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DTC Podcast
Ep 551: Tesla to THC: How WYNK Engineered Explosive Growth in a Regulated Environment
00:44:49
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- [00:00]
A
Nothing about it was easy at that time. You're working under the state cannabis frameworks. They have different licenses for grow facilities, processing facilities, transport companies, retailers. We thought we'll just market to the alcohol consumer and get them to go to dispensaries. Turns out that's far, far, far more expensive than we thought. Our strategy with dtc, you know, last year we were only in about five states. With retail, we spent a lot of money on digital advertising, building our e commerce business. And the idea behind, you know, this is a really easy way to access consumers that we can't otherwise access as we're out in the market, get them to try the product, understand the brand, hopefully like it, refer friends. And with every interaction we have with a customer, we get data.
- [00:51]
B
Angus, welcome to the DTC podcast. Super excited to connect today. You've got a really interesting background having gone from Tesla to thc. Can you maybe walk me through your hero's journey that brought you to building Wink?
- [01:04]
A
Well, first, thanks for having me. Happy to be here. Wink has a sort of long story for the, for the THC beverage category. We started in 2020, we launched in early 2021, but the way that we came into existence is somewhat unique. My background's really in engineering and technology. I went to school at the University of Victoria, studied mechanical engineering. That's right.
- [01:29]
B
That's how we were connecting on that. That's awesome. You don't often meet people from the States who come to Canada for university.
- [01:34]
A
I had a great time there and I really like the program at the University of Victoria because it allowed for a lot of internships during your degree. So I did, I think, seven internships with engineering companies while I was in school. And when I graduated, I went to Tesla, did battery Design, the Model 3, but was really looking for an opportunity to start, you know, something of my own. I ended up leaving Tesla without figuring out what I was going to do, but knew that I was leaving to go start something. So it's around 2020. I was looking at the THC beverage category in Canada and seeing it grow really quickly, but didn't see much going on in the us So I was asking myself, why? Why is this? I wasn't a cannabis consumer, but I was just looking at different opportunities. And the interesting challenge in the US at that time was you had to produce the beverages in each state that you sold so you couldn't ship across state lines. And where this created an issue was, you know, to build a facility, you not only needed to build a beverage facility, servicing One state with limited distribution through dispensaries. You had to get a licensed under each state's cannabis program. And they're all unique. There's millions of dollars years before you could get up and running. And it really makes sense, which is why, you know, the beverages that did exist in that time were only in a single state, maybe one or two, and largely in the US Most states did not have beverage period, because there's just no way to make it. So that that caught my interest because I knew I could produce a mobile beverage system of some sort. So I designed this sort of 53 foot tractor trailer with everything that you needed to produce beverages on the go. And our model in the early days was rather than build facilities and get licenses, let's build one facility. We can move around and partner with people that already had facilities and licenses that we could can beverages within. So my technical background created this interest in the cannabis industry. The next thing that was really interesting was when myself and my co founders decided to start this company. Like, well, we need to figure out what we're going to make. We know how we're going to make it, but we don't know what we're making. And so we tried a variety of drinks from Canada ranging from very low dose to a very high dose, two and a half milligram at the low end and all the way up to, I think 100 milligram at the high end. Myself and my co founders pretty inexperienced with THC at that time, but it was clear to us that these very low dosed THC drinks were an extremely compelling alternative to alcohol. And they could really be used like wine and beer are used, very social, sessionable, regardless of your tolerance, you know, a pretty manageable effect. And so that, you know, turned us from a passion on, you know, solving this technical problem to, to a passion for, you know, the entire category.
- [04:25]
B
I want to hear the story about what happened when you ate the a hundred milligram one.
- [04:29]
A
Yeah, not for me, put it that.
- [04:32]
B
Way, no, you didn't have any visions about the future of the business.
- [04:37]
A
But just to sort of wrap the early days, it was about started building this trailer in January 2021, had it working by March, took about two months to build and validate. At that point we had, you know, low dose THC seltzer formulation that was really compelling. Zero calories, zero sugar, which is sort of uniquely interesting because you now have an adult beverage with an undeniable effect that meets the alcohol occasion with no calories. It's just something you can't do with alcohol. And then the name, we played around with a bunch of different names, but being geared for low dose, this idea of seltzer with a wink of THC or a low approachable amount of thc, that's where the name Wink came from. And then we did our first production run in Ohio in April 2021 and we're off to the races.
