Today, cannabis is breaking into many sectors of the food and beverage industry. But 10 years ago, it was considered a dangerous narcotic. Its appearance in anything to eat or drink looked more like a tray of homemade pot brownies and less like the slick products starting to appear on shelves.
In 2009, Erik Knutson, his brother Kelly Knutson and Andrew Veron had been working in construction. They lost most of their work and couldn't take out any more construction loans as the Great Recession tore up the housing market. Being from Boulder, Colorado — well known for its liberal attitudes toward cannabis — they brainstormed ideas for a new business that brought the substance to the general population.
Keef Brands, which was one of the first companies to put it into a soda, was born.
Keef has expanded beyond soda into sparkling water, energy shots, healthy juice blends and oils. The company is working with Ceria Brewing Company, founded by former Blue Moon brewmaster Keith Villa, to manufacture and distribute nonalcoholic THC-infused Grainwave beer. Keef's products are made and sold in retail locations in California, Colorado, Arizona, Nevada, Michigan and Puerto Rico. Some are sold in Jamaica. Knutson plans to expand to Massachusetts, Oklahoma, Oregon and Washington this year.
And sales are booming. Keef sold its 1 millionth product in the United States last year, and Knutson says the company sells about 50,000 items per month.
While the edible cannabis market is much more crowded today, Keef was one of the companies that laid the category’s foundation — and keeps innovating to meet consumer demands. Knutson talked with Food Dive about how he created and led the drinkable cannabis category, and where he sees it going in the future.
This interview has been edited for clarity and brevity.
FOOD DIVE: What gave you the idea for a cannabis soda?
ERIK KNUTSON: We were all just kind of brainstorming and looking at the market. I realized that at the end of the day, the two most commonly accepted forms of social adult interaction are drinking and smoking, and everybody else is already on the smoking side. We saw big market need, for a beverage, for a truly social way (to have cannabis). Most people don't sit around and hack up brownies. They may have a tray of brownies on the table, but they're also going to have beverages. Throughout history, it is the social lubricant of society, so it just kind of made sense.
What went into formulating the soft drinks?
KNUTSON: The first round of beverages we actually produced were in clear glass bottles. So the color presentation was a lot. We wanted to keep it as natural as possible, but at the same time, easily looking like a soda. We've always been pure cane sugar or agave or monk fruit. We've never produced a product with high fructose corn syrup or any of those kind of alternatives, sucralose or any of that. So definitely, from the sweetness side, we've tried to keep it as clean as possible.
As far as the colors, some people just want a colored beverage. So the original products were just soft drinks and the blue razz was super blue, and the purple's purple.
That said, by about mid-year one — 2010 — we actually launched what's called Keef Boosts. And they were basically a 5-hour energy-style product that we formulated entirely in-house. So that was a much healthier product. The first one we did was called Flo … and that was like an energy booster. We put B vitamins, vitamin C and just about everything in it, and formulated it with agave. It was a very clean product. No food coloring or anything like that. It's about as natural as we could make it. And those did really well. We manufactured and distributed those until about 2015 when the packaging rules changed (requiring larger, more complex packages) ... and we decided to move in another direction.
"We saw big market need for a beverage, for a truly social way (to have cannabis). Throughout history, it is the social lubricant of society, so it just kind of made sense."
CEO, Keef Brands
What is the most important aspect of your product for consumers, both the ones you have now and the ones you hope to get? How do you achieve that balance?
KNUTSON: Basically, what we've done is created multiple product lines within the brand house. At this point, we have the Keef Life product, which is definitely much more of your clean label, non-sparkling, very low caloric beverage. All the way across the gamut to our Keef sodas and the Keef colas, which are our other soft drinks. And then we have a sparkling water product, which is probably the healthiest edible on market. It's literally sparkling water with THC in it, not much more, a little bit of monk fruit sweetener. We've definitely tried to produce products for most of the market from what we perceive it to be, and I think it's worked pretty well.
Who is your consumer?
