In the world of cannabis, flower has long reigned as king. But a relative upstart, in the form of edible products, is on the rise.
In both Colorado and Washington, edibles are among the fastest growing sectors of the industry, with innovative products like drinks, chocolates, tinctures, mints, hard candies, caramels, crackers and even breath strips appearing on the scene. Consumers are flocking to the products because of easy-to-control dosing, and because they’re a viable and more discreet alternative to smoking, says Chuck Smith, COO and CFO of Dixie Elixirs, one of the industry’s largest edible companies with operations in five states.
“Certainly the cannabis industry has historically been built on consuming marijuana through smoking,” Smith says. “That’s why flower has been in such a dominant position. But as the industry becomes more mainstream, you don’t see people walking down the street smoking — because it’s illegal — but also because of the same reason you don’t see them smoking cigarettes. That’s just not what people really do anymore.”
Edibles are easy to hide from the public eye, and a trend toward low-potency varieties have made the cannabis experience much easier for consumers to control, he says.
“It’s very easy to manage the dosing for edibles,” Smith says. “If you take a five-milligram mint, you know there’s five milligrams of THC in there and you won’t be getting an experience you don’t want. Much like if you drink a glass of chardonnay, you know what it’s going to do to you. So low-dose edibles become a very comfortable, predictable experience.”
Consumers are only just starting to understand what the various products are and how they work. And as consumers become more educated, they grow more interested in using edibles as a flower alternative, says Tom Jones, director of analytics for BDS Analytics.
“Edibles are growing at a faster rate than flower, definitely in Colorado and I think Washington will get there soon as well,” Jones says.
In Colorado, for the first half of 2016 (January to June), edibles sales grew 54% compared to the same period in 2015. Flower over the same time period grew just 17%.
Still, edibles make up a smaller percentage of the Colorado market than flower. The category had 12.3% of the market share in the first half of 2016, up from 10.8% for the same period in 2015.
Flower’s market share, in comparison, moved from 65.4% in 2015 to 56.5% in 2016, he says. And concentrates, which are also becoming increasingly more popular with consumers, went from 16.4% in 2015 to 24% in 2016.
In Washington, for the period from January through May 2016, edibles sales grew even faster — a 76% growth compared to the same period in 2015. But flower and concentrate sales also grew significantly. Flower sales increased by 86% over the same time period, and concentrates grew at a whopping 260%.
“Because Washington started out so small, for a while everything was just exponential growth,” Jones says. “Those numbers have slowed a bit, but not that much.”
Edibles market share in the same timeframe actually shrunk in Washington, from 11.3% in 2015 to 9.3% in 2016. Flower’s market share also dropped, from 72.9% in 2015 to 62.1% of the market share in 2016.
The rise of concentrates, much like in Colorado, is likely responsible for that, Jones says, adding that concentrates’ share rose from 11.9% in 2015 to 19.9% in 2016.
“Flower is still king, but it’s been trending downward and it will continue to trend downward,” Jones says. “It will likely fall below 50% (of the market share) sometime in the next year.”
So far, the edibles sector is small, and the industry is still new enough that consumers haven’t picked a dominant edible variety, which leaves plenty of room for new ideas and new business models, Smith says.
“As this industry continues to mature and smart people continue to come into it, you’re going to have more and more innovation,” Smith says. “You’ll see more products that we haven’t even started to think about.”
The industry leader
Dixie Elixirs, founded in 2010, has a vast array of products in its edible lineup.
The Denver company began in the medical sector selling a line of drinks under the Dixie Elixir brand. But with the launch of recreational cannabis, and expansion into new markets in California, Arizona, Nevada and Oregon, the company expanded its lineup to give consumers more options, Smith says.
“The product variety in our portfolio, we call those delivery systems,” Smith says. “We have everything from low-dose mints, drinks, chocolates, topicals, a vape line and a lot more. As we built the Dixie brand, we really wanted to serve a broad consumer and be sort of like a PepsiCo, which is Pepsi, but also owns the Frito Lay line. So with us, consumers can start with a drink, but if they look down our line, they’ll see a variety of other products to try.”
The company aims to be good at everything it does, but some categories are clearly more dominant, Smith says.