- [05:30]
B
Such an engineer solution to the problem, you don't, you don't hear that very often. I think when I was sort of doing research on our pre interview, there's, it's, it's like constraints in one way are. If you have a solution, then they're advantages in another. Right. I feel like you're a good example of taking constraints in this space and finding solutions. Talk to me about using the distribution from each of the locales. Like why was that different than if you were trying to roll it out locally, were you just because you're producing in those states, was it easier to get inroads with some of the distribution?
- [06:02]
A
Nothing about it was, was easy. You know, the way that it works at that time, you're working under the state cannabis frameworks. They have different licenses for grow facilities, processing facilities, transport companies, and then, you know, retailers, which are dispensaries. The other challenge was some states were medical markets where consumers had to have a medical license to buy. Others were recreational, where so long as you were over 18 or over 21, you could go to a dispensary or buy. But the common theme was you're working with an extremely tightly constrained route to market where everything had to be tracked at each step and done under a different license. So you're working with all these different parties just to get your product made and then to a dispensary. Biggest challenge was that there are very few in any given state. If you compare it to alcohol distribution, there were so few stores that could sell it, you might have 50 to 100 dispensaries in a market where you have 8,000 liquor stores. So comparing the early days of Wink distribution to traditional beverage, extremely limited, extremely challenging. But we found ways to overcome it and work within those systems and grow the business for three years. And after three years, the rules change and we can talk about what the business looks like today a little bit more. But it's hard to appreciate one, how limited beverages were in the U.S. at that time. This is something very unique. And two, our real angle was getting a monopoly in a variety of states. There just was no way for there to be competition Unless they ran on our system. That was really excited us like, man, if we can just make this technology work and show up in that market, we'll be the only drink there.
- [07:54]
B
And as people like, I just think it's not people's first choice. People who, who you know, are, are turning to thc. It's you know, smoking, it's maybe it's eating, it's vaporizing. Drinking is obviously growing. What did you do to like on. In Canada, the biggest constraint with growing a cannabis business is we just don't allow any marketing at all. Like you can they limit so hardcore what can be used to actually build a brand in the cannabis space. What were some of the ways that you sort of got over the idea and sort of promoted the idea of drinking cannabis?
- [08:27]
A
There was a very false premise to our business from the start and that false premise was dispensaries were largely selling high potency THC products for the cannabis consumer. Our premise was bring a low dose product and we can bring these dispensaries, a whole new set of consumers that are alcohol consumers interested in cannabis and give them an on ramp into the cannabis category. Marketing was somewhat limited in the US at that time. You'd be very careful about what you said and there are a lot of limitations on where you could place marketing materials, but you could do it. And so we thought we'll just market to the alcohol consumer and get them to go to dispensaries and buy these Lotus products. Turns out that's far, far, far more expensive than we thought. It's very hard to get somebody to go make, you know, a special stop at a dispensary they're not necessarily comfortable with. And so we had a lot of headwinds. Despite being able to market, you know, more freely than you can in Canada, still had a lot of issues actually getting that conversion to happen, getting that alcohol consumer to make the extra stop. And so we ended up doing know while we were selling through, through the course of the first three years when we were selling through dispensaries is we ended up just creating higher and higher dose products. And we got to a point where we were selling 100 milligram THC drinks because that's where you know, most of the demand in the dispensary channel was. But there's been a big shift to the industry and might be a good time to talk about that.
- [09:56]
B
Yeah, let's talk about that. Was that from when the Hemp act passed?
- [09:59]
A
Yeah, you know, in the early days we were deriving the THC in the drink from marijuana. Marijuana is federally illegal in the US but states have created programs to legalize it. But THC is just a molecule, just like ethanol's a molecule. And in the same way you can derive ethanol from a variety of different sources, potatoes, grapes, whatever, to make wine or spirits. The same is true of thc. You can drive the same THC molecule from marijuana or from hemp. And in around 2022, Minnesota created, you know, state rules that said you can sell products with THC derived from hemp outside of dispensaries because it's federally legal and they put, you know, caps in place for products. But ultimately they created a marketplace where we could use THC derived from hemp in Wink, produce it at our own facility, ship it across state lines to Minnesota, and sell through liquor stores. That's a huge change to the route to market for THC beverage. And they set a precedent that a lot of states have since followed. But it's created in the U.S. a marketplace where largely drinks with 10 milligrams of THC derived from hemp or less can be shipped into each state and sold through alcohol distributors and retailers, both on premise bars and restaurants and off premise liquor stores, which has caused immense growth in the category as a whole and also immense validation of our sort of initial concept. And the initial concept being low dose THC beverages would be compelling to the alcohol consumer. It just turned out that it required the right route to market these products. Had to be where alcohol consumers are shopping. Minnesota sort of paved the way. And it's just, it's created immense growth for, for Wink and, and obviously a lot of new brands in the category in the US because it's now accessible.