KNUTSON: Our consumer is the cannabis consumer. Anyone that consumes cannabis and is looking for an alternative delivery vehicle or a social product that they can bring to the party. Or consume, as we used to call it, your after-recreation medication. That was one of our first tag lines. As a beverage, obviously it’s hydrating. It’s fun, I think. We've tried to create a product where, whether it's sparkling water or soft drinks, it's for just about every demographic of the cannabis market.
We just launched a product called Ceria in Colorado with our partner Keith Villa. He created Blue Moon for Coors and was their master brewer for long time. So we've come together in a partnership and launched a nonalcoholic beer, very similar in flavor to a Blue Moon. We believe that product — it's a very low-milligram THC product, five milligrams total in the beer — will actually create new cannabis consumers. Bring new people into the market that otherwise may not have tried it.
How did the partnership with Keith Villa come about?
KNUTSON: We'd always been looking at it. (Through another business to make hops extracts for beer owned by my brother) we'd actually played around with it a little bit for a couple of years, and then the opportunity with Keith came about through some of our friends over in (cannabis research company) ebbu. And as the leading beverage manufacturer in Colorado, it was a natural fit to begin with.
And we connected, got to talking, and just kind of hit it off and realized there was some good synergy there on the business side, that we liked each other and decided to punch forward with it.
How has the reception been to the product so far? How are sales going?
KNUTSON: The reception has been great. We sold our entire first batch, sold out wholesale and through the retail channel, within about one week. It's a really unique product. Tastes great. It's definitely not what you'd expect from a cannabis product.
"We've tried to create a product where whether it's sparkling water or soft drinks, it’s for just about every demographic of the cannabis market."
CEO, Keef Brands
You're getting a real beer. It tastes like a beer. It's got the body of a beer, just with no alcohol. I think it's a totally unique product. There's only a handful of companies across the country that have developed anything even close to it from a flavor profile. Having someone like Keith behind it, he’s one of three Ph.D brewologists in the world.
In the cannabis industry, there are some great companies out there that are producing really high quality products, but the majority of edible products on the market today are definitely not at the level that the normal consumer packaged goods products are. That’s probably the softest way to put it. It's the reality, and a lot of that is due to the fact that we're getting just hammered on the taxes and it's really hard to run a business and be able to afford the people that you need when you're basically paying double what a regular business would pay in taxes.
With the signing of the Farm Bill, which removed hemp from the listing of Category 1 narcotics and the potential green light for CBD, does it change what you do?
KNUTSON: I think any type of cannabis legalization, whether it’s hemp or THC or CBD, helps everybody. Overall, it's big for all of us. It’s bringing more money into the industry and into the sector. We've had a company in the hemp space now, I think we started in 2012, so we're seeing it. It's just helping from a revenue standpoint. Every deal out there helps. Instantly giving everybody a breath of fresh air and another avenue to make some revenue that otherwise wouldn't have been there.
Does Keef have any CBD products?
KNUTSON: We've worked with a number of CBD companies on beverage products consulting. We've got a tea product launching with a business partner here ... for X Games (that took place in late January). That’s what we're targeting right now. We're definitely working with a number of large traditional consumer packaged good companies and beverage companies to develop and launch CBD products, particularly beverages. We do have a plan to launch a Keef CBD drink at some point here. To be honest, the THC side takes a lot of our time, but it's definitely on our radar.
Ask anyone what’s trendy and up and coming in food, and they’ll say cannabis. With everyone wanting to use to your featured ingredient, and as one of the first movers in the space, how do you hold the line?
KNUTSON: Innovation, innovation. Being a first mover helps, but it definitely doesn't mean you're out of the woods, as Blockbuster (Video) and a number of other companies found out. Just constantly innovating and looking at new opportunities. One of the big things of being a first mover, aside from market space and things like that, it provides you vision over what's coming. The consulting side of our business, it's definitely helped that from a R&D standpoint. We're pretty much right there, with lines like the beer being one of those products, sparkling water and just kind of looking at ways to recreate ourselves wherever we can, and at the same time trying to look out of the box.
