With 22 years of CPG entrepreneurship and at least three successful launches under his belt, Eric Schnell thought he had a solid playbook for building — and selling — CPG brands.
But as Schnell, founder of Beyond Brands and co-founder of mood33 hemp-infused teas, quickly learned, the strategies that propel traditional CPG brands don’t uniformly apply to cannabis-infused beverages.
“It’s probably been the most challenging out of everything I’ve ever done and pioneered,” he says. “It all got turned upside down pretty quickly.”
Schnell discussed the ups and downs of launching mood33 during the first keynote presentation of Cannabis Products Exchange, held virtually July 30-31. He recounted the brand’s introduction through THC-infused teas and its pivot to incorporating hemp extract after the passage of the 2018 Farm Bill.
“It was the right thing for us to do as a company,” he says.
Growing up in an “organic, vegetarian, hippy” household in the 1970s formed Schnell’s passion for mission-driven, plant-based products. In 2003, he co-founded Steaz, the first certified organic soft drink in the U.S. The brand reached $30 million in 2015 before it was sold a year later.
In 2012, Schnell collaborated with and mentored the founders of Runa tea, a brand dedicated to encouraging farmers to grow high-caffeine tea instead of furthering deforestation in the Amazon. Vita Coco bought the brand in 2018.
Schnell also partnered with a vegan venture capital firm in 2016 to co-found Good Catch, a plant-based seafood brand that uses legumes and “culinary tech” to mimic the taste and texture of seafood.
Schnell says his journey into cannabis beverages began materializing during this time, but it didn’t solidify until Beyond Brands’ launch of mood33 in California in 2018. The brand portfolio initially included three THC-infused teas, and Schnell and his team began using his playbook for building brands:
- Being in the Top 3 brands of a new or emerging category
- Setting up a strong, reliable distribution network
- Raising the right capital
- Developing an exit plan
- Creating a new product pipeline
But things didn’t go as planned, Schnell says.
“So much of it didn’t have any return, and so much of it was so difficult,” he says.
A key strategy for building a beverage’s audience is sampling, but when Schnell’s team turned up to dispensaries ready to pour, they were told it’s illegal to pour for free in the stores. They could provide marketing materials and send budtenders home with samples, but that was it.
Getting the attention of budtenders presented another challenge, since dispensary customers flocked to them for recommendations during sales visits. And getting them to recommend a beverage is difficult when they can turn customers toward more expensive products.
“The budtender is the gatekeeper of the store,” Schnell says. “He or she is going to influence the customer extremely well on what they should or shouldn’t buy in the store.”
And with state and local taxes included on the bill, a $7 can of tea could reach $10-$14 — not an ideal price point. Edibles sales are also undercut by the cheaper black market, discouraging some customers from visiting dispensaries.
Furthermore, advertising on Facebook and Instagram wasn’t successful, since any mention of cannabis, hemp or CBD would get mood33’s ads flagged. The brand’s logo, which includes a cannabis leaf, was the main indicator of its positioning.
Laboratory testing added another layer of difficulty, since different methodologies and a lack of understanding around the brand’s nano-emulsions led to results ranging from 8 to 12mg of THC per bottle, even though they knew each bottle had 10mg. In one instance, mood33 had to dump $60,000 of product that contained 8mg of THC, since it is illegal to sell products with THC levels that don’t match the label claim.
“How do you build a business like that when you can’t even then resell it without the risk of getting arrested, fined or imprisoned?” Schnell says. “Dumping product down the drain is not a safe bet as a beverage entrepreneur.”
While revisiting the playbook, Schnell says mood33 was making about $50,000 a month in revenue, and it took more than twice the capital then they thought to get the brand up and running. They were working with licensed distributors, but many of them were new to the industry and weren’t punctual with payments.
Creating a new product pipeline wasn’t easy, since many R&D labs can’t or don’t want to work with cannabinoids. And there wasn’t a clear way to sell the brand, since the category hadn’t grown enough to entice large beverage or alcohol companies to buy it, especially without any federal regulations in place.
Then Congress passed the Farm Bill in 2018, legalizing hemp products across the country. Mood33 decided to switch to incorporating hemp extract, since the opportunity for CBD would be much greater than THC.
Mood33 remained a tea brand, setting itself apart from the sparkling water category. It also incorporated 33mg of hemp extract, one of the highest doses on the canna-beverage market. Schnell says it’s important for customers to feel the dose.
“If you don’t feel it, you’re not going to have loyal brand evangelists come back every day and buy it at lunch if there’s no feeling for $6 a can or bottle,” he says.
Mood33 relaunched Jan. 1, 2020, and earned an ECRM Buyer’s Choice Award. So far, the brand is in 500 stores, and major retailers are interested in bringing in the brand once federal regulations allow incorporating CBD in food and beverage, Schnell says.
“Everybody is waiting for the laws to get passed to have products like this approved,” he says. “We know that that prize is going to be huge, and we believe it’s going to happen. The trick is really sticking in the game long enough to be there when the prize happens.”
In the meantime, mood33 is focusing its resources on stabilizing the business and building a national brand through hemp-infused products. Schnell says the plan is to reintroduce THC products at the end of 2021 or the beginning of 2022.