- [11:57]
B
Just a question about the product. How is it, how are drinks? Because I know with watch, I don't really know how edibles are made. Is it, is it just sort of like atomized? Is it sort of like an oil that's like atomized within the drink, or how does it actually get made?
- [12:09]
A
Yeah, it's if you start with the crop. Just like, you know, many raw ingredients are derived from crops, but hemp is grown, it's dried, the oils are extracted, and sort of this nasty crude oil, it then goes through distillation to purify the Delta 9thC and concentrate it. At that point you have something that's sort of like honey. It's very thick, it's clean because it's been distilled, but it's not soluble in water. And so if you were to just Add that THC distillate to a drink, it would separate just like, you know, oil and water. And so what? Yet there's one more step you need to do for beverage and that's to emulsify it. And emulsification is really just breaking that sort of thick oil into very, very small droplets around 100 nanometers in diameter. And then they're coated and the coating stops those droplets from recoalescing and it keeps all these droplets sort of separate from each other and they distribute evenly through the drink and they're stable over time. And so what you end up with is a sort of flavorless, milky like ingredient that you're adding to the liquid and that allows this oil to be distributed throughout the beverage and done in such a way that you have a one year shelf life just like a traditional beverage.
- [13:32]
B
Super cool.
- [13:33]
A
Yeah. The other benefit to emulsions is these sort of small droplets are more bioavailable than the oil itself in edibles. And so in some third party studies that are being done by big research institutions, there's really interesting data on blood toxicity over time. And what it's showing is that THC emulsified and delivered through beverage has a much faster onset time than traditional edibles and a very reliable offset time. So these experiences that you hear from people about gummies and brownies, you know, taking it, not feeling anything for two hours, taking more, and then being hit by, you know, way too strong of an effect.
- [14:15]
B
Going to the astral realm.
- [14:17]
A
Yeah, yeah. What we're finding with beverages is it's much more, it's much more rapid, much more controllable and consistent, which is great.
- [14:24]
B
For the, the new consumer, for the alcohol consumer. Right. Because that's what I think that was. I was in the CBD space before this a little bit. And the hardest part about that is you don't. There's no feeling, there's no acute sensation. There's that you can't tell that you've, that you've taken, you know, and maybe your inflammation's down a little bit. But with beer, you have that first beer, you feel a buzz. And I think that's, that's a really interesting point that the, the way it's emulsified has that rapid onset. And also you want the off ramp as well, like you do with beers. Yeah.
- [14:53]
A
And the interesting thing in the data is the on ramp follows alcohol fairly closely. So when we say like consume this and control your experience in the same way you do beer, have one, wait a little while. So you feel have another if you see fit. It's actually backed by real data and it's very compelling to have another sort of psychoactive ingredient in a beverage that does sort of match the profile of alcohol.
- [15:18]
B
So did you retire the cannabis caravan?
