The rise of Recess, a New York startup that could be the White Claw of sparkling CBD drinks - if the country's uneven hemp regulations don't get in the way

Recess executed an online direct-to-consumer only launch, a nontraditional approach for a beverage company. Instead of putting Recess into stores right away, Witte drove potential customers to the Recess website through Instagram marketing and sold the drink directly to consumers via personal shipments. Recess had 40 times its projected sales in its first month, leading to 5,000 back orders.

Following the success of the launch, Witte began employing retail distribution marketers and brought on beverage distributor Big Geyser as a strategic partner.

Today, Recess has about 4,000 accounts nationwide. It currently ships to all of the continental US with the exception of three states — Idaho, South Dakota, and Mississippi — which are particularly tough on hemp.

The pop-up was set to last for two months, but its success kept it open for eight months. Recess hosted events with creatively kindred brands and partners, like restaurant review website The Infatuation, at the pop-up.

Laurie Breton, a veteran of the beverage industry with 17 years of operations experience at Dr Pepper Snapple Group, joined Recess as its head of supply chain in May.

"I fell in love with the energy behind this product, how they were thoughtful about the way they were rolling out their distribution model, and they were thoughtful about the product itself," Breton told Business Insider.

Breton pointed to the simplicity of Recess' can design and intention behind the beverage's ingredients and flavors.

"I really liked the way the brand was positioning itself — and then just talking to Ben, and what he believed in, and the excitement of this just great category that's about to unfold," Breton said.

Breton also highlighted the diversity of backgrounds of the Recess team, which has alums of beverage companies, like Vita Coco and Heineken, and fashion companies, like Rag and Bone.

Breton told Business Insider that she believes Recess is both thoughtfully constructing and owning the category of sparkling CBD beverages, and that Recess can reach the heights of a White Claw, which is currently dominating the hard seltzer beverage category.

"I think there's a fundamental shift that has happened, which is, in the past, brands were built on the shelf, and today they're built on your phone, and that changes everything," Witte said.

"I want to create a world that transported people. So our Instagram is kind of like psychedelic," Witte explained.

Anthropomorphized Recess cans, affirmations, and cheeky, irreverent phases in Recess' pink, blue, and orange pastel palette culminate to establish the "psychedelic" aesthetic of Recess' Instagram feed.

"I really look at our brand as a social commentary on living in 2019, which is this insane time," Witte said. "But in many ways, I look at the brand as poking fun at millennial culture and our anxiety, which is so much in our own heads."

Legislation around hemp in the US has advanced in the past five years, but a lack of regulatory guidelines for CBD products from bodies like the FDA leaves CBD companies like Recess without clear map.

The part of the 2014 farm bill pushed by Mitch McConnell created pilot programs that allowed states to experiment with the growth and marketing of hemp. Then, The Hemp Farming Act of 2018 removed hemp from the Controlled Substances Act, making it an agricultural commodity and defining hemp to include its cannabinoid derivatives and extracts, like CBD.

"It basically allows and encourages all 50 states to cultivate hemp, and then remove hemp extract, including CBD, from the controlled substance list, shifting the regulation from the DEA to the FDA," Witte explained. "That bill passed in December of 2018, one month after Recess launched. So it was like very good timing."

The US Hemp Roundtable currently has more than 90 member companies and is led by Jonathan Miller, a lawyer and former state treasurer of Kentucky.

"Shortly after the farm bill passed, the FDA said that they were going to be developing a path for federal regulation of CBD, and it's been quite slow," Miller said about the Hemp Farming Act of 2018. "We've been a little frustrated with their delay and with some of their mixed signals."

Miller says the US Hemp Roundtable is hopeful that the FDA will have comprehensive regulations for CBD coming out soon.

"Most new industries don't like to be regulated; we want regulations," Miller said. "Our greatest challenge is not the FDA, it's fly by night companies selling products saying that they have CBD, and they don't have CBD in them, or they've got heavy metals in them, or they might have some toxins in them."

Miller says he hopes to see FDA regulations requiring CBD companies to follow good manufacturing practices and to use appropriate disclaimers on their product labels.

"We want regulation. We agree it is the wild wild west out there," Witte echoed about the current lack of clarity around CBD regulations. "We think the biggest risk to Recess are bad actors that don't take quality and compliance seriously."

In October, Witte told Business Insider that New York's unclear regulations for CBD were preventing Recess from investing more in the state.

"For companies like us that would be investing significantly more in New York state, we'd be hiring a lot more and investing a lot more and kind of sales and marketing in New York if the regulatory environment was more clear," Witte said. "We had to shift our manufacturing, the state of New York because of the fact that we remain in a state of limbo."

The legislation signed by Cuomo on December 9 "establishes a state permitting process for growers, processors and sellers of hemp extract" and "requires laboratory testing of hemp products, including CBD, and product labeling," according to the governor's website.

"We were pleased to learn that New York Governor Andrew Cuomo at last signed legislation to provide a much-needed regulatory framework for the growth and sale of hemp here in New York State," Witte told Business Insider the day after Cuomo's action. "While a big step in the right direction, we at Recess look forward to continuing to work closely with the Governor, oversight agencies and the industry to ensure that hemp products are produced, packaged and sold safely for all consumers."

Despite New York's slowness to provide a regulatory framework for CBD, Witte is glad he launched Recess in New York.

"I think New York is the best place in the world to build a consumer brand. And for beverages in particular, it's also the best, but hardest market," Witte explained. In a condensed borough like Manhattan, with bodegas around every corner, accounts are plentiful and brand awareness spreads fast. Furthermore, "For the community we're looking to cultivate, creatives, this is obviously ground zero for that," Witte said.

Though conventional wisdom would say to launch a CBD company in southern California, Witte knew Recess belonged in New York.

"You want to establish your brand outside of the California marijuana echo chamber," Witte said.

Recess is currently being sold in stores in the New York metro area and southern California, including Los Angeles, Orange Country, and Santa Barbara County. Witte said Recess will be launching in Chicago, Nashville, Miami, Austin, and New England at the beginning of 2020.

Recess will be adding a QR code to its cans in the new year, which consumers will be able to scan to learn about the testing Recess performs for each batch of its beverage. For example, consumers will be able to validate the CBD levels in beverage to verify that there is no THC (the psychoactive component of cannabis) present.

Recess is leaning into its strength of content creation, which will appear beyond Instagram in the new year.

"We're making a big push into content and editorial. We have a new website coming, which is going to have a whole dedicated editorial platform focused on creatives," Witte said.

He believes that the editorial site will be effective in "extending what we're doing on Instagram onto our own website, and really having it become its own kind of content destination in its own right."

Recess will be focusing on collaborations and partnerships, especially with merchandise. Recess dropped a limited edition can, covered in fluffy white clouds, in collaboration with the label Opening Ceremony on December 6.

The company will also be adding three new flavors to its roster in February.