Cannabis Insight: Consumer Perceptions and the Innovation Horizon

Cannabis continues to be a category poised for growth in the food and beverage industry with consumers projected to spend $3 billion on cannabis infused products in 2020. In the time of the COVID-19 pandemic and recovery, consumers have sought solace in cannabis edibles and CBD products to quell their anxiety and find relief. In this report, we share details from a proprietary FONA survey into the drivers and preferences of the cannabis consumer. Our research shows that consumers desire high quality, reliable cannabis products that taste exceptional. And with new markets emerging in Illinois and Michigan, cannabis infused treats are primed for innovation. From ultra-low doses to CBD dalgona coffee to -sugar dusted chocolate bars, let’s dive into cannabis, currently. Cannabis, Currently

In 2019 the global cannabis industry generated an estimated $14.9 billion, up EDIBLES U.S. 2020 nearly 46% from 2018, which saw just 17% growth to $10.2 billion. In the U.S. GROWTH PROJECTIONS alone, consumers are projected to spend nearly $3 billion on cannabis infused products in 2020, says New Frontier Data. A majority of U.S. growth will come from recreational markets in newly legalized states like Michigan and Illinois, and new medical markets in unexpected states like Missouri and Arkansas—but growth won’t stop there. Voters and lawmakers could potentially approve recreational markets in New York, New Jersey, Pennsylvania, Rhode Island and other states in the coming months. BAKED GOODS: Annual growth of 14%, reaching $748.1 million

CONFECTIONS: Annual growth of 16%, reaching $2.2 billion

BEVERAGES: Annual growth of 15%, reaching $587.8 million Covid-19 & Cannabis

COVID-19 has naturally affected every market in 2020, and the cannabis market is no different. Edibles sales skyrocketed in the U.S. amidst nationwide stay at home orders—in the week of March 9-15, 2020, edibles sales were up 10.6%.

Digging into the market drivers, it’s no surprise that edibles use surged Spring 2020. Two of the top reasons for cannabis use is stress reduction and anxiety relief—two emotions that have swept the nation during the COVID-19 pandemic. In fact, 75% of US consumers who live in legal states and who use cannabis say they use it to relax.

PRODUCTS OF NOTE:

CODA SIGNATURE COFFEE & DOUGHNUTS EFEX CHILL SOUR WATERMELON GUMMIES MILK CHOCOLATE BAR A 3:1 THC-to-CBD hybrid, each gummy con- Contains 30g THC per serving and is described tains 10mg THC and 3.3mg of CBD for a calm, to taste like coffee, creamy milk chocolate, happy buzz in both body and mind. toasted milk, and is said to be euphoric and relaxing.

Images Sourced: A Proper High Consumer Perceptions

In February 2020, FONA launched our CBD Edibles and Beverages Innovation Horizon Consumer Survey, a nationwide survey of current CBD users or consumers interested in trying CBD products. Below are a few top takeaways.

MORE FLAVORS, PLEASE! CANNABIS + CLEAN From Baby Boomers to Generation Z, consumers prefer Consumer expectations for clean cannabis products mirror product portfolios to contain between 4 to 6 flavors. what we see in food and beverage categories. Most important Consumers crave flavor options when purchasing CBD claims ranked by consumers in our survey: products, and don’t want to be limited to just one or two • Contains Nothing Artificial – 25% • Organic – 21% choices. This indicates that LTO’s and seasonal flavors are • Non-GMO – 16% • Sugar-Free – 15% ready for innovation! • Portion Controlled – 13%

Incredibles Blueberry Bliss White Chocolate Bar Fruit Slabs Tropical Haze Fruit Strips is fruit is a baby blue hued 100mg THC-infused seasonal leather with 10mg THC per serving and is made chocolate bar studded with blueberries and crispy with organic ingredients, contains no added rice. (Image Source: Incredibles) sugar, is gluten free, and vegan.

TRUST + SAFETY According to Mintel data, consumer trust is two-fold: the quality (taste and ingredients) and the safety (effects) of a Consumers make similar choices when they’re product both matter. From child-safe packaging to reliable shopping for cannabis as they do when they’re THC-content labeling, these measures help ensure canna- bis-enhanced products are consumed safely—and it’s key to shopping for food, so people who have made building consumer trust and positive brand association. In fact, organic and GMO-free an important part of 38% of consumers would be more willing to pay for a product their life will continue to look for those they trust, and 32% would trust a product from a mainstream products in cannabis as well. brand they’re familiar with. Source: Mintel Robert Arabian, founder of Pop-Up Potcorn Popular Flavors in Top Flavors in Cannabis Infused Food Cannabis Infused Drink

Strawberry Berry Sour Watermelon Fruit Punch Peach Pineapple Citrus Orange Soda Chocolate Root Beer Lemon Watermelon Raspberry Cranberry Lime Mango Berry Lemonade Dark Chocolate Sea Cola Pineapple & Coconut Chamomile Tea Blue Raspberry Hops Wildberry Matcha Blackberry Pineapple Mango Marionberry Pink Lemonade Peach Mango Orange Mango Huckleberry Apple Cider Pineapple Habanero Hibiscus Blueberry Grape Soda Cherry Limeade Strawberry Kiwi Orange Cream Pie

Source: Headset - April -May 2020 Data CBD Craze

The CBD market will reach $2.1 billion in 2020, and according to our CBD Edibles and Beverages Innovation Horizon Consumer Survey, 43% of US consumers have either tried or are interested in trying food and drink that contains CBD as a functional ingredient. The functional benefits of CBD, like pain relief, anti-inflammatory activity, anxiety reduction, and beauty enhancement have attracted a lot of attention in the last few years.

