Cannabis Disruption in the Food & Beverage Industry

September 17th, 2019 Posted by Food & Beverage, Transportation 0 thoughts on “Cannabis Disruption in the Food & Beverage Industry”

Cannabis Disruption in the Food & Beverage Industry

Authors: QProducts & Services Food & Beverage Team, Under the Direction of Kevin Lynch and Stephen Wozniak

 

The recent and continuous growth of the cannabis industry has attracted many businesses to join in on this lucrative and evolving space. With the recreational use of cannabis now legal in 11 states, and medical marijuana legal in 23 states, cannabis is on its way to possibly becoming an $80 billion industry by 2030, according to estimates by Cowen, Inc. The explosive growth of this space in a short period of time has created a need for a new era of supply chain management to help adapt to new regulations, distribution models, and other challenges related to a highly-regulated but thriving industry, according to Green Entrepreneur.

In the food and beverage industry specifically, we’re experiencing mainstream adoption from food and beverage companies, new and increased competition, and challenges in the supply chain.

 

What is Cannabis?

 

Cannabis, also referred to as marijuana, comes from a group of three plants with psychoactive properties: Cannabis sativa, Cannabis indica, and Cannabis ruderalis. When the flowers of these plants are harvested and dried, you’re left with cannabis, one of the most common drugs in the world. It is made up of more than 120 components, also known as cannabinoids, of which we can find cannabidiol (CBD) and tetrahydrocannabinol (THC). While THC is psychoactive, CBD is not, and you can find cannabis products that contain just CBD, THC, or a combination of both.

 

 

Where Did CBD Come From?

 

Cannabidiol (CBD) is a compound extracted from hemp or marijuana. The 2018 Farm Bill excluded hemp from the definition of marijuana and removed it from the Controlled Substances Act (CSA).

 

CBD was first discovered by Dr. Roger Adams and his team at the University of Illinois in 1940, however, its structure was not made clear until 1963. While it may lead some to assume that CBD is a newly discovered ingredient, cannabis and CBD have a history that dates back thousands of years. According to CBD Origin, the first documented use of cannabis-derived medicine dates back to 2737 B.C. It can be said that Chinese Emperor Sheng Nung used a cannabis-infused tea to aid with a variety of ailments including memory, malaria, rheumatism, and gout. Throughout history, cannabis and CBD have been used for therapeutic purposes, however, during the rise of modern medicine, it was not recognized due to a lack of scientific evidence.

 

More recently, and with the legalization of medical marijuana, researchers have been prompted to dive more into CBD and its potential medicinal uses. While the stigma towards CBD and cannabis has changed over the last few decades in the United States, we are still in the early stages of research, legalization, and recreational use. However, with the federal legalization of hemp and hemp-derived CBD, more and more CBD products are being sold online by major retailers including Sephora and Neiman Marcus.

 

 

Image result for cbd oil stock image

 

 

The Legalization of Hemp

 

The Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, was signed on December 20th, 2018, and will remain in force through 2023. The passing of the 2018 Farm Bill allowed the legalization of hemp agriculture and products in all 50 U.S. states. In the United States, hemp plants are defined as any cannabis plant that has 0.3 percent or less THC. Any cannabis plant that has a THC content greater than 0.3 percent is classified as marijuana. From a chemical composition standpoint, hemp cannot get you high.

 

According to Analytical Cannabis, the increased legality of hemp is largely to thank for the rapid acceleration in diversity and availability of hemp-derived CBD oil. Unless you go to a marijuana dispensary to purchase CBD oil, the CBD oil that you find is made exclusively from the hemp plant, which is also referred to as hemp oil or CBD hemp oil. Since CBD can be extracted from hemp, CBD is legal. However, there is still work to be done when it comes to FDA regulation. According to a leader of the U.S. Food and Drug Administration’s new cannabinoid work group, there is more research to be done before federal authorities can allow CBD treatments into food and beverage products. Just like any other new ingredient going into food or drugs, the FDA is unlikely to approve over-the-counter use without further research on the ingredient and its health benefits. With that being said, certain companies with a loyal customer base are likely to wait until CBD is FDA approved prior to marketing CBD products to consumers. While FDA approval is in the works, fortune 500 companies are educating themselves on the evolving market, investing heavily, and laying the groundwork within their networks.

