$12.

95

Insights for cannabis executives, investors & entrepreneurs VOL 6 • ISSUE 5 • May-June 2019

Monetizing
Cannabis
Waste
How to
Improve
Corporate
Governance
Don’t Be
a California
Cannabis
Casualty
Is Europe
the New
Promised
Land?

What’s Next for

Infused Products Manufacturers must cater
to demand for CBD, rapid onset
and microdosing to stay ahead
 Photo by Jeff Haynes

48 Marijuana Business Magazine | May-June 2019

 What’s Next
for

Products
To stay ahead, manufacturers must cater
to consumers’ demand for products that
highlight CBD, rapid onset and microdosing.
By Joey Peña

May-June 2019 | mjbizdaily.com 49

 Products

haking up your cannabis-infused product line is

one way to appeal to new consumers and excite
loyal brand enthusiasts. But where do you start?

Consistently dosed, cannabis-infused
food and beverage products with inven-
tive flavor profiles will continue to win
with consumers, manufacturers agree.
But leveraging emerging science
and technology—and tracking trends
in the mainstream food and beverage
industries—will likely generate innovative
products that draw more new consumers
to the cannabis sector. More customers, in
turn, will lead to greater sales and profits,
and allow infused product manufacturers
to stay ahead of rivals.
Infused manufacturers and industry
experts predict the following products
and trends will become more widespread
among edibles, beverages, tinctures and
other infused offerings:
• Ingestible products that allow
consumers to more rapidly absorb
THC and CBD and experience the
effects of both substances.
• Water-soluble, mix-and-serve
beverage powders.

CONCENTRATION OF TOTAL SALES BY BRAND RANK*

* Only in dispensaries where Headset tracks data.
TAKEAWAYS
• Sales of ingestible products are growing at
Top 5 Brands a steady rate, said Liz Connors, director of
analytics at Headset, a Seattle-based data
Brands 11-20 12% analytics company that focuses on the
cannabis industry.
Brands 6-10
• There’s also an uptick in the number of
17% consumers who reportedly prefer ingestible
Brands 21 +
products over cannabis flower or concentrates
Edibles 53% as well as an increase in the number of
1% consumers whose first cannabis purchase
is ingestible products, she noted.

4% 19% • The ingestible products sector is crowded,

but retailers remove underperforming
products from their shelves and add new ones
15% every month to meet demand. This suggests
there are opportunities for new brands to
11%
capture market share.

Beverages 13%
• You should know: Other data show consumers
are price-conscious, largely avoiding ingestible
products sold for $35 and more. Products priced
Other 47% at $15-$25 appear more attractive to consumers.
• Sales of gummy products, chocolate and hard
80%
candy outpace all other categories. These are
crowded fields, and it is difficult for new brands
29% to capture market share. Don’t be afraid to
innovate—and don’t ignore the growing interest
in cannabis-infused beverages.
Source: Headset