PRODUCTS OF NOTE:

WYLD CANNABIS INFUSED PEACH GUMMIES CBD LIVING INSTANT COFFEE

A 2:1 CBD and THC hybrid gummy containing Delivers 7mg of CBD per serving, and comes in three 5mg of CBD and 2.5mg THC per serving. They are flavors: Black Coffee, Golden Milk Coffee, and Matcha described as having a citrus-sweet flavor with a Coffee. The product launched in April 2020—just in time relaxing affect that brings relief. for the wildly popular dalgona coffee trend you’ve been seeing all over your social media.

Image Source: A Proper High Image Source: Trend Hunter

Three years ago, there was essentially no one searching about CBD online, but now there are an estimated 6.4 million unique searches each month.

-Dr. John W. Ayers, co-author of UC San Diego’s Cannabis Study and Vice Chief of Innovation at the University of California Infused Eats, Treats and Drinks Trends

Edibles spending in the U.S. and Canada NEED FOR SPEED: FAST-ACTING EDIBLES topped $1 billion in 2017 and is forecasted to One of consumers’ top concerns with grow to more than $4.1 billion by 2022. Let’s cannabis edibles is the time it takes to start explore some trends we’ve spotted in cannabis feeling the effects. After consumption, infused foods and drinks. products may take up to two hours to produce effects, and in some cases the effects may CANDY AND CHOCOLATE REIGNS linger for up to six hours. This can often lead When it comes to edibles, consumers have a to over-consumption and misdosing. Fast- sweet tooth. 58% of cannabis users are acting edibles often only take 10-15 minutes interested in trying or purchasing cannabis to feel effects, and most only last about two infused chocolate, and 47% are interested in hours, making it easier for consumers to pace sugar confectionery edibles. themselves and avoid misdosing.

KIVA CHURRO CANNABIS INFUSED WANA QUICK FAST-ACTING PHYX SPARKLING WATER MILK CHOCOLATE BAR GUMMIES Comes in lime, grapefruit, and Contains 100mg THC and is dusted Available in cocktail-inspired dragonfruit flavors and claims in cinnamon sugar, claiming to taste flavors and have an onset of 5-15 effects can be felt in minutes and like a golden, fried churro dipped in minutes with effects lasting up to only last about an hour. delicious hot chocolate. three hours.

Image Source: A Proper High Image Source: Trend Hunter Image Source: Spherex Infused Eats, Treats and Drinks Trends CONT'D

SMALL DOSES Spherex. “These canna-curious consumers FLAVOR CAN'T BE OUTDOSED As recreational cannabis legalization don’t really know enough. They don’t want Consumers interested in cannabis infused continues, more and more consumers will be something that will knock them out or that food and drink may have more adventurous exploring edibles and potentially tastes really bad. They want something that palates—and therefore care about taste more encountering a common problem for new tastes great and makes them feel better.” than anything else. 47% of consumers cannabis users: overdosing. This often occurs interested in cannabis infused edibles reported because of the delayed sensations and So what dose is best? One survey conducted that they were generally interested in trying effects edibles have.“The experience when by Canadian-based Organigram suggests new foods and drinks, and when ranking you eat too many edibles really isn’t pleasant. 5mg; and Mintel found that 33% of edibles attributes of importance in edibles, It’s pretty intense,” said Niccolo Aieta, consumers prefer low-dose products consumers ranked taste (45%) as more founder and chief technology officer for containing less than 10mg of THC per serving. important than dosage (37%).

MELLOWS COOKIES N' CREAM CANN GRAPEFRUIT PLATINUM COCOA BANANA MARSHMALLOWS SOCIAL TONIC CREAM PIE GUMMY COINS

Contain 4mg THC per serving and A cannabis-infused seltzer water with Covered with cookie crumbs and claims the high is intended to be 2mg of THC and 4mg of CBD. It is said deliver 5mg THC per serving. calm and unwound.. to have a crisp flavor of citrus and a light herbal aftertaste with a relaxing and uplifting social effect.

Images Sourced: A Proper High SOURCES

• Candy Industry • Headset THE TAKEAWAYS • BDSA • Businesswire • Prepared Foods • Kikoko Consumers want safe, high quality edibles options, and they expect them to • MJ Biz Magazine • Leaflink List taste great. In fact, consumers ranked taste in cannabis as even more important • Beverage Daily • Forbes than dosage. With the impacts and future restrictions of COVID-19 still • Mintel • A Proper High unknown, consumers will continue to seek cannabis as a natural way to unwind • Ganjapreneur • Trend Hunter and relax. And with new markets opening up as more states legalize recreational • LA Times • Kiva Confections use, brands should consider experimenting with new and exciting seasonal flavors or expanding a product portfolio to include at least 4 four flavors to meet consumers’ preference for more—not less— when it comes to edibles and flavor. Let’s help you get started in this space. REQUEST YOUR FREE FLAVOR SAMPLE HERE You Deserve More. Let's Get Started.

What does true partnership look like? You deserve a flavor partner ready to turn these trends into the tangible.

Let FONA’s market insight and research experts get to work for you. Translate these trends into bold new ideas for your brand. Increase market share and get to your “what’s next.” Our technical flavor and product development experts are also at your service to help meet the labeling and flavor profile needs for your products to capitalize on this consumer trend. Let’s mesh the complexities of flavor with your brand development, technical requirements and regulatory needs to deliver a complete taste solution.

From concept to manufacturing, we’re here for you — every step of the way. Contact our sales service department at 630.578.8600 to request a flavor sample or chat us up at www.fona.com/contact-fona/