Dixie Elixir drinks, mints and the company’s Synergy drink line of balanced CBD and THC are doing very well, he says.
Other areas, like the company’s chocolate line, are growing more slowly. Those products are not as well-known as manufacturers like Bhang, which makes nothing but chocolate and is Colorado’s dominant brand in the category.
“We think we can compete because customers will look at Dixie and see a portfolio of things,” and if people are already familiar with the brand, they’re more likely to explore other products in the line, Smith says.
“I believe you have to really work on building a brand, and I think as people get used to that they start to look at your brand first, as long as you deliver that brand responsibly,” Smith says.
Keeping products out of the hands of children is also part of that responsibility, he says.
“We want to be consumer friendly, but that needs to be an adult consumer and not a youth,” Smith says. “We’ve never had a gummy bear or a cartoon character on our packaging. We think that’s irresponsible for the industry. And the state came in and regulated that as well. We just think it’s the right thing to do.”
The image of the overall industry is vital in that regard, because if products are seen as targeting children, state legalization efforts will be less likely to pass, he says.
“We’re building an industry from scratch,” Smith says. “We’re trying to remove prohibition. We’re trying to build something to stand shoulder to shoulder with the alcohol industry. As an industry we have a responsibility to keep products out of the hands of children.”
DB3, which makes Zoots brand products in Washington and Colorado, is having great success with lower dose five-milligram edibles in recreational markets.
DB3 focuses on edibles for mature consumers; most of the company’s products come in five-milligram doses, half of what has become the standard potency in Washington and Colorado.
“We wanted to start off small because I think a big part of this market is more middle-aged, and they don’t want a huge dose, and they don’t want to smoke or inhale,” says Dan Devlin, one of DB3’s owners.
Most customers are between 30 and 60 years old, Devlin says.
“We also avoided shapes and items that would be appealing to children,” he adds. “Obviously, a cookie is a cookie, but with packaging you can discourage that sort of appeal.”
In Colorado, the company uses a special stamp to discourage use by children. In Washington, the products are individually wrapped and placed in child-proof packaging, which is the state requirement.
DB3 makes three distinct lines of edibles — baked, molded and liquid.
Zoots’ baked line includes gluten-free brownie bites, which have been very popular in both states, Devlin says.
“We may be the only gluten-free baked product in Colorado or Washington,” Devlin says. “We know wheat does bother a lot of people. Going with food trends like gluten-free, non-GMO, all-natural, those are things that customers really appreciate.”
The company’s molded line includes chews and hard candies, and its liquid line includes energy drinks and infused drink additives that consumers can add to any beverages.
“ZootRocks, which is our hard candy item, has been the number one selling item in the state (of Washington) since we started our business,” Devlin says. “All of our products are in the top 10 for Washington edibles. And we’re in the top 10 in Colorado as well.”
Getting their doses to precisely five milligrams of THC is challenging.
“There are three keys to getting it that close: Homogenization, precise ingredients and extracts and precise sizing,” Devlin says. “So our brownies go through a machine that makes them the exact same size. And in our liquids, a machine dispenses the precise amount in each product. We ended up building or customizing a lot of our own equipment.”
There is high-volume equipment available off the shelf that would work for cannabis edibles manufacturing, but it’s costly, he adds.
“We use automation as much as we can financially justify, but we didn’t want to invest in a $200,000 bottling line,” Devlin says. “Packaging is also expensive to automate, but it’s required. So we invested in that first.”
Marketing is also very important part of the company’s business plan, he says.
“I think you have to have a marketing plan, a packaging plan and a good facility,” Devlin says. “That’s what makes a successful company in the edibles market.”
Gummy candies may be controversial, but there’s no denying their popularity with consumers.
In Colorado’s candy sector, gummies are king. Gummy sales grew 155%, from $6.4 million to $16.3 million from the first half of 2015 to the first half of 2016, according to BDS Analytics. Hard candy sales, in contrast, actually declined 14%, dropping from $6.5 million to $5.6 million.
Gummies are prohibited in Washington and it remains to be seen how other recreational markets will handle them, Jones says.
