Health Canada’s Cannabis Beverage Regulatory Review

We’ve seen the buzz around Health Canada’s recent review of cannabis regulations. It’s an acknowledgment that the regulatory framework “unintentionally restricts the possession and sale of cannabis beverages” 1

Last summer, beverages across Canada grew from 1.6% to 2.2% of cannabis retail sales (Headset). The category represents about 2% of cannabis retail sales heading into the spring. 

Does the regulatory change position the category for continued growth?

@Mitchell Osak acknowledges; we need to come together with shared priorities to continue to move the needle forward (excise tax, packaging, and promotion reform). That being said, we have work to do. 

If these proposed changes are passed… immediately, it is important the change positively influences the beverage category. Our ability to make this reform a success correlates directly to the credibility of the industry and the ability to provide feedback. 

We need to prove we understand what the industry needs. This opens the door to provide more feedback in the future. We are optimistic beverages provide an opportunity to reduce the stigma with both the general public and Health Canada. 

What can we do?

The first step is to go where the qualified customers are, cannabis retail stores. What's interesting is if we look at more developed markets in the US last summer, Canada tends to outpace the category beverage market share. That’s not to say a more extensive strategy isn't important to gain new customers, but as an industry, the focus needs to be on making an immediate impact.  

Both brands, retailers, and periphery industries can support the changes…

1. Develop a strategy around re-education 
2. Plan promotional efforts 

Education 

The first step? We have an entire industry to re-educate. Budtenders, technology providers, and inventory buyers all need to understand the implications of the changes. Not just what the new regulations would be, but the applicability of how this might impact the day-to-day. Budtenders will need to adjust their selling strategies; technology providers need to update systems to recognize equivalency, and inventory buyers need to reassess assortment to reflect changes in purchasing behaviour. 

Second, we have customers to update. Although our avenues for communication with the general public might be limited, we have some work to do behind age gates. This provides one of our only opportunities to communicate with customers. Budtenders will need to be able to speak to product and educational information in a way that speaks to the individual customer. Centered around how beverages fulfill their needs. 

How do you do this? Consider how customers make decisions before, during, or after a purchase. This will highlight how and when customers make decisions to purchase multiple beverages. When is it applicable to purchase multiple beverages and what communication matches this? How does a Friday differ from May 24 weekend?

Promotion and Merchandising 

For Brands 

1. Sales Teams - People tend to only sell things we understand. Your sales teams need to be ready to talk more than product features and benefits. Share insights for inventory buyers to make smart decisions. Become experts in selling tactics. How to sell multiple flavours, and at times brands. What tools can you leave with budtenders to have during conversations? 

2. Supportive packaging & Swag  - We see branded cooler packs, entertaining SWAG, recipe cards and influential chefs and of course a few cross-category combos that could formulate a well-hosted event. Thinking back to the consumer, how else can we support them with education pieces on quick hosting tips (like how to cool down a beverage for a party starting ASAP) or take-home education pieces for those new and returning guests touching briefly on beverage onset time/where to find more info about cannabis.

3. Product Development  - Ask yourself and your team; how will future product development affect this? Dig into the data and your consumer profiles and ask should our product be larger/smaller? More sessionable (lower dose THC) and be sold in a multipack (multi-flavours)? Will prices reflect this change/update? How do you believe consumers change their consumption patterns to align with this? All these answers lay the foundation of your product brand story.

For Retailers 

1. Storage considerations
   Think about where the product is stored. How much room do you have for beverages, both from a physical space perspective, but also from an investment in the category perspective? We saw a large increase in this category last year, with more American brands coming this year, and with this change, even more products and flavours could be brought to the market.
2. Pricing and communication of value - If there are larger pack sizes available, does it mean the consumer is going to pay less? The costs are still the same for the producer so what is the expectation as a customer? How can you support budtenders in guiding the pricing conversation? Many of our customers' common reference point around beverages will be the price per canned alcoholic drink. How can they use this information to support customer needs and understand the value proposition? We have done it around craft beer, we can do it around cannabis. 

3. Merchandising - Using a fridge to present beverages in an accessible and visible way on the floor. It keeps them cold, fresh, and easy to grab n" go. It's also a great way to alleviate storage in the vault and creates faster access for budtenders. Place them by the cash desk and near other impulse/cannabis products. Opportunity to display beverages in stacks/multipacks in a display case (much like the LCBO/Beer Store)

Takeaways

Health Canada has recognized that the equivalency created a disincentive for consumers to purchase beverages in the legal market since they can purchase more of other products, or via other avenues. Historically, the general public has struggled to understand the limitations placed on beverages. 

Although a micro step by Health Canada on regulation reform it signals a step in the right direction.

Our next step now begins with re-education. We need to collaboratively work together to adjust the way consumers purchase beverages across Canada. What’s the best way to get this done? Go where the customer is… in cannabis retail stores. These changes provide true opportunities for partnerships between brands and retailers.

The cool thing about beverages? Everyone knows how to drink. The approachability of this product category allows us and our customers to build confidence in Cannabis consumption.