50 Marijuana Business Magazine | May-June 2019

 • Targeted marketing for products that meet
consumers’ needs, such as pain relief or
relaxation.
• More cannabis companies creating and
distributing hemp-derived CBD products
nationwide.
• A wider variety of THC and CBD doses that
aim to deliver a particular effect, such as
“calm,” and stray from typical 2.5-, 5- and
10-milligram serving sizes.
• A greater emphasis on natural and/or
organic ingredients.
What follows is a detailed look at the current
landscape and business opportunities in the
ingestible infused products sector and the trends
that will shape the future of this growing category.
Need for Speed
Bioavailability is a buzzword in the ingestible
cannabis-infused product sector. Products with
higher bioavailability are more rapidly absorbed
into the body’s circulatory system—and infused
product manufacturers see mass-market appeal
in goods that provide desired effects faster.
New product development should emphasize
bioavailability and leverage nanotechnology or
innovations in food science, according to industry
executives. Those products will appeal to a wider
group of consumers.
To maximize sales and stay ahead of
competitors, infused product manufacturers
should be in tune to the following trends:
• Products that allow consumers to more
rapidly absorb THC and CBD.
• Water-soluble mix-and-serve beverage
powders.
• The marketing of “moods” such as
relaxation or bliss rather than strain names.
• Hemp-derived CBD products that can
be sold through e-commerce sites.
• A wider array of THC and CBD doses
that stray from 2.5-, 5- and 10-milligram
serving sizes.
• Greater emphasis on natural or
organic ingredients.
ON THE COVER
Elevating Edibles
For years, a number
of award-winning and
deeply experienced
chefs have been curating
private, cannabis-
infused meals for high-
rolling clients.
Now, more of these
trained chefs are
leveraging their know-
how to craft branded
lines of infused edibles
and beverages, either
on their own or in
partnership with large
cannabis businesses.
Cresco Labs collaborates with Mindy
Their entrance into Segal to produce Mindyʼs Kitchen
the industry is likely infused products. Photo by Jeff Haynes
to elevate infused
products, said Mindy Segal, a James Beard Award-
winning chef and the creative force behind Mindy’s
Artisanal Edibles and Mindy’s Kitchen-branded products
for Chicago-based Cresco Labs, a vertically integrated
multistate cannabis operator.
Experienced chefs lend credibility and brand-name
recognition to their products, said Segal, who has the
best-selling gummy product in Nevada, according to
Seattle-based Headset, a data analytics firm.
She likened branded cannabis-infused, ingestible
products to well-known consumer packaged goods, such
as Orville Redenbacher’s popcorn and Newman’s Own
salad dressings.
That brand recognition is important to consumers,
she noted.
Trained chefs also bring to the cannabis industry years
of experience in culinary science and know-how about
trends in traditional food and beverage markets, said
Ezra Malmuth, the founder and CEO of Atlas Edibles in
Berkeley, California.
Malmuth studied culinary nutrition at Johnson & Wales
University and worked in Michelin-rated restaurants,
including Chez Panisse in Berkeley.
He said experienced chefs are poised to bring “thoughtful
interpretations,” inventive flavor profiles and innovative
ways of crafting ingestible products to the industry.
Segal predicts other accomplished chefs will lend their
names and expertise to ingestible products. She’s also
eager to craft edibles with savory flavors, further explore
microdose and CBD products and continue to expand her
brands to new markets.
“We’re always looking ahead and always working on new
products. And I really believe that the future of these
products is going to be more mainstream,” she said.
– Joey Peña
May-June 2019 | mjbizdaily.com 51
 Products
Atlas Edibles says the effects of
its flavored beverage mixes can
be felt within 15-30 minutes.
Courtesy Photo
Oil-based ingestible
products, including chocolate
and hard candy, are lipids that
must pass through the liver,
where enzymes break down
before eventually entering
the bloodstream, said Ezra
Malmuth, founder of Atlas
Edibles, a Berkeley, California-
based ingestible product
52 Marijuana Business Magazine | May-June 2019
manufacturer.
That can mean it takes 40-
120 minutes for a consumer to
feel their effects, he noted.
Alternatively, when the oil
is micro-encapsulated into an
aqueous nanosuspension—
Ezra Malmuth is and therefore is water
the founder of
Atlas Edibles. soluble—it is more easily
Courtesy Photo absorbed through the
13%
Average Total Sales Volume
of Edibles & Beverages
(through February 2019 for
California, Colorado, Nevada
and Washington state)
Source: Headset
M
intestinal lining, creating a faster path to
the bloodstream, Malmuth said.
In other words, its effects are felt
much faster than the typical time
required for standard oil-based edibles,
he noted.
New products—including sublingual
tablets, orally dissolving strips, beverages
and beverage mixes—are designed to be
absorbed through mucous membranes or
the intestinal lining. That can cut uptake
time in half.
“If you’re manufacturing a stress-
management product, consumers
expect relief when they need it, not
two hours from now,” said Ryan
Crane, founder of Tukan, a Chicago-
based maker of hemp-derived CBD
beverages. “More absorption and
quicker onset time is so important.”
Crane estimates consumers can feel
the effects of Tukan’s beverages in
15-30 minutes.
Steven Addis, co-founder of Sum
Microdose, a Boulder, Colorado-based
maker of sublingual tablets, said his
company’s pressed, micro-powder
tablets dissolve under the tongue in less
than a minute, and cannabinoids are
introduced to a consumer’s circulatory
system in as quickly as 10 minutes.
Likewise, Malmuth said the effects
from Atlas’ flavored beverage mixes can
be felt within 15-30 minutes.
Greater bioavailability and more rapid
onset mean consumers are more likely to
have a better experience.
 Products

