What does it take to build a successful THC beverage brand when every state has different rules? The answer might surprise even experienced beverage industry veterans.

During a recent Qredible Live Broadcast, Paulo Sobral, CEO of Lolli Soda, and Chris Fontes, CEO of High Spirits, shared valuable insights on cannabis beverage distribution strategies. This discussion highlighted how companies are adapting to regulatory uncertainties while creating sustainable business models in this challenging environment.

The Multi-State Puzzle

Cannabis beverage brands face a unique challenge compared to traditional beverage categories - drastically different regulations from state to state that prevent simple nationwide rollouts.

"Every state has different rules and you guys have to deal with that. Like, you know, wherever you go, it's not just, you know, you're creating a root beer and you can sell it anywhere, right? Sometimes you can buy them at a liquor store, sometimes not," noted Brian Fitzpatrick, host of the Qredible Live broadcast.

This regulatory inconsistency forces brands to make tough choices about where and how to expand their distribution footprint.

Deep vs. Wide: Two Contrasting Approaches

The experts outlined two fundamentally different cannabis beverage distribution strategies: going deep in select markets versus spreading widely across multiple states.

"In beverage, the typical advice is go deep before you go wide," explained Fontes. "That means select a market and just control that market. Do your learnings, it's low cost, because it's small, keep it finite, really understand it, work out the kinks, and then take what works and then spread wider and wider and wider and then go hit another market."

However, Fontes revealed his company took the opposite approach: "We did the total opposite and we went wide and narrow, which is problematic for lots of reasons. So I'm not saying that this is necessarily the best choice. In fact, it's often touted as the absolute wrong choice."

His reasoning was simple - risk management in an uncertain regulatory environment: "If we put all my eggs in Texas, to Paulo's point, and then Texas disappears, my entire business is done. And so we did the total opposite and we went wide and narrow."

Select Markets Strategically

When determining which states to prioritize, regulatory stability emerges as a critical factor in market selection.

"For us, we look at a couple things. It's where do we think it's less volatile on the state level," Sobral explained. "We made a bet on Texas that might end up biting us there, but so it's impossible to predict 100%."

Fontes elaborated on the Texas situation: "Texas is causing a ton of chaos in our business right now or the potential ban in Texas that is. So even if you think you have a good plan, you got to be prepared to look at it every single month. We joke that we're going to change our brand name from High Spirits to Pivot."

The Partner Equation

Both experts emphasized that successful cannabis beverage distribution strategies depend heavily on establishing relationships with reliable manufacturing, distribution, and retail partners.

"I think you need prime distribution and retail partners before you enter market," Sobral advised. "And then the third component is do you have boots on the ground that are going to live and breathe your brand and have knowledge of the local market."

Fontes shared how his company is addressing this challenge: "We've just recently entered a joint venture with two other brands, cannabis beverages and buddy cannabis seltzers, so that we can share those boots on the ground resources and spread the fixed cost across three brands to make it one portfolio. That also gives our distributors and retailers one point of contact as well."

Time the Brand Loyalty Window

Despite the challenges, both experts noted a unique advantage for early entrants in the cannabis beverage category: less entrenched brand loyalty compared to established beverage segments.

"I'm looking at it as taking advantage of this window of time where brand loyalty isn't yet concrete. Everyone's trying everything," Fontes explained. "So, if you're on the shelf, you get a little bit of love no matter what. Distributors are excited at working with partners that frankly have their stuff together and can just even produce a product consistently and get it to their door."

This window creates opportunities for smaller, bootstrapped brands to gain market share before larger competitors fully enter the space.

Leverage Alcohol Distribution Networks

The experts discussed how alcohol distribution systems provide a natural pathway to market for cannabis beverages.

"With alcohol specifically, since we have the three-tier system, an alcohol partner has to fit in one of those buckets in most states," Sobral explained. "So they're either a producer, so they're a brand themselves, brewing or distilling or making wine, or they are a distributor."

He added that distributors are particularly valuable partners: "They're just going to a store one time a day or three times a week, whatever the cadence is. And the more cases they have on the truck, the more revenue they're going to extract from that stop. So they don't really care what the liquid is, for lack of a better way to put it. They just want to drop off units and collect money on those units."

Model Markets: Minnesota and Tennessee

Two states were highlighted as examples of effective regulatory frameworks that have helped establish the cannabis beverage category.

"Minnesota is a really good example of if the common person understands it exists and they have access to it, the growth is rapid," noted Fontes. He explained how media coverage of regulatory changes created consumer awareness and demand.

Similarly, Sobral pointed to Tennessee's recent regulatory developments: "What Tennessee just did is they wrote clear regulations on a state level. So it's more stringent than farm bill compliance, but that at least legitimizes the category for a lot of people that are in adult beverages."

The Need for Adaptability with Cannabis Beverage Brands

If there's one consistent theme in successful cannabis beverage distribution strategies, it's the ability to adapt quickly to changing regulations and market conditions.

This adaptability, combined with strategic market selection and strong partnerships, appears to be the formula for success in the complex regulatory environment. Brands that can balance risk through thoughtful market selection, build quality partnerships, and remain flexible enough to change course quickly when needed are positioning themselves for long-term growth as the category continues to expand.