Consumer demand for cannabis-infused beverages and its impact on the economic sustainability of local farms and craft beverage producers

View the project final report

Commodities

• Agronomic: barley, hemp, hops

Practices

• Education and Training: decision support system
• Farm Business Management: business planning, market study
• Sustainable Communities: local and regional food systems

The emergence of niche crop markets and local food and drink value chains have offered small farmers an opportunity to diversify crop selection and increase profitability. However, burgeoning markets are subject to boom-and-bust cycles that can leave farmers without an end-buyer. The craft alcohol movement has become one of these budding markets, with the number of local breweries, cideries, distilleries, and wineries growing steadily over the past decade. With this, the North Central region has seen a boost in specialty crop production to supply locally-sourced inputs to these craft producers.

The 2018 Farm Bill also legalized industrialized hemp production, offering yet another specialty crop for local farmers to consider. Industrialized hemp has several end-uses including fiber and feed, but the use of particular relevance here is the commodity’s cannabidiol (CBD) content. While countless CBD products have entered commerce—from CBD-infused muscle rubs to lotions to edible food and beverage—little is known about the long-run potential for cannabis-infused products, leaving farmers wondering about the economic longevity of producing for the industry. Further, many states have cannabis with tetrahydrocannabinol (THC), which could serve as an economic complement or substitute for craft beverages. Loopholes in the 2018 Farm Bill also allowed states without recreational cannabis to produce and distribute certain types of THC-infused products. It is unknown to what extent this policy reform will impact craft beverage markets and stakeholders across alcohol and cannabis supply chains (from the farm to the end consumer). 

This project analyzes consumer preference for alcohol and cannabis products to uncover the preferences for the two goods and identify the demand for cannabis-infused, non-alcoholic beverages. In achieving these objectives, we evaluate how these recent reforms will likely affect the alcohol supply chain and offer market insight to farmers and craft beverage producers on how to adapt to these evolving markets.   

We use data from an online survey distributed to a representative panel of U.S. households to understand consumer preferences, attitudes, and consumption habits of alcohol and cannabis products. Examining these two markets within a single experiment allows us to identify how alcohol markets could change given cannabis reform. Moreover, we complement the primary experiment with secondary and tertiary experiments, enabling a deeper evaluation of these markets.

Some of the primary research findings are as follows:

1. More than 50% of U.S. adults are willing to try hemp-derived beverages. 
2. The average willingness to pay for CBD- and THC-infused beverages varies by product type (e.g., sparkling water, coffee, tea) and cannabinoid (i.e., CBD and THC). 
3. Beer drinkers expect hemp-derived beverages to have similar safety and nutrition scores as traditional beers, but at higher prices.
4. Some consumers view alcohol and cannabis products as complements, while others view them as independent markets.
5. The hemp-derived beverage market remains a fraction of the size of the U.S. alcohol market, but sales projections are increasing as the market develops. 

Output includes two peer-reviewed publications as well as one paper that is currently under review. Information has been disseminated through conference presentations, social media campaigns, and discussions with industry representatives. These efforts will continue as our final paper is accepted for publication. Ultimately, the hemp-derived beverage market is growing, and this project provides an important first step into a scientifically-driven understanding of its market potential.

We identify three primary learning outcomes associated with this grant proposal. First is a more thorough understanding of the alcohol and cannabis laws regulating production, distribution, and commerce, emphasizing the North Central region. This includes analyzing the loopholes in the 2018 Farm Bill that have allowed select THC-infused beverage sales in states without recreational cannabis. This understanding is obtained through a review of the academic literature and state/federal policies. Knowledge is disseminated to our target audience through presentations at conferences and workshops, academic publications, and media engagement. 

Second, by identifying consumer preferences for alcohol and cannabis products, we analyze anticipated purchasing patterns within these industries. Generating and sharing this knowledge with our target audience will leave members of the alcohol supply chain better equipped to manage these evolving markets.

The final learning outcome is understanding the demand for hemp-derived beverages, as this demand affects farmers and beverage producers alike. Uncovering consumer demand for cannabis-infused beverages will equip farmers and beverage producers with the knowledge to make production decisions. 

The proposal also has three intended action outcomes. Primarily, the expected output will better inform decision-making on niche crop selection, mitigating uncertainty about the longevity of these markets. Next, the output will influence local craft beverage producers' production decisions as they continue to innovate. Finally, the proposal seeks to heighten industry collaboration amongst stakeholders across the alcohol and cannabis supply chains, increasing market coordination, participation, and lobbying efforts.