Products

Category
CATEGORY MARKET
CategorySHARE
Category
Category Market
Market
Category
Market
Market
Share Share
BYShare
GENERATION
Market
Share
by by by Generation
Generation
Generation
Share
Generation
by by Generation
100% 100%
100%100% 100%
90% 90%
90% 90% 90% 12% 12%
16% 16%
16% 16% 16% 13%13%13%
13% 13% 12%12% 12% 14% 14%
14%14% 14%
80% 80%
80% 80% 80% 8%
8% 8% 8% 8% 10%10%10% 12% 12%
10% 10% 12%12% 12% 25%25%
13% 13% 25%25% 25%
13%13% 13%
70%
% of Total Sales

70%70% 70% 70%

% of Total Sales
% of Total Sales
% of Total Sales

% of Total Sales

60% 60%
60% 60% 60% 17%17% 17%17%17%
50% 50%
50% 50% 50%
40%40%
40%40% 40%
30%30%
30%30% 30%
54% 54% 53% 53% 53% 51%51% 51%
53%53% 51% 51% 52%52% 52% 52%
20%20%
20%20% 54%
20%54%
54% 52% 41%41% 41% 41%41%
10%10%
10%10% 10%
0 0 0 22% 0 22% 22% 22% 24%
22% 24%24% 24% 25%
24% 25% 25% 25% 21%21% 21% 21% 17%17% 17% 17%
25% 21% 17%
0
Post-Millennials
Post-Millennials
Post-Millennials
Post-Millennials
Millennials
Millennials
Millennials
Millennials
Generation
Generation
Generation
XGeneration
X Baby
XBaby
Boomers
Baby
XBoomers
Baby
Boomers
Boomers
Silent
Silent
SilentSilent
Post-Millennials Millennials Generation X Baby Boomers Generation
Generation Silent
Generation
Generation
Generation
Vapor Pens
Vapor
Pens
Vapor
Pens
Vapor
PensFlower
Flower andand
Flower
Pens
Flower Pre-Rolls
Pre-Rolls
Flower
and
Pre-Rolls
Pre-Rolls Edibles
and Pre-Rolls
Edible
Edible
and
Edible
and andBeverage
Beverage
Edible
and Beverages
Beverage
and OtherOther
Beverage
Other
Other Other
Vapor Pens Flower and Pre-Rolls Edible and Beverage Other

TAKEAWAYS
• Infused products are more popular with older consumers, who are sometimes looking to replace over-the-counter
drugs or prescription medications with cannabis.
• These consumers tend to favor products with low-THC and high-CBD content or products with a 1-to-1 THC-to-CBD
ratio, said Headset's Liz Connors. They also purchase more microdose products, she noted.
• This suggests there’s a critical opportunity in branding and marketing products that effectively target older consumers.
• Consider developing discreet products—sublingual tablets, ready-to-mix beverage powders and tinctures,
for example—that replicate products already familiar to older consumers.
• Rather than advertising products as coming from sativa or indica strains, consider naming products after the feelings
or moods they are created to replicate, such as calm or bliss. This strategy will appeal to older consumers and a wider
customer base.
Source: Headset

“Faster effects mean consumers are less
likely to overindulge in the time between
consumption and sensation—and are
more likely to achieve the desired effects,”
Malmuth said.
Marketing Moods, Not Strains
Cannabis-infused products are typically
branded as made from indica, sativa
or hybrid strains. Those words reso-
nate less with new and older cannabis
consumers, or consumers who want
functional products designed to aid
with sleep or pain relief.
That’s important considering that
ingestible products are more popular
with Gen Xers, baby boomers and the
silent generation, according to data
provided by Headset, a Seattle-based
data-analytics company that focuses
on the cannabis industry. (See chart
"Category Market Share by Generation.")
So, rather than advertising products as
coming from sativa or indica strains, con-
sider naming products after the feelings
or moods they are created to replicate.
Examples include Energy and Relief
sublingual tablets from Sum Microdose, Ryan Crane is the founder of Tukan. Courtesy Photo