 

 

Related image

 

 

Mainstream Adoption in Food & Beverage

 

Cannabis-infused food and beverages are becoming a major trend as legalization grows across the country. According to Green Market Report, consumers in California purchased $180 million worth of cannabis-infused food and drinks in 2016, which rose to 18% in 2018. In Washington, sales of cannabis-infused treats increased 121% in 2016, and since Colorado first allowed recreational cannabis use, sales tripled from $17 million in the first quarter of 2014 to $53 million in the third quarter of 2016. Dixie Elixirs, a Colorado-based company that sells cannabis-infused products such as truffles, chocolate bars, mints, and juices, was one of the first companies to enter the market.

 

According to Food Institute, it is rumored that the Coca-Cola Company is reportedly in talks with Aurora Cannabis about developing cannabidiol-infused beverages, and is said to be particularly interested in drinks that can ease inflammation, pain, and cramping. Pepsi and Starbucks have indicated that they are monitoring developments, however, they have no plans at this time to pursue cannabis based or infused beverages. Furthermore, some major players including Constellation Brands, Molson Coors Brewing, and AB InBev have already invested in CBD and THC-infused non-alcoholic beverages. Given the mainstream adoption by many organizations, certain companies are reluctant about getting into CBD-infused products, even where they are legal. Many wonder if the products will harm their reputation or if they will be well-received by customers.

However, the data tells us that those apprehensions could likely be proven wrong. According to a study from A.T. Kearney, 30% of Americans are willing to try a cannabis-infused non-alcoholic beverage, and 17% would be interested in an alcoholic drink containing the substance.

 

Similarly, alcohol consumption is declining globally, and consumers are moving away from sugar-filled drinks in favor of healthier alternatives. More recently, New Age Beverages announced that it aims to release a line of CBD-infused drinks under the Marley Mellow Mood brand. While a market for non-alcoholic cannabis-infused beverages is emerging, this could lead to a disruption of the beverage market as new product lines are released and marketed as health drinks. Overtime, products using CBD as an ingredient could be considered part of the health and wellness space.

 

Although there is an emerging market for non-alcoholic cannabis-infused beverages, the wine industry has also started to develop cannabis-infused wines. California-based Cannavines has already released two CBD-infused wines: Red Blend x Headband and Chardonnay x Sour Diesel.

 

 

Image result for cannabis infused beverage

 

 

New and Increased Competition

 

The explosive growth of cannabis has caused companies across the food and beverage industry to take notice. The legalization of cannabis presents a “once-in-a-generation” opportunity for food and beverage companies to take action and establish themselves as dominant players in a competitive market. As certain organizations are exploring the market and learning about the value cannabis can have on their business, investors seem to be getting in on what some are calling “The Green Rush.”

 

Constellation Brands is already positioning themselves by taking advantage of the opportunity as they announced as of October 1st, they would acquire a 9.9% minority stake in Canopy Growth, a Canadian marijuana company. The $191 million deal will allow Constellation Brands to develop cannabis-infused beverages and not only stay ahead of evolving consumer trends, but stay ahead of the competition as well. According to The Wall Street Journal, Rob Sands, Constellation Brands’ CEO, stated that he doesn’t consider marijuana a serious threat to the beverage space, but that Constellation isn’t going to “stand around twiddling its thumbs” as the market grows.

 

According to the New York Business Journal, cannabis company Elev8 Brands Inc. recently purchased New York-based distributor YP Natural Inc., which distributes mainstream, non-CBD natural brands including Mondelez-owned Tate’s Bake Shop. The move is in an effort to expand their distribution and work to bottle their own brand of iced tea infused with CBD. Additionally, cannabis company Newstrike Brands Ltd. struck a deal to create co-branded edibles with Canadian specialty foods company Neal Brothers Inc., with the goal of creating cannabis-infused beverages. Across the U.S. and Canada, this expansion presents the potential opportunities for food and beverage companies to enter the market or possibly encounter increased competition within a new market.