In some ways, gummies have gotten a bad rap, says Dan Anglin, owner and president of Americanna in Colorado, a company that makes gummies in the shape of cannabis leaves in an effort to differentiate between them and candy for children.
“The reasoning behind (our using the marijuana leaf shape) here in Colorado is that there was a lot of consternation from people who don’t consume cannabis — that there was too much confusion between infused edibles and things that are not infused edibles, like regular candy,” Anglin says. “To a certain degree, I agree with them. I think gummy bears and Sour Patch Kids could easily be confusing in the marketplace. But certainly, pot leaf gummies are something an adult would identify as not being just candy.”
The company’s products are undeniably popular. Americanna’s pot leaf gummies were the 13th leading seller in the Colorado market in April 2016; by the end of August, they had skyrocketed to the third-highest selling edible in Colorado, according to BDS Analytics.
“Sales are great,” Anglin says. “We’re running at about $450,000 a month. We’re only limited by our production facilities.”
The company is planning to increase production from about 10,000 to 12,000 bottles of pot leaf gummies a week to between 30,000 and 35,000 a week.
“The demand is there,” Anglin says. “Gummies have actually become sort of a go-to for cannabis edibles.”
There’s another reason why gummies are popular in the edibles world — because they’re more chewy than other products, they stay in the mouth longer, meaning more cannabinoids are absorbed sublingually through mucus linings in the mouth. That makes the effects kick in more quickly, because the cannabis travels straight to the brain and bypasses the much slower digestive system, Anglin says.
“When you bite a piece of chocolate, you bite and swallow, and the effectivity doesn’t kick in until it hits your liver, which is after it goes through the entire digestive system,” Anglin says. “By having the more immediate effectivity, it keeps people from (getting impatient) and over-consuming. And any time you have THC oil in your mouth, the longer it stays there the more likely it is that your capillaries and gums will absorb it.”
One of the reasons edibles got a bad rap in the early days of Colorado’s recreational cannabis launch is that portion sizes weren’t well controlled. Some companies would make very high-dosage edibles with poorly controlled portion sizes, and that led to bad consumer experiences, Anglin says.
“At the beginning, there was so much more out there, but the other trend was to put a lot of THC in the product, and there were folks making 1,000-milligram edibles,” Anglin says. “Now we have restrictions for 10-milligram serving sizes and 100-milligram packaging. And it wasn’t until that happened that the focus shifted to food quality and really working to make sure 10-milligram doses were scientific, exact and consistent.”
His company developed its own method to make sure each candy has a consistent dosage of 10 milligrams of THC.
“Homogeneity has been extremely difficult for edible makers,” Anglin says. “What we did is we built a machine that does the infusion for us.”
Gummies are fairly porous, which is another reason for their popularity in the edibles marketplace. That porosity means they more easily soak up cannabis oil, making it easier to ensure a precise amount of oil is absorbed by each candy, he says.
Americanna’s machine applies an equal amount of oil that soaks into each gummy. It can produce 100 candies per 15 seconds, Anglin says.
“With that, we can do a lot of volume,” he explains. “And our volume ability means we can charge less. That’s why we’ve been so successful. If you can make more, quicker, that gives you a market advantage.”
Next on his agenda is to make lower dosage edibles so he can create larger serving sizes, because consumers often want to eat more than just one single gummy — especially if the edible tastes good, Anglin says.
“Right now the standard in weed is one piece in one serving,” Anglin says. “What we want is to make larger portions so people can eat more without overdosing. That’s another step we want to take.”
As an alternative to some of the larger edibles companies, Jamie Hoffman, president of Craft Elixirs in Washington, found a niche for her edibles by building on the strong Pacific Northwest emphasis on locally-sourced foods.
“You go into a marijuana store and it’s all hard candies and things and you don’t see much of the local fruit from the region,” Hoffman says. “That was something missing from this market, and I think that’s so important.”
The company makes a line of specialty syrups flavored with Pacific Northwest produce like loganberries, juneberries and apples. It recently launched a line of snack-food edibles that include cinnamon-sugar dehydrated Washington apples, dehydrated pink grapefruit, dehydrated pineapple tossed in raw cacao and a fruit mix.