54 Marijuana Business Magazine | May-June 2019

 Products
35%
On average, more than
one-third of cannabis
consumers purchased
at least one infused
edible or beverage
product in 2018.
Source: Headset
as well as Recover and Focus hemp-
derived CBD beverages from Tukan.
“These targeted products for athletes,
or work, or daytime or social experiences,
that’s where the market is headed,” Tukan’s
Crane said.
Products that market moods appeal to
new consumers and, through branding,
increase adoption of cannabis, said Addis
at Sum Microdose.
There’s also a growing number of
consumers interested in using cannabis
as part of their everyday wellness routine,
Addis noted, and he predicts more mar-
ijuana retailers will showcase products
designed for wellness in separate displays.
It’s important, however, for
manufacturers and retailers to avoid
making medical claims or overpromising
effects in their marketing, Crane noted.
Medical claims risk running afoul of the
U.S. Food and Drug Administration.
Instead, lean on marketing the
known benefits of a product’s herbal
ingredients. Tukan’s Recover product,
for example, includes turmeric,
which is an antioxidant that has anti-
inflammatory effects.
“The more you target a mood state, the
more likely you are to engage consumers
in what it is they can expect from your
product,” said Tim Moxey, founder of
Botanica Seattle, parent company to
multistate brand Mr. Moxey’s Mints.
56 Marijuana Business Magazine | May-June 2019
Many large producers
of infused products are
planning ahead for federal
compliance. Photo by Jeff Haynes
KEY ADVICE
Manufacturers Should Get
Ahead of Federal Regulations
Good manufacturing practices and food safety measures will position
ingestible product manufacturers to transition more smoothly if
and when the federal government legalizes cannabis, predicted
Todd West, senior vice president of product development and
commercialization for Cresco Labs, a Chicago-based multistate
operator that offers a line of edible products.
“If quality isn’t one of your core guiding principles, you’ll find it
difficult to survive,” West said. “It’s just a matter of time until federal
regulations come.”
That’s why it’s vital for infused product manufacturers now to
know what the U.S. Food and Drug Administration’s Food Safety
Modernization Act requires of traditional food and beverage makers.
Examples of what’s required include:
• A safe quality food (SQF) certification, which demonstrates good
food-safety principles
• A hazard analysis and critical control points (HACCP) plan, which
identifies vulnerabilities in the food production process and puts
preventive measures in place to address them.
• Standard operating procedures that prioritize food safety and
defense, including the proper dosing, testing, storage and packaging
of products.
To better understand how legalization might look in the United States,
West noted, manufacturers of infused products can look to Canada,
which is not allowing cannabis-infused food and beverage products in
its first year of commercial cannabis sales.
Instead, West said, the country aims to craft a strict framework
that prioritizes quality assurance for those products before they are
available to the general public.
“We’re not waiting for the state to come and tell us how to operate.
We’re taking those steps now,” West said.
– Joey Peña
 Products

SHARE OF PRODUCTS THAT ARE CBD OR CBD-FOCUSED

BEVERAGES TINCTURES & EDIBLES

SUBLINGUAL PRODUCTS

2018: 21% 2018: 53% 2018: 14%

2017: 19% 2017: 47% 2017: 11%

TAKEAWAYS
• There was higher-than-average growth last year in the number of CBD products on the market. By year-end,
more than 50% of all tinctures and sublinguals and roughly 45% of capsules and topicals on shelves had only
CBD or higher ratios of CBD to THC, according to Headset's Liz Connors.
• Popular product forms are creams, transdermal patches, sublingual tablets, tinctures and beverages.
• These products appeal to older consumers, women and wellness-minded consumers, which means they have
the opportunity for growth.
Source: Headset

