Commentary

Smart Business: Why Beverage Makers Are Falling For Cannabis Industry

Two years ago, the head of innovation at one of the world’s largest producers of spirits and beer told me of his perceived competitive threats to the industry. Without pausing to think, he said: Daybreaker (morning, alcohol-free dance parties), Amazon and cannabis.

Last year, VC investment in cannabis startups hit an all-time high (pun intended). Today, it’s clear that cannabis is both a threat to,  and a huge opportunity for,  the beverage industry. Not since Apple decided to get into the phone business has the marriage of two industries been as disruptive and transformative as the alliance between alcoholic beverage makers and the burgeoning cannabis trade.

Better understanding about the health benefits of cannabis and its consequent legalization across so much of the U.S. and beyond, as well as anticipation of consumers' shifting demands, have moved the product from the margins of society to the center of commerce, leading not only to a wave of cannabis-based start-ups but also to established industries and brands looking to get in the game.

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As with any disruption, there is bound to be skepticism. While some may fear that the long-term loyalty enjoyed by beer and spirits brands may be in jeopardy as a result of the rise of the cannabis industry, nothing could be further from the truth.

Evidence suggests that the two industries can and do coexist quite naturally, and actually serve to bolster rather than harm one another.

Take global beverage giant Constellation Brands -- whose products include Corona, Kim Crawford and Svedka -- which made news everywhere last summer after it invested $4 billion in the leading Canadian cannabis company Canopy Growth. The investment enabled Canopy to bolster its global leadership position (notably, funding efforts in dozens of countries opening up to medical cannabis and the edibles segment of the business) and benefit from the beverage maker’s retailing and marketing might. The deal was also viewed as a savvy move for Constellation, which gained a powerful foothold in the growing cannabis market and multibillion-dollar health and wellness space.

Constellation is not alone. Within the last year, Anheuser Busch InBev partnered with Canadian cannabis company Tilray to research cannabis-infused beverages. Heineken-owned Lagunitas Brewing announced it was coming out with a cannabis-infused sparkling water, while Molson Coors partnered with Hydropothecary Corp. to produce cannabis-based drinks for the Canadian market.

And while brewers move in on cannabis’ turf, cannabis companies have, in turn, developed quite a thirst for beverages. Recess, a new brand of CBD-infused sparkling waters, was launched last year, following in the footsteps of such brands as Dirty Lemon and Mood33.

It is interesting to view what’s happening as a struggle between startups and incumbents. The battle will be whether startups get distribution before the incumbents innovate.

Beverage marketers see cannabis as an opportunity more than a threat. Rather than fight a losing battle against a rapidly expanding industry, beer and spirit brands have embraced it -- becoming an essential player in an exciting, emerging market.

There is a history of companies that have successfully expanded their footprint and made themselves over when up against a potentially potent rival.

Faced with a decline in tobacco usage and the rise of vaping, Philip Morris International/Altria embraced smoke-free products and radically made over its business model, and public image in the process. The Coca-Cola Co. isn’t just about carbonated beverages anymore, having expanded into a dizzying variety of bottled and flavored waters, tea, coffee, dairy drinks, sports beverages, smoothies and more.

These are brand leaders that successfully navigated the disruption of their businesses, turned a threat into an opportunity, and led a transformation of their industries.

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