Business

“Category of the Future:” The Case for Sublingual Strips

By Alex Halperin
Kin Slips CEO Andrew Lobo

In November, Kin Slips and Olo, California’s two leading makers of cannabis-infused sublingual strips, announced a merger to form a dominant operator in the niche product category. In an interview with WeedWeek, Andrew Lobo, the former Olo executive who’s now CEO of the combined company, argues that sublingual strips could soon take significant market share from inhaled and edible products. 

This interview has been edited for length and clarity.

Why did you do the deal?

It was a strategic transaction to bring together Kin Slips, the world’s leading cannabis-infused sublingual strip brand by gross sales, with OLO/Quid, the leading cannabis-infused sublingual strip manufacturer by annual production capacity, >10mm+ cannabis strips. The combined company can leverage, among other assets, OLO/Quid’s best-in-class cGMP manufacturing facility, Kin Slips’ ~4+ years of favorable brand recognition and a wealth of knowledge in product development and manufacturing expertise. 

The combined company now leads in both the premium channel and the value channel and we feel every California cannabis consumer is within our reach. Kin Slips’ premium channel targets consumers seeking tailored effects and experiences with all natural ingredients and a lifestyle brand. The value channel for Quid targets high cannabinoid content per $ consumers seeking traditional indica/sativa effects but with the form factor benefits of sublingual strips. 

Quid Citrus Sativa

What market dynamics will you be better able to address as a merged entity?

As cannabis follows general consumer industry trends, we think premium and value channels will continue to emerge with consumers developing loyalty to leaders within each. We are well positioned to capture dominant share in both categories. 

From a manufacturing and operational perspective, we have come out of our merger lean, cost-efficient, and optimized from an operating leverage perspective. Our cost structure is highly fixed with large scale manufacturing equipment which requires limited additional variable labor to increase production quantities. This positions us well to handle rapid growth with limited additional capital needs. 

We’re getting more inbound interest from brands learning that sublingual strips are the category of the future. We’ve begun offering contract manufacturing services for sublingual strips to leading cannabis brands in other categories and from out-of-state. We think this offering will be highly attractive to brands seeking to expand their dispensary footprints and to diversify their revenues. 

As brands find less growth due to intense competition and category maturity, we think sublinguals’ high growth  potential will become appealing. The vape crisis taught us that single category brands can get hit hard by exogenous shocks to the system. Sublinguals offer one of the few alternatives to get the same smoking/vaping experiences from cannabis without the potential risks of making a smoking/vaping product. 

From speaking with other leading contract manufacturers, we’ve learned that brands coming into the ultra-competitive California market from out of state are finding it difficult to break-in against established category incumbents. With less competition in sublinguals and a differentiated product offering that still wows consumers, we think leading brands will find the category highly attractive vs alternatives which will require displacing established competitors to take market share. We are in conversations with several parties this fall and expect to start production for partner brands as early as Q1’21. 

Kin Slips, Shut Eye

To what extent do you think these dynamics are unique to sublinguals?

With capital tight, consolidation and scale-up are occurring across the major manufactured categories.  

Additionally, there continues to be a shift toward building leading contract manufacturers which dominate the manufacturing market (e.g. Newtropic, Growpacker, Natura, all have recently expanded or begun building out their production capabilities) for the traditional product categories (pre-rolls, vapes, gummies, chocolates, etc.) We own the manufacturing market for cannabis-infused sublingual strips and expect to continue our market leadership.

While merging made us more cost efficient, our merger was uniquely synergistic in that it brought a leading brand in the category together with the leading manufacturer in the category. I don’t see this combo as likely to be replicated many times in other categories in the near future. 

What are sublinguals’ sales and prospects for future growth?

Sublinguals are roughly 2-3% of the CA market today. While we haven’t bought any of the market reports recently, we’ve seen New Frontier Data statistics indicating sublingual market growth rates as high as 400+% for the next 5 years. Given how small market share is today and with general market growth expected, we expect that high double digit to triple digit annual growth is highly achievable in the near term. 

What’s the argument for sublinguals’ future growth?

From the underlying product alone, we believe that sublinguals, and sublingual strips in particular, are a form factor superior to any other for cannabis consumption. Compared to inhalable products, sublingual strips are smokeless, odorless, discreet, and way better for your lungs and respiratory system. The COVID-19 pandemic should only push more consumers closer to sublinguals, which have the closest experiences and effects to inhalables with also fast onset times, 5-10 minutes per our trials. 

Compared to edibles, sublingual strips are faster acting, more precisely dosed as each strip is homogenous in content and pre-cut to an exact dosage. They carry the terpene driven effects that you’d want from smoking since nothing gets degraded by your digestive system. They’re zero-calorie, sugar-free, vegan and non-GMO. 

Additionally, as we see an aging population continue to seek cannabis, we expect sublingual strips to dominate within that population given their diet-friendly characteristics. 

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