Sweet Reason raises $2.5m to support CBD-infused sparkling flavored water rollout

By Elaine Watson

- Last updated on GMT

Sweet Reason comes in three flavors: Grapefruit, Cucumber Mint, and Strawberry Lavender (MSRP $5.99).  Picture: Sweet Reason
Sweet Reason comes in three flavors: Grapefruit, Cucumber Mint, and Strawberry Lavender (MSRP $5.99). Picture: Sweet Reason

Related tags Cbd Hemp Cannabis

CBD-infused beverage brand Sweet Reason has raised $2.5M in a seed round led by New York venture capital firm Lerer Hippeau, with participation from RiverPark Ventures, Max Ventures, Subversive Capital, and angel investors.

Launched in December 2018 by Hilary McCain and currently available online and in around 200 retailers in New York in 12oz glass bottles, Sweet Reason​ is an unsweetened sparkling water with natural flavors and 7mg of CBD isolate extracted using supercritical CO2 from organic hemp grown in Colorado.

The capital injection will help add to the sales team and boost branding efforts, said McCain, who has a background in corporate finance, and has worked in corporate strategy roles at Maple Leaf Foods and Chobani.

"I started Sweet Reason in January of 2018 after becoming obsessed with cannabis beverages. I believe beverages will play a key role in the future of cannabis because so much of our social lives and rituals revolve around beverage. We spent a year formulating Sweet Reason. The hardest part was finding a clean, high-quality CBD supplier. We tried over 20 water-soluble CBD suppliers in North America and finally landed on a high-quality, clean, CO2-extracted CBD from an organic hemp farm in Colorado."

Isolates vs full or broad spectrum extracts

Asked about her formulation decisions, she said: “We chose to work with CBD isolate because CBD is the most well-researched cannabinoid out there and we believe in the health benefits of pure CBD. Pure CBD is also safer for consumption as there are fewer potential interactions with other drugs. Pure CBD also has a more palatable taste, so you don't have to mask it with sugar or sweeteners, which was important to us." 

It’s obviously a highly risky endeavor

Sweet Reason was originally going to be launched in Toronto, Canada, where recreational cannabis became legal nationwide in 2018. However, McCain pivoted her strategy to focus on the US market after learning that beverages containing hemp-derived CBD and other such products classed as ‘edibles’ would not become legal in Canada until late 2019.

But given that the US Food and Drug Administration (FDA) has made it clear that it does not consider hemp-derived CBD to be a legal dietary ingredient in foods, beverages or supplements because it was first investigated as a drug (although the agency is exploring a legal pathway forward), why is it any safer to market such products in the US?

“It’s obviously a highly risky endeavor,” ​conceded McCain, who says she has had issues with her payment processor​ for e-commerce transactions that “left me and a lot of competitors scrambling to figure out how to sell our products onlin​e.”

But she added: “We see so much potential in this market and the entire hemp and cannabis market, that we think it’s well worth the risk… The passage of the 2018 Farm Bill also took away a lot of the risk in the business in that hemp CBD is not a controlled substance anymore.”

‘Having CBD on the label is a barrier for some retailers’

So where do US retailers stand on CBD today given the legal uncertainty?

Every major retailer in the country is currently evaluating CBD. Some retailers want the labels to read hemp extract instead of CBD, so we are evaluating that option as well," ​said McCain.

“Some of the more conservative retailers are waiting for the FDA to provide more clarity until they carry CBD products, but some of the more progressive ones are definitely going to be carrying CBD food and beverages prior to the FDA clarifying the regulations.”

Hilary McCain: 'We’ve only got three ingredients: carbonated water, natural flavor, and CBD.'

CBD beverages

While multiple brands have launched sparkling beverages with CBD over the past year, from Bimble​, Sprig,​ Yoro​ and Recess​ to Aurora Elixirs​,​ Reed’s Ginger Beer,​ CBD Hemp Soda,​ and Sparkling CBD,​ Sweet Reason is one of the few brands with no added sugar or sweeteners, along with Cirrus​, Weller,​ GT’s new Dreamcatcherline​,Queen City Hemp,Dram​ sparkling beauty water and Daytrip​.

“We’ve only got three ingredients: carbonated water, natural flavor, and CBD, and that’s really resonating with consumers," ​said McCain. "The first thing I also did with investors ​[when pitching during the funding round] was have them taste it, and we had great feedback."

She added: “We see consumers buying beverages with anything from 5-25mg for daily usage.”

Feeling the effects?

But do consumers need to ‘feel’ a difference/effect (eg. calming, relaxation) if they are going to make a repeat purchase of a CBD-infused beverage, or is Sweet Reason much the same as any other ‘wellness’ beverage, from alkaline water to kombucha – in that fans simply buy it because they think it’s a healthy choice?       

“It’s the million dollar question," ​said McCain. "Consumers are obviously more likely to buy it if they can feel the effects, but we know CBD impacts everyone differently, just like coffee. Our CBD is highly bioavailable - we use a micelle technology for superior bioavailability, and consumers tell us that they can feel the difference.”

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