“It’s part of a product line, but there are a couple reasons why we came out with those flavors,” Hoffman says. “It’s repurposing the fruit we use for making our syrups, rather than tossing them in the waste. And it’s great local flavor.”
The edibles are also aimed at an adult palate, rather than the sugary hard candy edibles found in most shops, she says.
“Everything we make is for an adult palate,” Hoffman says. “You’re not going to see bubble gum, deep purple grape or things like that from us. We want sophisticated flavors that appeal to an adult foodie market.”
Focusing on local flavor also lets the company come out with new seasonal releases, which give customers a greater variety of options throughout the year.
“We use loganberries — and those are only here for a few weeks — and lots of other local produce,” Hoffman says. “All the fruit, season berries, we’re just inspired by that.”
The local food growers appreciate the business, but because of the stigma in the cannabis industry, Hoffman says they aren’t too eager to publicly tout the support from companies like Craft Elixirs.
“The companies we get produce from, they don’t want anything to do with us because we’re a marijuana company,” Hoffman says. “They have their reputations, and unless this becomes big nationally I don’t they they’d want to proudly talk about working with a cannabis business. They love working with us quietly, but it’s a sensitive subject with a lot of people, and we understand that.”
With so many edible options to choose from, it’s not surprising that consumers haven’t yet settled on which products will be dominant, Jones says.
“In Washington right now, candy and chocolate are the biggest and have nice growth rates, but it’s kind of a fickle market,” Jones says. “The consumer is experimenting and figuring out what they like. There’s not much loyalty to particular brands or products yet, although there are a few big brands that will stay big.”
The trends are similar in Washington and Colorado, Jones says, but there is some market data to suggest which items consumers seem to be most drawn to.
In Washington, pills represented the fastest growing category, albeit a small one. Pill sales in the same time frame grew 1,341%, from $117,000 in 2015 to $1.7 million in 2016.
Beverage sales also grew rapidly, with a 406% increase in sales, from $400,000 in 2015 to $1.9 million in 2016.
Candy and chocolates remain the dominant edible varieties. Each category grew up 100%. Candy grew from $3 million in 2015 to $6 million in 2016, and chocolates grew from $2 million in 2015 to $4 million in 2016.
Hard candy was the dominant candy variety in Washington. It grew 47%, from $2.9 million in 2015 to $4.2 million in 2016. And caramels, a smaller portion of the candy market, grew 670%, from $100,000 in 2015 to $900,000 in 2016.
Tincture sales grew 51%, from $2.3 million in 2015 to $3.4 million in 2016.
In Colorado, pills have been one of the largest growth categories. For the first half of 2016, pill sales grew 107% compared to the same time period in 2015 (from $1.9 million to $4 million in sales). Beverages grew 83%, from $3 million to $5.4 million in sales. Tinctures grew 95%, from $2.3 million to $4.5 million.
Candy and chocolate are the biggest edibles sectors overall, but chocolate grew at a slower rate than some of the newer product offerings.
Candy sales grew by 81%, from $15.8 million to $28.6 million. Chocolate sales grew by 7 %, from $14.8 million to $15.9 million.
“For that sort of growth, marketing and branding play a huge role,” Jones says. “If there’s brand recognition, the consumer is going to go that way. And if budtenders also like the product and are pushing it, that’s also key.”
Edibles prices at the register actually increased a bit in Colorado from 2015 to 2016. Retail prices grew from $13.73 per packaged unit to $14.81. And unit sales of edibles grew 43% over that time frame.
“As demand has gone up, prices have also gone up a little bit,” Jones says.
Despite the smaller population, Colorado’s market is bigger than Washington, although Jones believe the Washington market will eventually catch up.
“It’s growing faster than Colorado,” Jones says. “We almost have an office pool here about when and if that will happen.”
In both states, larger brands that launched early are starting to emerge as dominant players, compared to the host of smaller, up-and-coming edibles manufacturers that are appearing on the scene. But it’s not time to count the little guys out yet, he says.
“There’s a lot of little brands coming on to the market, and they’re fighting for limited spending, but I think they’ll have an impact on the market as well,” Jones says.