- [15:20]
A
Yeah, it went through the first year. We had a team of six people with this 53 foot tractor trailer traveling state to state every week, maintaining inventory so that we'd show up at a facility, we'd have things unloaded and set up in about four hours. We produce 20 to 30,000 cans a day and pack up and leave. So most of our production runs were two days and then we'd go on to the next state and we'd come back before they ran out of inventory. We started out grow that, so we built a second trailer. Then we had two teams, two trailers running. True traveling circus, like crazy, crazy system. And it was clear that, you know, Wink and our other brand at the time, Countdown, were growing, you know, faster than we to be able to keep up, keep up with, with these trailers. And so we designed the next iteration of the technology. And the way that that worked is built a machine that took traditional beverage cans so just normal empty cans from common suppliers. And the machine would punch a hole in the bottom of the can, like a hole punch. It would then insert a one way valve, this very small little valve that, you know, the consumer would likely never even notice. And we'd fill them at our canning facility, undosed. So it had no THC in it, but it'd be flavored, carbonated, sealed, and we could do it at scale, we could do huge batches, very good through labor efficiencies. And then we'd ship those undo scans that were otherwise complete to each of our markets. And in our markets we had these small dosing machines. So you just take a case of 24 cans, undosed, put it in the machine, and it would just inject a small amount of THC through the valve and dose it and then the product was ready for sale. So rather than canning in every state, all we were doing was just injecting a milliliter of emulsion into the can and it made it so that we could, you know, produce at scale at home. We'd have these distributed dosers in each state with our partners, ship the cans, dose them, and we're on our way. So that kind of took us to the next level of scale for the company. And then when Minnesota sort of created this pathway for a hemp derived version of the product that had the same, you know flavor profile and effect. We started to switch our business model from selling through dispensaries, producing on or dosing on a state by state basis to selling through license alcohol wholesalers all over the country. So as the business exists today, we're producing everything dosed THC derived from hemp at our facility and then shipping to beer, wine and spirits wholesalers who then efficiently get the product to retailers.
- [18:00]
B
And these machines that you built didn't exist before you or did they? Did they? Was that solution where you could dose on premise?
- [18:08]
A
No, I, I literally designed and built, hand built, all of it.
- [18:12]
B
That's pretty rare on this podcast, I gotta say. Congratulations. I love engineers for reasons like that, where actually I just saw a video this weekend of a guy that he'd created blueprints for open source for all the different like excavation machines that you need to like build in the real world. And he's like open sourcing all these things. It's pretty, pretty interesting when you can actually make all of these steps come to life.
- [18:32]
A
Yeah, I mean it was really fun for me because, you know, being so close to the products, our partners, and really understanding the issues that we had to solve, but also being an engineer able to program, do the electrical, do the mechanical, I could design what I thought was the perfect solution for the problem. And you know, for the first year I went on every single production run in every state. So I was very, very acutely aware of the issues. And so we're able to design something that was a very good solution for the problem. At the time, of course the industry changed and therefore the way that we produce had to change. But we wouldn't be here today without it.
- [19:13]
B
Talk to me about the post Minnesota decision. Like was it a gold rush after that fact? And my question is, all the momentum that you'd been able to build on this previous system, were you able to leverage that into the sort of post Minnesota gold rush or what was it like going to market after that rule had passed?
- [19:30]
A
Yeah, it's an interesting sort of coincidental success. We, the early version of the Wink brand looks very different than it does today. And that was because we had to comply with medical packaging rules. It was a very bland package. It wasn't a super compelling mainstream brand, but it was to the best we could do within the rules of the channel in 2021. The next couple of years was a lot of states went recreational, from medical to recreational. The packaging rules opened up and gave us an opportunity to do a way more mainstream rebrand. So we spent About a year revamping everything about the brand and making it sort of as mainstream as we could, really targeting the alcohol consumer. Coincidentally, right after we launched this rebrand, this mainstream route to market opened up. And so I tell that story because it gave us two years, two to three years to really refine the brand, the messaging, the packaging for the mainstream consumer. And it was timed perfectly to be able to actually present these products where the alcohol consumers were shopping. But yeah, really challenging taking something that has so much stigma and with THC and putting it into, you know, a product and package and brand that feels really approachable and safe.
- [20:55]
B
What is the high level branding message that helped bridge that, you know, bridge that message to, to a seasoned alcohol consumer.
- [21:01]
A
The sort of core premise of the brand and something that you see show up a lot in market is this idea of light balance and social. So a lot of our messaging is targeting those three things. One, this is light, it's approachable, this isn't a very high dose product. It's not going to give you a bad experience regardless of your tolerance. Balanced in that we add CBD to the product to try and tame the effects of thc. So many consumers find that THC on its own can create anxiety or a lot of hunger, a lot of unwanted effects. CBD helps balance it. And so by adding cbd, we've again made something more approachable and then most importantly social. So a lot of our marketing, a lot of our events are all about like bringing back, getting together, like get off your phone, go hang out with your friends. And THC beverages allow you to do that in a really unique way because there's no hangover, you at least don't feel ill in the morning. And there's no, you know, we're able to deliver with no calories. And then more recently, you know, it's available at events, it's available at bars and restaurants. And so you have this sort of new tool to be out social on weekends where alcohol may not be, you know, it may be difficult sometimes to get together with friends on a weeknight and consume alcohol together because you need to worry about tomorrow. This gives you sort of a new.
