The cannabis beverage market is expected to reach $2 billion by 2026 and is growing at a rapid pace. In Canada, the market share of infused drinks has increased by nearly 850% since 2020, according to a recent helmet report, the trend should follow in the United States. Some traditional beverage companies are hesitant to launch due to the niche branding and supply chain models needed to capture significant market share. Other adult beverage companies such as Vita Coco and Pabst are dipping their toes into the cannabis beverage market to seize early market opportunities.
Sales and marketing agencies like Petal fast, with a core team drawn from the natural food and beverage industries, has already begun to crack the code for cannabis brands by implementing systems straight from the textbooks of these industries. This includes disrupting the CA market by becoming the first to implement a traditional three-tier distribution model.
We caught up with Jason Vegotsky, CEO of Petalfast, to learn more about the cannabis beverage distribution market. Prior to Petalfast, Jason was chief revenue officer at KushCo Holdings (now Greenlane Holdings), a role he assumed after selling his butane supply company to KushCo.
Aaron Green: How did you end up in the cannabis industry?
Jason Vegotsky: I started my career in the distribution of wines and spirits, but I always knew that I wanted to be self-employed. My first foray into starting a business, raising capital and building a brand was through my beef jerky business, Lawless Jerky, which I started and sold after five year. With my experience in the food and beverage industry, I quickly entered and understood the cannabis market. I started a company called Summit Innovations that sold butane to oil producers. I eventually sold Summit to KushCo Holdings, Inc. (now known as Greenlane Holdings, Inc.) and became their President and Chief Revenue Officer. Through this experience, I began to notice gaps in the cannabis distribution model. Petalfast was designed to fill this gap, providing customers with exceptional go-to-market strategies, resulting in increased revenue and customer loyalty.
Green: How does the experience in health foods and traditional beverages translate to the cannabis industry?
Vegotsky: The go-to-market strategy is similar to that of cannabis, and the industry can benefit from the knowledge and experiences of those working in natural foods and beverages. The long regulatory history and long-standing distribution models of these industries can provide a framework on which players in the cannabis industry can capitalize.
Green: What is the current distribution model for the majority of cannabis beverage companies today?
Vegotsky: Cannabis beverage companies face significant regulatory hurdles when it comes to distribution. Transportation restrictions, state-to-state differences in THC serving sizes and packaging requirements, retail display and storage limits, and consumer adoption are just a few. examples of what cannabis beverage brands encounter when seeking to enter, compete or evolve in a given market. .
At Petalfast, we offer a tiered distribution model, and our customers enjoy phenomenal distribution through our logistics partner, Nabis. Products are distributed to all California dispensaries and delivery services, allowing brands to focus on what matters most: creating the highest quality cannabis products on the market.
Green: What is a three-tier distribution model? Why do you think the cannabis beverage market is ripe for this model?
Vegotsky: The three-tier distribution model is commonly deployed by liquor companies and other traditional food and beverage businesses, as it allows each tier to expand its operations and focus on its specific services. The three levels include brand, wholesaler (sales + distribution), and retailer in this distribution model. Because cash flow is such a big challenge in the cannabis industry, adding an extra layer by separating your distribution and sales is beneficial for brands because it reduces overhead and allows brands to have the ability to evolve.
Green: What are the opportunities for smaller brands looking to carve out a niche?
Vegotsky: One of the benefits of working in an emerging market is the ability to come in on the ground floor, learn as much as you can about the industry and find the gaps. Building a brand in this space requires a deep understanding of the consumer and the overall culture – something most brands are still trying to break. If a small brand can effectively target a base in a distinct product category, it can be very effective at growing in its niche.
Green: As the big adult beverage players dip their toes into the cannabis beverage space, is consolidation inevitable?
Vegotsky: On some level, yes. Well-established companies will seek to acquire smaller, more successful businesses, especially those with limited capital, but buyers should be aware that capital alone will not be enough. The culture of cannabis is very different from that of alcohol or other adjacent beverage categories, so the success of these major adult beverage players will be linked to their ability to locate and understand the consumer and to put implement brand strategies accordingly. Adult beverage companies entering the cannabis market also need to realize that the product flow to retailers is not the same as alcohol, so they will need to adapt accordingly. The cannabis-infused beverage market is expected to reach $2 billion by 2026, so alcohol companies looking to join this bandwagon should start exploring their options now.
Green: What trends are you following in cannabis drinks? What does the future of cannabis drinks look like?
Vegotsky: Cannatourism has become a 17 billion dollar industry. With the rise of cannabis-infused beverages, we are seeing an increase in creative consumer offerings, from tastings and food and drink pairings to dispensary tours and breakfasts.
Cannabis drinks are attractive to newcomers because they allow for easier control of effects. Businesses that offer an experience similar to that of a wine or brewery tour can capitalize on new consumers looking to explore the benefits of cannabis in a controlled environment.
The modern consumer is also more health conscious, and with the increased availability of legal cannabis, many are replacing alcoholic beverages with the plant. There was a report decrease in alcohol consumption since the 1980s, and many now believe cannabis is safer than alcohol. This belief is particularly prevalent among younger generations, leading more and more users to incorporate cannabis-infused drinks into their daily lives. The way we socialize or relax at the end of the day will begin to change and brands will become market leaders in meeting the varied needs of consumers.
Green: How does the industry get there?
Vegotsky: On the one hand, federal decriminalization and removal of cannabis as a Schedule I drug from the list of controlled substances would help. Cannabis companies don’t have access to the traditional marketing playbook to promote their brands due to TV advertising and social media restrictions. To build brand awareness, companies need to focus their efforts at the retail level. Engaging with consumers in-store allows brands to grab their attention and drive faster sales until other avenues open up. At Petalfast, we decided to invest in field and commercial marketing to bring the brands to life at the retail level. We do it better than anyone, and we do it at scale.