Keef bubbles to top of competitive cannabis beverage sector

(This story first appeared in the November-December issue of MJBizMagazine.)

Keef Brands is tapping into the growing demand for cannabis-infused beverages.

The Colorado-based company’s sales from January through August totaled $18.9 million – up 26% from $15 million during the same period last year in markets tracked by Headset, a Seattle-based cannabis data analytics firm.

Revenue in the cannabis beverage category grew an impressive 11% during the year ended June 2024, according to a Headset study.

Keef has more than 70 stock-keeping units (SKUs), which include gummies, oils, vape cartridges and non-carbonated beverages – but carbonated sodas are the brand’s bread and butter, accounting for about 80% of the company’s overall sales.

The company has eight flavors of sodas and three different sparkling waters.

“We dabble in other categories, but we are a beverage company,” Keef CEO Erik Knutson told MJBizMagazine.

The beverages retail for $5-$7 per can infused with 10 milligrams of THC and $12-$15 per can infused with 100 milligrams of THC.

Knutson told MJBizMagazine it costs $1.15 to produce one can of Keef.

The company’s margin on carbonated beverages is between 50% and 60%.

Keef Brands’ most popular beverage is its Xtreme Bubba Kush Root Beer Classic Soda with 100 milligrams of THC per 12-ounce can.

Sales of the drink surged this year, doubling from $144,000 in January to $352,000 in August in the markets tracked by Headset.

THC dosing

Keef products are available in 14 states as well as Canada and Puerto Rico.

The amount of THC in each 12-ounce can varies depending on the state regulations of each market.

In Colorado, for example, regulations limit the amount of THC in each can to 10 milligrams, or what the state considers a single dose.

But in Missouri, Keef sodas are infused with 25 milligrams of THC per 12-ounce can.

“As markets become more mature, people become more familiar about their dosing requirements, wants, needs and expectations,” said Blake Patterson, Keef’s chief revenue officer.

“It’s like having a bottle of vodka before you and knowing how much to drink for how you want to feel.”

Knutson said that Keef’s 10-milligram products represent less than 5% of the total beverage market and historically have underperformed the brand’s higher-dose products.

Consumers perceive they’re getting a better deal when they purchase beverages with THC content greater than 10 milligrams, he said, because they compare them to other edibles, such as infused gummies.

A gummy might contain 5-10 milligrams of THC, but the entire package has 100 milligrams.

Retailers also prefer beverages with a higher THC content because they take up so much space on store shelves.

In new markets, Keef provides retail stores with refrigerators to store the products off the sales floor.

The refrigerators, which range from mini fridges to full-size standard wall units, cost between $500 and $2,000.

Knutson said the company has deployed thousands of refrigerators over the years, and since they account for less than 5% of Keef’s overall costs, he believes they are worth the expense.

“It’s hard to justify carrying large, bulky products with only 10 milligrams (of THC); dispensaries aren’t set up to be liquor stores or convenience stores,” Knutson said.

“There just aren’t as many lower-dose (beverage) consumers; they tend to migrate into gummies.”

Hemp industry expansion

Keef’s hemp-derived delta-9 THC business is another factor contributing to the company’s growth.

Knutson said federal hemp laws allow Keef to reach consumers in states that don’t have regulated marijuana markets.

The company already sells its hemp products in several hundred stores in Tennessee, and they soon will be available in another 300 licensed liquor stores in Texas.

Keef doesn’t sell hemp-derived delta-9 products online or in regulated marijuana markets because it doesn’t want to step on the toes of its licensed retail partners.

But hemp-derived delta-9 THC products expose new customers to the Keef brand in markets that don’t have regulated marijuana programs, Knutson said.

“We’re one of the few companies that operates in both spaces, but we don’t sell those products in states that have regulated programs,” he said.

“We were born and raised in the regulated space, so we’re never going to turn our back on it.”

Colorado and Missouri are Keef’s biggest markets.

Sales in Missouri hit $14.3 million from January through Aug. 28, eclipsing the $11.2 million sold in its home state of Colorado during the same period, according to Headset.

The Arizona market is a distant third for Keef Brands, with $5.3 million in sales over the same period.

“We were the first edible sold in Missouri, so first-mover advantage and a great partnership with Clovr Cannabis” drove Keef’s success in that market, Knutson said.

“We were also a first-mover in Colorado and have spent years building retail and consumer relationships.”

Brand-licensing deals

Keef’s path to success hasn’t been easy.

In 2011, the company invested $1 million in a manufacturing facility in Boulder, Colorado, only to be told it couldn’t sell its products in Denver unless they were made in that city.

The company lost all the capital it had invested in the building.

That misstep forced the company to pull the plug on its Boulder manufacturing operations plan and develop a licensing model, which Knutson admits was challenging.

While the company negotiated a lease in Denver, Knutson licensed the brand to Denver marijuana-infused products company Eleutherian Enterprises – now defunct –  to keep its momentum going.

“We cut our teeth licensing out of pure necessity back in 2011,” he said.

In 2014, Keef opened Denver Packaging Co., which has since been renamed Brand House Colorado.

In addition to manufacturing Keef products, Brand House is a co-packing company that works with national brands such as New York-based vaporizer company Airo Brands.

Keef is set to move into a new production facility by the end of the year, which will allow it to bring in new brands as co-packing clients.

The company’s early experience with licensing serves it well today.

As Keef enters new regulated markets, the company establishes partnerships with licensed manufacturers to produce Keef-branded beverages rather than outfit a manufacturing facility from scratch.

But licensing is tricky, as Knutson learned through a series of bad agreements between 2019 and 2022.

Upon reflection, he said, the standard operating procedures of Keef’s partners weren’t up to par.

Knutson said he learned Keef must spend significant time on due diligence, including getting to know potential licensees and their operations in the market.

“There are a lot of pitfalls in licensing,” Knutson said.

“It can kill companies really quickly – especially bad partnerships.

“The hardest thing is working through the nuances of different partnerships, different state regulations and finding synergies where we can.”

As for future goals, Knutson said he wants to continue to expand Keef’s market footprint and “lead the cannabis beverage revolution worldwide.”

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.