- [22:25]
B
Way while still opening things up socially in the way that beer, alcohol might. Yeah, we talked about ads. I had one of your compatriots, Aaron Nosvich from Breezon, and I was following his journey for a long time and D2C was a big part of his strategy. And always dealing again with regulations and dealing with the rules on these platforms was both a constraint. But Also an opportunity. I think you had a pretty good example of how you were able to basically advertise on these platforms using the age restriction setting. How did that work?
- [23:02]
A
So the. Maybe back to the beginning. On the typical digital advertising platforms, they have very strict sort of guidelines or compliance policies that, you know, they don't want you advertising drugs. And they consider thc, even if it's derived from hemp, which is federally legal. Most ads that contain anything about THC get banned very quickly or get flagged. And it creates rampant issues for advertisers like us because, you know, it can cause your whole account to get shut down. So you literally don't. In the case of, like, Meta, Facebook or Instagram, your ability to advertise in those platforms can be completely suspended overnight. So you have to be extremely careful how you advertise the products. And, you know, Aaron was a, and is a pioneer in navigating these restrictions. And, you know, Breeze and his advertising agency, Lucid, have done a really good job of coming up with ways to navigate the issues. And so there's the obvious things like, you know, don't say THC on your ad or in your ad. I think people understand that pretty well now. But there's more nuanced technical challenges. And the reality is these advertising platforms are incredibly smart. And so when you create an ad, when somebody clicks it, they have to go somewhere. So oftentimes you connect that to your site. These advertising platforms crawl your site. So they look at your ad, they look at where your ad goes to try and understand what you're selling and see if it violates any policies. So a lot of the tricks that are deployed by many of the brands are just ways of hiding the actual product you're selling from the platform. And so what you often see is if you click an ad, you go to a landing page, maybe it's a separate website or a subdomain, it looks like your brand, it looks like your product. But thc, all the information about your product that maybe doesn't comply with the policies is removed. So they can be kind of confusing. Like, what is this? Actually, a lot of the useful information is hidden. But what we did, which I think is really interesting, is they didn't really want to take people to a page that wasn't extremely clear about what they might might be buying. And, you know, on our site, and this should be true of all brands selling THC online, we have a age pop up just confirming that you're 21. And so I said as well, no matter how people get to our site, the first thing they have to do is say yes, they're over 21. That page doesn't have any information about THC, so why don't we just make the landing page the age gate. And so when you click an ad from Wink, it takes you to what looks like our website with what looks like a pop up confirming your age. In reality, that's on a totally different site. And so Medic and Google can't see our website. What they see is just this age gate pop up. And as soon as you click yes, I'm over 21, then it takes you to our main site or to a product page that has all the information a consumer needs. That's just one of sort of many tricks that brands like us deploy. And the more creative you get, the more of an advantage you have over anybody else.
- [26:18]
B
And it's still very much in the spirit of what these platforms are trying to prevent against as well. Right where you really are making, you know, obviously providing that age gate at.
- [26:25]
A
The start, that's the, it's kind of the oxymoron is what they're, what they're forcing us for Brands to create product pages that are extremely unclear, increase the likelihood of consumers buying, you know, something they didn't intend to. And so what we're doing is trying to sort of work around these rules to solve our problem, which is we want consumers to know exactly what we're selling. We also have to comply with the advertising platforms.
- [26:50]
B
So your rebrand coincided with this huge distribution boon and then you guys have had immense growth since then. What can you say in terms of how, how big you guys have gotten? How many, how many cans are you selling?
- [27:03]
A
We'll do around 400,000, 24 PAC cases this year across DTC and retail. This year it'll be slightly, slightly over 50% of our sales will be from retailers. The remainder will be E Commerce. Last year about 70% of our business was E Commerce. So we're seeing the wholesale side of business growing, you know, pretty dramatically. And that's just, you know, a function of getting increased distribution. And the increased distribution in a lot of cases is just states that, you know, we weren't able to sell in last year. Now creating rules to, to allow it.
- [27:44]
B
You just think it's gotta, the DTC is going to end up being a drop in the bucket eventually because people, 99% of the beverages they purchase are in liquor stores generally. Right?