Beverage Mixes a Viable Option Infused product manufacturers can

Global liquor and beverage giants
have bet big on cannabis-infused
drinks, despite the fact they account
for only about 1% of legal recreational
marijuana sales, according to industry
data. While infused beverages aren’t
chipping away at sales of flower or
concentrates, they do have potential
for mass-market appeal, making it an
attractive new product category for
manufacturers to explore.
In general, however, there’s a
prohibitive capital outlay for the
equipment and technology needed to
play in the beverage sector—particularly
for manufacturers that bottle or can
beverages in-house. Beverage products
can also be less shelf-stable because low
temperatures can degrade cannabinoids.
Tukan's products are named Recover and Focus
to relay their desired effects to consumers.
Courtesy Photo
There are additional challenges
throughout the supply chain, including
the heavy weight and bulky size of
beverage shipments for distribution,
and the fact that some cannabis-infused
beverages should be refrigerated
throughout their life cycles to maintain
exceptional quality.
circumvent those obstacles with mix-
and-serve beverage powders that—with
fewer challenges in manufacturing, dis-
tribution and sales—can capture market
share in a red-hot product category.
Atlas Edibles, for example, worked
with chemists with decades of bio-
technology experience who used an
encapsulation formula to create a line of
flavored water-soluble beverage mixes
that dissolve in liquid.
Water-soluble beverage mixes have
high bioavailability, which makes them
as attractive as their liquid counterparts.
Because they come in packets, they are
more compact than cans and bottles
and, therefore, easier to transport
and store. Also, the products don’t
have to be refrigerated, which extends

58 Marijuana Business Magazine | May-June 2019

 Products
Micro-Dose
Micro-Dose
Products
Micro-Dose Products
as as
Products a %aof
as
% Category
a%
of of Category
Sales
Category SalesSales
32% 32% MICRODOSE PRODUCTS AS A PERCENTAGE OF CATEGORY SALES
32%

27% 27% 27%

21% 21% 21%

16% 16% 16%

11% 11% 11%

5% 5% 5%

0 0 0
Jan 18Jan Feb
18 Jan
18Feb 18 Feb
18 Mar 18Mar 18 Mar
18 Apr 18Apr 18 Apr
18 May May
18 18 18 18Jun
JunMay 1818JulJun
18Jul
1818AugJul
Aug
18 18 18 Sep1818OctSep
SepAug
18 Oct1818NovOct
18 Nov
18 1818DecNov
Dec
18 1818JanDec
Jan1819FebJan
19 Feb
19 1919 Feb 19

Beverages
Beverages
Beverages Edibles Edibles
Beverages
Edibles Edibles

Microdose is defined as a product with 5 milligrams or less per serving. (Only about 50% of products in our data have serving size, so this analysis includes only those products.)

TAKEAWAYS
• There was significant growth last year in the number of microdose products and the number of packages
with less than the maximum allowed amount of THC, noted Headset’s Liz Connors.
• Microdose products frequently top the list of best-selling products, so a brand with a product suite that
includes maximum- and low-dose products is likely to appeal to more consumers.
• There will always be a market for maximum-dose products, Connors said. Similar to other consumer
packaged goods, consumers care about price relative to quantity—or, in this case, potency.
Source: Headset

their shelf life and means dispensaries
don’t need special infrastructure such
as refrigerators to stock them, said
Malmuth at Atlas.
Betting on Hemp-Derived
CBD Products
There is an increase in the number
of CBD-only ingestible products or
ingestibles that have higher CBD-to-
THC ratios, said Liz Connors, Headset’s
director of analytics.
Those products tend to be sold at a
higher price point, making them an
attractive play and a good strategy
for growth.
Some brands also are capitalizing
on the 2018 Farm Bill, which removed
hemp from the Controlled Substances
Act and legalized cannabis plants up to
0.3% THC.
That, in turn, has prompted some
infused product manufacturers to start
selling hemp-derived CBD creams, bev-
erages and edibles through e-commerce
platforms, despite some legal uncertainty
surrounding online sales. Some man-
ufacturers are shipping those products
across state lines and internationally,
giving them an ability to expand their
brands’ footprints without using contract
manufacturing agreements. While this is
a strategy for growth and gives compa-
nies the ability to generate new revenue,
experts cautioned it is important to con-
sult with a lawyer before proceeding.
Examples include Mr. Moxey’s Mints,
which ships its CBD-only mints to the
United Kingdom and much of the United
States. Tukan, meanwhile, ships its CBD
beverages to 40 states.
Tukan’s Crane said companies that
ship CBD products across state lines
should closely monitor regulations that
could put them at risk of breaking an
individual state’s rules.
“We have an obligation to be respon-
sible actors,” Crane said. “We’re seeing

