company like ourselves. I would hope suppliers would do their research on distribution companies and how we operate DSD, the benefits of working with a distributor (delivery frequency, marketing support, merchandising. Etc), and what other products we carry. That would explain what type of customer base we have.”

Differences in Distributor Types / How Do THC Beverages Differ from Alcoholic Beverages in the World of Distribution

There are a variety of distributors that are now serving the hemp-derived THC market. The first and most prominent are the alcohol distributors, but there are also THC beverage-focused distributors emerging, as well as smaller distributors that focus on convenience stores, gas stations, and smoke shops.

Alcohol Distributors: They do the best job of getting product onto liquor store shelves because they have the most connections within the world of alcohol. The bigger the liquor store (ex: Total Wine), the more likely that retailer is to stonewall specific distributors or prioritize distributors whom they have good relationships with. The only downside is alcohol distributors may not know THC products as well as other distributor types yet, although that is rapidly changing.

THC Beverage Distributors: They know the market and products very well, and they can put together an excellent pitch based on their knowledge, but their biggest downside is they don’t have the liquor store connections or the volume that other distribution types posses.

C-store/Gas Station/Smoke Shop Distributors: These partners hustle and can get product in small retailers all over the place, but they are likely lower-level accounts, meaning that sales volume and effort put into the partnership with specific brands is much lower.  Another important thing to consider, is that many of these retailers (especially smoke shops) have an unfortunate history of being loose with IDing minors, which could translate into some bad PR for brands if they happen to distribute to one of these shops.

Chris Fream (Hohenstein’s Distributing): “…at the end of the day they are boxes on a truck.  Beverages are a freight intensive product which is why a distributor in this category is preferred.   Everything else in the THC space can be shipped by other methods, but not the heavy, awkwardly shaped boxes that are Beverages.”

Anonymous Distributor: “We at ______ handle THC beverages very similar to traditional to alc beverages when it comes to picking and delivering. The biggest differences are we deliver to anyone who operates a business and has a W-9 for THC products (that will change with OCM licensing comes out) and we also are COD which means “cash on delivery.” We do not let our customers charge THC products. It need to be paid on delivery whether that is cash, check, fintech and or EFT.”