- [27:56]
A
Yeah. And our strategy with dtc, you know, last year we were only in about five states with retail. So we spent a lot of money on digital advertising, building our e commerce business. And the idea behind that was, you know, this is a really easy way to access consumers that we can't otherwise access because we're not in the market, get them to try the product, understand the brand, hopefully like it, refer friends. And with every interaction we have with a customer, we get data. It could be contact info, could be demographic info. So it gave us a lot, you know, built us a huge customer list that we could remarket to over time. Also told us a lot about, you know, who our consumers are, what they buy, which informed our product mix for the wholesale business. This year we launched about 15 new markets, new states. And so we're able to do when we launch now is take our customer data that was buying BTC and start driving them to, to stores. So we've pulled back on our e commerce growth as our wholesale footprint has grown. But the e commerce customer base that we built, even just the email list, non buying customers is extremely useful. Supporting the wholesale business. And then digital advertising to me is so interesting because you've got this obvious conversion path to get people to buy online. But there's so many amazing retail conversion technologies. Like what we do a lot of today is in store rebates. So if you go to a store, there's a little QR code hanging off the shelf and if you scan it, you can get $5 or $10 off your order and it comes direct from us. So you go buy the product at normal price, text us your receipt and you get an instant rebate. So now we can drive, you know, where the conversion would normally occur online. Now we can incentivize and drive purchases in store. We can digitally advertise rebates to specific stores. You've got all these like really interesting ways to connect digital ads to physical actions in the market.
- [30:00]
B
Super cool. What is, is there a tool that allows you to do that? Like with the rebate, does it actually send them, you know, a Venmo or something like how does that actually work or is it just towards their next product?
- [30:09]
A
Now you can get paid out through Venmo, PayPal. Pretty straightforward. We, we use a company called Bridge B R I J. They have the, I've heard of them technology but it's very, you know, for the consumer it's very easy to use and for us it's very valuable. Valuable because you know, we not only have a way to drive an incentive at retail without the retailer, distributor being bought in, they don't need to even be involved because it's all done on the back end from us. But it also gives us, in order to get the rebate you have to give us your email. And so it helps build an email list so we can then remarket too.
- [30:49]
B
Hugely valuable and then talk to me about. So obviously you're building out with distribution in each state. You've got marketing, you know, Facebook and Google, you know, that sort of support those rollouts. You also mentioned events. What's the sort of grassroots approach that you still have in the markets that you're launching in?
- [31:07]
A
We do a lot of hyperlocal events so we really want to show up, you know, very, very close to our markets, very close to our retailers at the events that consumers really trust. So it might be a farmer's market that somebody goes to every week. There's so much stigma around THC that it's really important that we get this product into an environment that people trust and know like, you know, if this product's here, it's legitimate because we trust the organizers. So we do lots of very, very small hyperlocal sponsorships. And it's kind of funny because I'd say a lot of the marketing spend that we do is something that the Internet will never see intentionally because it's trying to be like really present in people's markets. It's not a big swing marketing effort, but we do a huge volume of it and I think that's really important. Another thing sort of tying back to digital advertising. What we often do is free samples in exchange for emails. And so we're always happy to give folks samples, but it's way more valuable to us if for example, we can say you can try Wink. If you like it, we'll give you a can. But first you have to scan this QR code and opt into our email list. That gives us the ability to obviously let somebody try it, decide whether they like it, then on an ongoing basis be able to serve them continuous marketing incentives to buy and really, you know, retain that, that customer for, for life. So we do at any of these events a lot of sampling, but it's always tied to capturing an email.
- [32:44]
B
That makes sense. What about Amazon? When is Amazon going to start selling these products?
- [32:48]
A
Good question. I'd love to know.
- [32:50]
B
Yeah, it seems like a no brainer for them.
- [32:53]
A
Yeah, they you can't currently do it. Excited for the day that that you can. 99% of our online sales are just through our site. And it's because a lot of the you know, third party marketplaces still won't host DHC products. Hope that changes soon.
- [33:12]
B
It's the next evolution. How I was. I enjoyed my chat with Aaron about this because his the thought process. It's hard to imagine how big the liquor opera opportunity is or how how big a small foothold in the liquor opportunity for THC beverages. How do you conceive of the opportunity that you have in front of you with Wink here?
