Hemp Beverages are a freight train barreling with growing momentum across the country and ground zero is Minnesota, which was the first state to regulate hemp beverages like alcohol and has the most stable state regulations. What is going on in Minnesota is one of the most remarkable and exciting things I’ve ever seen as an investor.
Why do I say this?
Not only is customer adoption soaring, but what makes this phenomenon special is that investors and the broader investment community are seemingly ignorant to the revolution taking place in one of the largest and most important industries on the planet: beverages.
But all you have to do is visit Minneapolis. If you would go on store visits, talk to distributors, customers, breweries and liquor store owners, you would realize not only just how big hemp beverages have become in Minnesota but that there is still so much growth ahead and how normal it is to have cannabis beverages everywhere you might see alcohol.
This is an independent grocery store in Minneapolis:
The manager told me that they have to get pallets delivered every week in order to keep up with demand and they are not only flying off the shelves, but that they are one of the highest margin products in the store.
And it’s not just the independent grocery store chains. Cub Foods (owned by NASDAQ: UNFI), which is the first publicly traded retailer to sell hemp beverages launched this week. This is their new hemp beverage offering:
I visited Minnesota this week thanks to an invite from Jon Halper, the owner of Top Ten Liquors, which has a chain of 15 liquor stores in Minneapolis. Jon has been a pioneer and first mover in hemp beverages since they were legalized in Minnesota. Hemp beverages now account for 15% of his sales and Jon thinks that with more thought, better customer education and better shelf space, that the percentage of hemp beverage sales could be much higher. So, he brought in some of his favorite brands and thought leaders to have his own Hemp Beverage Summit.
During this summit, I learned that hemp beverages are producing 15% of Top Ten’s revenue with just 3% of the floor space and 4% of the individual items. Jon is planning to quadruple the space for hemp beverages, and he thinks that in time sales could possibly hit 40% of sales. Jon shared that only 1 in 5 of his customers have ever bought a hemp beverage at his stores.
And it’s not just a smaller liquor store chain like Top Ten that sees this. Total Wine, which does $6 billion in revenue across the country, is starting to dedicate more and more space in the store to hemp beverages. Here is one Total Wine we visited with significant shelf space dedicated to the category:
We talked to several customers in Total Wine’s stores, and one told us he didn’t even realize that the store sold hemp beverages. He was excited they were there. In fact, he bought a pack of Trail Magic, one of our portfolio companies.
We had the pleasure of visiting Trail Magic (don’t tell my other brands, but their half and half drink, which is an Arnold palmer, is my personal favorite!). The company, which is based in Minnesota, is growing extremely fast, but trying to be thoughtful and disciplined. According to our due diligence, they are the number one drink in Minnesota, which is the most competitive state market in the country. Now, they are expanding into new states to duplicate the success they have seen in their home state.
We also met with distributors like the Budweiser distributor who told us that Uncle Arnie’s, our largest beverage investment, has been a freight train in the last couple of months, especially with the success of their hemp shots. This distributor shared how there is a lot more runway as consumers discover the category and distribution expands. Of this distributor’s on-premise accounts only 300 of the over 1300 accounts currently order hemp beverages.
The normality of hemp beverages in the city is also striking. We visited one of the best breweries in the state, Surly Brewing and got a behind the scenes tour. Here is their offering to their consumers if you visit their amazing brewery:
But this freight train of momentum is not confined to Minnesota. The hemp beverage train is spreading across the country with breathtaking speed. This has caught many states overwhelmed and under-prepared. Some have crafted their own legislation like Connecticut and Tennessee. Some have banned it like California. And some like Georgia, Florida and other states are figuring it out legislatively, or creating their own regulations. But the train keeps chugging along as consumers demand the product. And equally important, alcohol distributors and retailers getting hurt by flagging alcohol demand are jumping at the lifesaver that is hemp beverages.
One of the largest convenience store chains in the country is launching hemp beverages this week in over 200 c-stores in Georgia, and after the initial launch they will be following it up quickly with more states and many more stores. In Florida, one of the major grocery store chains is also very close to launching in over 400 stores.
The question for all investors to ask is why would any state be any different than Minnesota?
I believe that they won’t be.
So, how in the world is Mindset Capital one of the leading investors in a category that could be a $50 billion annual revenue opportunity (if hemp beverages reach 20% market share of the alcohol market)?
I believe part of the answer is that this is cannabis and that 99% of the smartest people in finance are not involved. But the other answer is that the revolution is happening in Minnesota, and that very few investors have been here and do not realize what is happening.
And for a moment, I want to pick on Marc Hauser, who writes a wonderful newsletter: Cannabis Musings (I highly recommend you subscribe and read his blog, it’s great). As I was in Minneapolis, he wrote a skeptical hemp beverage post detailing the risks, some of which are quite valid and legitimate, including that there is the chance that the Federal government bans hemp in the next Farm bill.
In his latest piece, there is a lot of skepticism about this “craze” fizzling out like seltzers or early predictions of the regulated cannabis space coming to naught.
I pinged Marc and asked him if he has visited Minneapolis. He has not (I’m sure he is quite busy). And this is the key, when I talk to most investors or even beverage executives, I ask:
“Have you been to Minnesota?”
And the answer is almost always:
No.
That said, I think Marc’s most valid point is what will distinguish beverage companies from each other and how do you know who will win (we will write more about this in a future post). We are seeing companies starting to scale and break away from the pack like Uncle Arnie’s and Trail Magic with accelerating growth and we think the opportunity is with the brands that are clearly resonating with consumers, especially in the most competitive markets. Scale and first mover advantage are real things in beverage, and we are seeing firsthand new hemp beverage brands struggle to get going (it takes time, a strong management team and boots on the ground to win in retail).
I came away from this Minnesota visit more bullish than ever about the future of hemp beverages. If we get a 5-year farm bill that passes and hemp beverages are still allowed, we think there is a strong chance there is a mania. The prize at the end of the rainbow is too large, the dollars and market share opportunities too great.
If you need more convincing, there is only one way to see the future:
The future is on full display in Minnesota.