We’ve got a number of projects going on right now up in northern California. We're working with local wineries up in wine country to develop some non-alcoholic wines that are infused. So really looking more at the adult space and how we can come into that market and really disrupt it. I believe there's opportunity there. And alcohol is part of everyone's life in one way or the other way, whether you drink or don't drink. This is a viable alternative for a lot of people. It gives you that ability to still feel like you're part of the party.
Is there anything you did early on that's setting the bar for everyone now?
KNUTSON: I think probably from a price standpoint and being that we were really the only 10 mg (of cannabis) drink in Colorado for a number of years, we really kind of pioneered the price point where we're at right now ($5-$6 for a soda, $8-$10 for a beer). I think from a packaging standpoint, we did a really good job early on. The entire industry is seeing an increase as other large consumer packaged goods companies are coming to the space. I want to believe we launched a product that has as good of a shelf appeal as traditional markets ... to help elevate the entire industry.
"One of the big things of being a first mover, aside from market space and things like that, it provides you vision over what's coming. We're pretty much right there, with lines like the beer being one of those products, sparkling water and just kind of looking at ways to recreate ourselves wherever we can, and at the same time trying to look out of the box."
CEO, Keef Brands
Where do you see the market going in the next year? The next five years?
KNUTSON: Just expansion, expansion, expansion. I'm spending a lot of my time in California right now for very good reason. It's a massive market that is very much untapped and, in many ways, brand new. The number of retailers is going to over double in the next 12 months, and they may double again 12 months after that.
With the rest of the country kind of taking a similar track, there is a very good chance within the next year (that) New Jersey will have passed its recreational adult use legislation, that the governor there has already said he will sign. There's bipartisan support within both houses, the House and the Senate. So you're going to get that first access and look at the New York market through New Jersey. (New York) Gov. (Andrew) Cuomo has come out in New Jersey and said that he is open to it now at this point. So you're talking some of the biggest markets in the world within the next 12 to 36 months, and that will completely change the nature and the face of this industry.
With federal legalization coming through, with states taking these actions, we believe definitely within 24 months it will be happening. You're already seeing right now with the large financial institutions, large traditional CPG companies, they’re moving into the space very rapidly. I think everybody sees the market for what it is, which is, at its low estimate from DEA (the Drug Enforcement Agency), it's a $50 billion market in the U.S. At its peak, it's (worth) $80 (billion). And that's just black market. We don't even know what a real tactical market looks like. So those are numbers that every single large traditional company is looking at, and they're all moving in in one way or another. Right now, it’s the beer. I think the beer companies are kind of making the first big splashes.
What advice do you have for someone in the business who is interested in getting involved with cannabis in some way?
KNUTSON: Pick your partners wisely. Like any new industry, there's still a lot of speed bumps in it. It's like any other business you're going to do. You can't look at it as though it's going to be a massive cash cow. I think a lot of people made that mistake, getting in early thinking this is going to be up to two years and then I'm out, I'm going to go live on a boat.
It very much is (difficult), if not even harder with the taxes and everything else, than traditional business. It's challenging. It’s fun. It's all that regular business is as well, with a lot more regulation. So I would definitely warn them on not getting their hopes too high right out of the gate. But I would also follow that and say it's been extremely fun. Like any new market, there's a lot of opportunity.
(I’d also suggest) not to spread yourself too thin. Like any good company, you do what you do and you do it well. The company that started to do everything and tried to become Nestlé overnight has not done so well. Produce a great product and put everything you’ve got behind it, and at the end of the day, as long as you can do a product better than most others, typically you’ll win out.
What do you have planned for Keef in the next 12 months?
KNUTSON: We’re going to be expanding. Definitely partnerships. Third-party lines, we'll be manufacturing. We've got a formulation done for our Keef gummies, which we're calling Keef Caps. They’re bottle cap-shaped gummies that mimic the flavors of the sodas. A natural product extension, we’re continuing to work on the vape pen lines. We are looking at the tea line. We'll have the tea formulations done here shortly.