- [33:32]
A
The simple number that always keep in my head is if THC beverages can capture just 5% of alcohol sales in the U.S. that's a 13 and a half billion dollar market which sort of puts you, it's like around RTD's, around energy drinks. It's fairly big. The question is, could it ever be 5%? And I think what's really interesting is talking to our alcohol distributors who have been carrying the product for a year and a half or two years, some of them are seeing 20% of their total sales go to THC. And it's not all cannibalizing. You know, it's incremental in some cases. Then there's retailers that are claiming 25% plus of store revenue shifting to THC. So you're sort of seeing these pockets where there's clear demand signals that the category could be that big. And then there's a reality that if the category is that big, it's very meaningful. In the US it's as big as sort of some of these common categories. As long as regulation evolves, the consumer demand is there, at least in the markets that, that we plan.
- [34:42]
B
Just curious, like THC versus something like alcohol. What's the margin profile like between those two? Is it about the same? Would you guess higher? Higher for THC because there's way, there's fewer ingredients?
- [34:55]
A
Yeah, margin's higher. Now what you know, taxes look like on a state and federal basis could shift that. That's one advantage that outside in many markets there's no tax sorted out yet where there is on alcohol. So that'll eat away at the margin a little bit. But from a raw ingredient standpoint, we've built a big co packing business. So we produce alcoholic products, we produce non alcoholic products and we produce other THC products. From a raw material standpoint, at least for Wink, you know, it'd be equivalent if we were to convert it to, you know, switch it over to be an alcohol based product. It'd be more expensive even if you remove tax. So side by side it's a cheaper product to make and therefore the margins Will be higher.
- [35:40]
B
And you can rest easy if you're, you know, eating into 5% of alcohol sales. You're, you're giving the world less hangovers. You're giving the world less, you know, all of the, you know, the problems that, that happen with, with, with a high consumption of alcohol. If people can temper it with, you know, a little THC every now and then, it might make the world a better place.
- [36:01]
A
Yeah, the eating into things. Interesting because like to give an example, the CEO of Total Wine was talking about their sales and he said that there's a little over 30% of. 30% of customers that are coming to Total Wine to buy THC beverage are new to store and therefore incremental to store sales.
- [36:21]
B
That is cool.
- [36:21]
A
So Total Wine scene, it's not eating away at. It's incremental too alcohol. I think that's important to understand that this isn't a we're stealing share from alcohol. At least that's not the intent. And, and the reality on the ground is that in many cases it's actually incremental revenue.
- [36:38]
B
What's the attention from the huge liquor companies? Is it like, is. Do you see them as a potential suitor long term to be acquired? Are they acquiring THC brands? Are they building their own to try to compete in this new space? They must be.
- [36:52]
A
Yeah. Have had a lot of conversations over the years. There's a clear trend in those conversations which is increasing interest. A year ago, well, 2021, we're getting laughed out of the room. You guys are crazy. And we were getting left out of the room on both sides. Big alcohol and also dispensaries. They were saying we're crazy because beverages are 1% of the market. Nobody wants low dose big alcohol. Like this is, you know, some sort of feeling. This is not a good thing. It's sketchy. A year ago, you know, I got a lot of sort of inbounds from larger alcohol players, both distribution and supplier. And it was well, you know, this might be 10 years out for us, but we wanted to start gathering information this year. Especially sort of Q2 forward conversations have shifted dramatically. It's like they're really trying to figure out it's not if we're going to launch, it's when. And it's not is this, you know, 2030, it's like probably next year. So seems that the, there's, there's increasing pressure I think coming from alcohol sales flatlining or slightly declining in some cases. Clear better for you trend. It's kind of a long Standing trend, but seems that a lot of large alcohol players are running out of, you know, growth levers in the adult beverage category and looking to THC as a mechanism. And then in terms of what they're doing, it's a whole mix. I have, you know, some. Some interested in acquisitions, some interested in investments, some interested in learning what they can to launch their own. So it's a whole mix.
- [38:39]
B
White labeling through you even, or something like that.
- [38:41]
A
Yeah.
- [38:42]
B
Last question. What do you like? What do you see? What are your goals, I guess, for 2025 and beyond? Are you launching new products, new flavors, or you sort of set on the ones you have?
