Illicit liquids gaining popularity: THC beverages

In recent years, the United States has seen a significant shift in consumer habits, particularly among younger generations. This transformation has been marked by a growing preference for cannabis, and more specifically, THC beverages, over traditional alcoholic beverages.

This shift has been facilitated by the emergence of THC beverages as a relatively accessible market to enter compared to other cannabis products. Prior to 2018, THC beverages were scarcely available, but today, they are estimated to be worth more than $1 billion and are expected to reach $30 billion over the next decade.

The rise of THC beverages has not gone unnoticed by state governments. Several U.S. states, such as South Dakota and Colorado, have introduced or are working on laws to strengthen sales regulations for THC beverages or to ban such products entirely. South Dakota has already banned chemically synthesized THC products, effective from 2024, while Colorado plans to implement regulations starting in 2026. However, there is no comprehensive federal regulation yet.

The market for THC beverages is not limited to traditional cannabis dispensaries. They can be sold in locations beyond cannabis retailers, such as gas stations and hotel mini-marts. This wide availability has contributed to the growing popularity of THC beverages.

Meanwhile, the hemp industry, a key source of THC beverages, has also been undergoing changes. The Agriculture Improvement Act of 2018 authorized the production and sale of hemp, defining it as cannabis with no more than 0.3% delta-9 THC on a dry-weight basis. However, the fate of reclassifying cannabis from a Schedule I controlled substance remains uncertain under the current administration.

In some states, the hemp industry faces regulatory challenges. For instance, a bill in Texas, if enacted, would effectively eliminate the state's hemp market. The governor of Texas has proposed regulating the hemp industry the same as alcohol, which could significantly impact the way hemp businesses operate in the state.

The sale of alcohol has been declining in recent years, and this trend seems to be continuing. A study has found that more Americans report near-daily use of cannabis than alcohol, and Gen Z consumers prefer beer alternatives such as hard seltzers and THC beverages. A recent investor prediction suggests that hemp-derived, low-dose THC drinks could outsell craft beer nationwide by 2035.

However, the cannabis industry, including the THC beverage market, faces challenges. Banks may be cautious about funding cannabis businesses due to federal laws, and a ban on "smokable" products has led to a significant loss of business for some retailers, as seen in Alabama where such a ban went into effect.

With over 80 bills introduced around the country to regulate the local hemp industry or ban THC drinks altogether, the future of the THC beverage market remains uncertain. In Arizona, retailers were given 30 days to remove THC-infused products from their shelves due to a legal letter.

As the landscape of the cannabis industry continues to evolve, it remains to be seen how these changes will impact the growing market for THC beverages.