60 Marijuana Business Magazine | May-June 2019

 Products
Botanica Seattle,
which promotes
herbal wellness,
uses ingredients
such as ginseng,
gingko, echinacea
and chamomile
in Mr. Moxeyʼs Mints.
Courtesy Photo
so many changes at state levels, and
our goal is to be responsible within the
guidelines and not put our customers in
an uncomfortable position.”
Dialing in the Dosing
Microdose ingestibles frequently top the
lists of best-selling products.
Now, manufacturers of microdose
products are expanding their product
suites to focus on precise doses designed
to replicate a desired effect.
To appeal to a wider variety of
customers, industry executives said
infused manufacturers should offer a
product suite that includes maximum-
and low-dose goods.
“Microdosing is probably the most
important thing that has happened
in edibles,” said Mindy Segal, a James
Beard Foundation Award-winning
chef who created Mindy’s Artisan
Edibles and Mindy’s Kitchen-branded
ingestibles for Cresco Labs, a vertically
integrated multistate cannabis operator
based in Chicago. “It’s approachable
and a good introduction to edibles. It’s
62 Marijuana Business Magazine | May-June 2019
20% Edibles consumers
spend about
one-fifth of their
total cannabis
budget on edibles.
Source: Headset
a whole new way for adults who like
consuming recreationally.”
Rather than standard doses of 2.5,
5 and 10 milligrams, manufacturers are
marketing products that have varied
doses of THC and CBD.
Sum Microdose, for example, has a
product branded Calm with 3.6 milli-
grams of CBD and 1.4 milligrams of THC.
That’s the ratio Sum’s product devel-
opers found most ideal for that formula-
tion, Addis said.
“We define microdose as more than just
low dose,” Addis at Sum Microdose said.
“To have an effective microdose, you have
to have the right ratios of cannabinoids
and very, very high uptake.”
Natural Ingredients
and Ethical Supply Chains
Studies of traditional food and beverage
consumers show a growing number
want more information about the foods
they eat.
They’re particularly interested in
products that have organic or natural
ingredients that are locally or ethically
sourced, sometimes through direct-
trade agreements with farmers.
That’s in line with a trend that’s
tracking in cannabis-infused products,
which means manufacturers should
include more natural ingredients in
their products, when possible, and
market them as such.
More cannabis consumers want
“wholesome, nutritionally dense”
ingestible products, Malmuth at Atlas
Edibles said.
Malmuth, who studied culinary
nutrition at Johnson & Wales University,
 Products
Atlas Edibles founder Ezra Malmuth incorporates traditional food and beverage trends into the company's cannabis-infused products. Courtesy Photo
monitors traditional food and beverage
trends and applies what he sees to Atlas’
product development.
For its granola clusters, Atlas uses
oats, almonds, poppy seeds, wild
blueberries and apricots. It also
purchases wholesale spice blends from
Oakland, California-based Oaktown
spice shop for use in the company’s
clusters and beverage mixes.
“Atlas is a food company first,” Mal-
muth said. “We track food trends and in-
novation in the traditional food industry,
and those are big motivators for us and
influential factors in what we create.”
64 Marijuana Business Magazine | May-June 2019
Mr. Moxey’s Mints uses herbs—
ginseng, gingko, echinacea and
chamomile among them—to craft its
signature microdose mints. That’s key to
the Mr. Moxey’s brand, which promotes
herbal wellness, said Moxey of parent
company Botanica Seattle.
Crane at Tukan set out to create a
product that “works with the body’s
natural rhythms.”
For Tukan, Crane skipped using
caffeine additives and instead chose
rooibos, green tea, turmeric and
ginger to create Tukan’s 2.5-ounce
“wellness shots.”
“Some of the best functional elements
come from natural ingredients,” Crane
said. “The market is maturing and
consumers are getting smarter. They
want functional products. They want
products that serve certain purposes, so
let’s help them get there.”
Joey Peña covers retail
and infused products
for Marijuana Business
Magazine. Reach him at
joeyp@mjbizdaily.com.