- [38:52]
A
There'll be a slowdown in sort of line extensions. We have a pretty broad portfolio of doses and flavors and pack sizes to a point where, you know, retailers are just getting so congested. There's limited space on the shelf. And I think for some time that if we create new things, it's going to come at the expense of old things. We'll have to take some things off the shelf to make room for new. And we'll continue to sort of cycle skus as we're. We'll just keep clipping the lowest seller and bring in something. Something new. We did that very frequently over the past two years. It's going to slow down a lot because I think we have a really good core offering. And the challenge now is really just increasing distribution of that core offering. We have a few new flavors coming next year. We always do a couple ltos a year. Just a summer seasonal and a fall seasonal. Those will continue and they'll continue to evolve more to come on tax sizes. Everything that we do today at retail is in cans. There's some interesting other package formats that seem compelling for consumers that you may see come from us. You know, beyond 2025, I think you often get asked, what's the long term goal? And for me, it's always been, you know, if you can. If you can find White Claw or. Or High Noon, Wink should be there as another option. And so the sort of long game we're playing is just making the right brand choices, distribution choices, to make it so that Wink's distribution is as broad as its alcoholic equivalents. And the last important piece is that it be priced the same. You shouldn't have to pay a premium for a THC option, especially considering the cost is not higher to produce these rings.
- [40:39]
B
I see poppy started in 2018, so you guys are just a couple years after them. They'd had their first super bowl commercial last year. So I put you guys as having a Super bowl level presence commercial in two or two or three years. Does that, does that check out? Because I always just think of like when you've got these, these new paradigms products, it's so much of it is just about a changing, you know, mindscape about what's possible better for you. Soda kind of did that with Poppy and Olipop and such. So it's like what are, what are the high level branding exercises that you can do that just open up more people to the idea of THC reaching for a THC beverage versus a beer?
- [41:17]
A
It's a really hard problem for us because, you know, I give a few examples, but in, you know, a bunch of the markets that we're in, we might be in 5 or 10% of the buying accounts that our distributor has access to. The remainder, you know, aren't buying Wink because they don't like Wink or think that it'll sell. They just won't touch THC because they're not comfortable. The rules aren't clear enough for them yet. So there's this sort of issue where we could throw infinite money at the wall on marketing, but because of the regulatory environment, there's only so much distribution we can get.
- [41:51]
B
Yeah. And so makes sense.
- [41:54]
A
This has been a challenge since we launched. Wink is like when is the right time to really spend on brand marketing? Because there's. This is a challenge you have with beverage brand. There's infinite places you can spend money to get the word out. But it's equally important that you be able to expand distribution to make it so people can buy the product. And where there's a lot of headwind to expand the distribution, it's improving over time. This year has been a big shift. A lot more retailers are buying the category now, but there's still huge resistance. And so what it results in is you have to be careful can be very, very inefficient marketing spend. So we're kind of weighing our. You kind of want to save some dry powder for when regulations, either on a state basis or federal basis, unlock and make it so that, you know, if you do the right marketing, you create the right pull, you can get very quick store expansion. Unfortunately, no matter how good Wink is or how much people love it, there's still these sort of underlying issues that are stopping people from buying the category as a whole.
- [42:59]
B
Hence the grassroots approach that you have to supporting the distribution, you know, channels that you have which make it makes a ton of sense.
- [43:05]
A
Yeah, yeah. And so that's where, like, if we could do a super. If we had the budget and the opportunity to do a Super bowl ad next year, I don't know that we would because I just think it's wasted unless something changes. So we're really, again, just focused on a lot of very small spends in a lot of different places that people trust to just build that trust up, get them begging their retailers to change their opinion on THC and pick the products, and we'll continue to scale it up as appropriate.
- [43:34]
B
Nice. Well, I look forward to continuing to follow your journey. Thank you so much for coming on the DTC podcast today. If people want to follow your journey, are you public on any of the platforms?
- [43:45]
A
Yeah, I'm on LinkedIn. I don't have any other social media, but if you want to follow the brand, we have a very active TikTok and Instagram. It's a really cool brand personality that I'm super proud of. So a lot of original content, original ideas, no AI generated videos, real people giving the real opinion on Wink. So our handles drink Wink and Wink's W Y N K. Very cool.
- [44:14]
B
I will. We'll have to have you back on in the future to talk a little bit more about the content strategy because I think that's super relevant as well. But this is great. Thanks again, I guess.
- [44:23]
A
Yeah. Thank you. It was great to meet you and good to talk.
- [44:33]
B
Thanks so much for listening to today's episode. If you're not a subscriber to our newsletter, you can do that right now at directtoconsumerall. One word co. I'm Eric Dick and this has been the DTC podcast. We'll see you next time.