Beverage Focused Distributors Will Drive Growth in Cannabis Beverage
Beverages are the perfect form factor to end stigmas and gain universal adoption.
Paulo Sobral, a Cannabis Beverage Fanatic creates innovative products that change why people consume cannabis. Paulo has sold millions of CPGs in both beverage (PepsiCo) & Cannabis (Bloom Farms). He currently works as an independent consultant at Drinks Cannabis LLC.
Here in this article, Paulo shares his journey in the cannabis industry & talks about growth in the cannabis beverage industry.
"One-day cannabis beverages will be mainstream. My greater goal is to make cannabinoids accessible. Beverages are the perfect form factor to end stigmas and gain universal adoption. I believed this when I left PepsiCo to join this nascent consumer packaged good industry in 2016."
Why did Paulo join the industry?
A combination of disappointment by the history of prohibition, and a curiosity about the potential of cannabinoids.
I knew more and more people would educate themselves. As knowledge spreads, more people would demand access. My form of cannabis activism would be to be a healthy, tax-paying citizen who is open about their use. I saw an opportunity to leverage my experience in mainstream CPG to a cannabis startup.
Before I share my notes, it’s important you understand what you’re getting into.
Why do you want to do this?
The beverage industry is a cut-throat business to break into. The big players (KO-Pepsi-Unilever-Nestle) own the set in retail and food service. Their goal is to ensure their retail partners continue to depend on their brands. They pay to make sure you can’t make it.
I spent 6 years at PepsiCo in exactly those roles. Believe it or not, I didn't have to do much selling for the company. A privilege that comes with having 22 billion-dollar brands in your toolbag. This experience taught me that a brand with mainstream appeal needs distribution to fuel growth.
Picture this – you own a convenience store in nowhere, USA. People in your zip code love Mtn Dew. It’s part of the culture and DNA in your town. You call up the Pepsi rep, who gives you not only access to the dew but all the free coolers your store can handle. All they ask for in return is either complete beverage exclusivity or damn near close to it.
Now you have an upstart bottled coffee company. You sourced the best beans and had the best creatives working on your brand. How do you walk into a mom-and-pop convenience store and take the cooler space I won for Starbucks Frappuccino? You can't. Even if the retailer prefers your coffee, I sell 300 bottles of 20oz MTN DEW in that same account daily. I gave the retailer favorable pricing on Dew in exchange for coffee exclusivity
All I had to do was be better than the coke person and keep my client happy and success followed. Once I earned their trust, I essentially owned a portion of their business.
After signing a development agreement, I’d drop in on a cadence and place our latest innovation and report on our performance to my accounts. I'd enter a buyer or operator's office and see samples and sales collateral from some brand I never heard of. It was always slight variations of the same story:
“I’m not sure what that product is. The name of the rep is Chris. Great guy, lots of energy.”
I'd usually try the sample myself and give my honest feedback. The client was already obliged to give me favorable positions in their store by contract. Chris would come back and find out the owner never consumed their sample and waste some more of his time schmoozing.
It's a traditional beverage. It’s a lot harder in cannabis.
Source: Paulo Sobral's Instagram
I've served the cannabis industry since March of 2016. I will tell my grandkids stories about cannabis prohibition ending. Today I can have cannabis delivered to me with my next-door neighbor (who is a police officer) not judging me.
With legal access came the brutal compromise of over taxation and regulation. We still have a ways to go to make this a viable business. A consequence of working in a nascent industry regulated like nuclear waste.
The current regulatory environment in the US makes Cannabis business fiscal suicide. Business-friendly regulations won't happen overnight. Legislators have no idea what to do with what they consider novel compounds. The intent was to make cannabis safer and to uplift our communities. In practice, alcohol prohibition should have taught us that high demand while restricting legal access allows criminals to prosper.
The end result makes it maddening to conduct legal business. California has a thriving unlicensed market making a bulk of the sales. Licensed operators are trying to compete while paying various licensing fees, taxes, and a lack of professional services to help you manage it all.
My first foray into Cannabis was as the first sales hire for Bloom Farms, a nearly two-year-old Vape company at the time.
I think back to my days logging 5000 miles a month, and visiting 50 accounts in the week working at Bloom Farms. I learned about Cannabis startup life and culture, but I also hit plateaus in my sales efforts after a couple of months.
What frustrated me was:
- Lack of in-store brand activation from shops trying to look like a Sephora. Your product exists as text in a menu.
- Frequent buyer turnover, start all over with a new person
- Lack of buyer methodology, building trust took a lot of time
- Vertically integrated retailers who feature their house brands over what consumers want
- Frequent budtender turnover, in conjunction with lack of in-store activation, made it impossible to educate consumers
Now we have slotting fees I experienced at Pepsi, in a nascent industry where data is sparingly used.
Add to that that most shops are independent, meaning you have to work very hard to win and maintain a single door. I’ve seen hundreds of brands in the last 3 years emerge and blanket the state with sales reps who are now laid off.
And you want to make a cannabis beverage?
Your journey would be a lot easier with a beverage-focused sales and distribution team.
Imagine you’re a retailer and you could get your merchandising support and cooler from one distributor, carrying a diverse spectrum of cannabis beverages. You can begin to develop a beverage strategy in your store and take business from the café and convenience stores selling non-active beverages. Your smokeable clients are still there, they just might add a cold drink to their basket.
A quick search online will tell you that hundreds of cannabis distribution licenses have been given out in California. Many brands self-fulfill their own orders, others are trying to compete on moving flowers and concentrates at low rates, or leveraging tech solutions just as business-to-business e-commerce or ERP reporting. The first distributor to focus on beverages will be differentiated and fill an underserved need by the most well-capitalized brand segment in the industry.
If you are interested in exhibiting or attending the 2022 Cannabis Drinks Expo, get your exhibitor/visitor ticket at discounted rates now.