 

 

Image result for the green rush

 

 

Challenges in the Supply Chain

 

In the U.S., California’s market is by far the largest in both geography and in the number of users regarding the cannabis industry. California distributors believe that they can develop reliable logistics to support the current cannabis market that would solve challenges across other regions, should cannabis become legal at the federal level. Currently, the nation faces the challenge of cannabis distribution as federal laws currently prohibit the transportation of cannabis across state lines. Because cannabis is illegal at the federal level, freight trucks that are regulated by the Department of Transportation are unable to carry cannabis. In addition to logistics operations, the cannabis industry still faces the stigma against the trade and the challenges that come with financial transactions as well.

 

The Wall Street Journal states that for more than 20 years, since California legalized cannabis for medicinal use in 1996, growers or cooperatives handled the delivery of their products to end users themselves. C4 Distro, a new cannabis distribution company, has already begun to implement a modern, advanced supply chain to California’s cannabis industry. Similar to beer distribution, manufacturers deliver their products to C4’s facilities where testing and taxes are handled. Then, the products are deployed to stores via the sales team, delivery teams, and trucks. However, alcohol is a legal product at the federal level while cannabis is not. Also, operators that serve other industries must be licensed specifically to handle cannabis, and those facilities would need to comply with state regulations. More recently, all cannabis goods for sale in California must be tested at licensed labs and have labeling showing the amount of THC in the product and must be sold in child-proof packaging.

 

Jennifer Lee, Partner and Cannabis Leader for Consumer Advisory and Analytics at Deloitte, stated “Most current and likely cannabis consumers want a variety of products offered at reasonable prices from suppliers who can vouch for the safety and origin of those products. Cannabis companies will need to have secure supply chains to protect the quality and integrity of their products, and retailers will need to meet consumer expectations, including providing a positive, engaging retailing experience and protecting the privacy of their customers, especially online.”

 

However, in many ways, the supply chain developing around legalized marijuana in California could lay the groundwork for an effective supply chain if cannabis were to achieve legalization at the federal level. The companies in California that are currently building a “cannabis superhighway” throughout the state similar to beer distribution could become well-positioned to handle logistics, merchandising, and compliance during the process while the drug is not fully legalized throughout the nation yet. In the future, it’s possible that we could see cannabis become a major part of the food and beverage supply chain, specific to alcohol, due to the involvement throughout the distribution process.

 

Image result for medicinal marijuana logistics

 

Final Thoughts

 

While there is increasing acceptance, there is still a need for education in the cannabis market. Due to the state by state legalization in the U.S., we have the opportunity to learn what is needed for a successful supply chain and we can also learn what could go wrong on a smaller scale.

 

For many organizations, the combination of existing profitable operations, advanced technology, and the prospect of gaining market share is exciting and presents many growth opportunities in an evolving market. From a supply chain perspective, businesses should be prepared and educated on the impact that cannabis could have on the food and beverage space specifically. From mainstream adoption by some of the major players to challenges and growth in certain states, companies have the opportunity to make the right moves ahead of the competition.

 

As cannabis continues to have an impact on the food and beverage industry, I hope this information was helpful in answering some of your questions regarding our supply chain, competition, and an outlook on the market.

A Little About Us

At QProducts & Services, we manufacture passive temperature protection products and cargo security solutions. We design and engineer cost-saving solutions for transporting temperature-sensitive commodities like thermal container blankets, pallet covers, ULD pallet quilts, drum/tote covers, insulated bags, and even electronic cargo locks.

Want All Our Updates?

Think of a question? Want to learn more?
q products and services logo

If you're searching for thermal shipping, insulated shipping containers, pallet wraps, thermal blankets, insulated foil, banana blankets, tote covers, drum covers, thermal blankets, shipping blankets, electronic cargo locks, or ice cream bags, you found all that and a whole lot more. We are fully committed to providing a passive thermal solution from top to bottom, nose to rear, of your temperature sensitive cargo.

Contact Us

16720 Mozart Ave.
Hazel Crest, IL 60429

© 2018 QProducts & Services