Spending on Cannabis Drinks Gains Investor Attention

LEGALIZATION 2.0 COVERAGE

One year after Canada completed the federal legalization of recreational marijuana, the nation will now open its market to novelty products infused with the drug. This includes edibles such as cookies and gummies, as well as cannabis beverages, which will be introduced to the market in an attempt by legal producers to tap into a replacement product for alcohol.

As such, on the eve of the launch of this second phase of the marijuana market in Canada, the Investing News Network brings investors a collection of stories and interviews on the impact this opening will have.

Marijuana-infused drinks are on the way for the Canadian market, and investors are going to find out how significant these products will be.

Investors have heard from multiple marijuana firms about just how valuable these drinks will be once consumers are able to buy them. Lofty expectations now accompany the product category as producers race to deliver on perfect technology and novel products for the market.

Preliminary numbers are positive on the impact cannabis-infused beverages could have in Canada.

“Cannabis consumers’ spending on cannabis-infused beverages will probably complement, not replace, their spending on other cannabis products,” Deloitte’s report on the impact of the cannabis edibles market states. The study was completed using consumer surveys.

The marijuana industry’s two beverage market divisions are recreational drinks meant to replace alcoholic beverages, and drinks to better oneself, which will appeal to the health and wellness market.

Some legal producers that have deals with alcohol markers claim the drinks being made for the legal market will change the status of cannabis-infused beverages in the edibles totem pole.

But despite early optimism, there have been doubts about how appealing these products will be, with some market watchers suggesting beverages are gaining little cache with cannabis consumers.

Click here to read the first part of the Investing News Network’s (INN) feature on the Canadian cannabis beverage market, which covers how makers of these drinks are adjusting to regulations from Health Canada. Read on to learn what traction the drinks have gained so far.

Market gains legitimacy thanks to deals with beverage makers

Canopy Growth (NYSE:CGC,TSX:WEED) upended investment realities in the emerging marijuana market in November 2017 when it announced an agreement with Constellation Brands (NYSE:STZ).

Constellation is the company behind Corona beer and SVEDKA vodka, among other alcoholic drinks.

As part of a two time investment injection, Constellation helped Canopy with the conversion needed for a bottling facility in the marijuana firm’s Smiths Falls, Ontario, operation.

Other deals ensued, such as Molson Coors Brewing (NYSE:TAP,TSX:TAP) joining forces with cannabis producer HEXO (NYSEAMERICAN:HEXO,TSX:HEXO) to form Truss, a joint venture focused on beverages.

According to a report from Bloomberg, Truss has created “a portfolio of several different types of beverages,” and expects these to command a leading position in the market.

Similar to HEXO, Tilray (NASDAQ:TLRY) formed a joint venture with Anheuser-Busch InBev (NYSE:BUD) to produce infused drinks as well. Both firms invested US$50 million in the new company.

With the general downturn of alcohol in the global markets, analysts have signaled this entry from established beverage makers as a way to keep up with a growth sector that offers ownership of direct competitors for alcoholic drinks.

Besides the vote of confidence and innovative business practices, these beverage makers are helping to perfect the delivery factor for these drinks, as well as when exactly the high is coming for consumers.

“Beverages are a far more natural way to consume cannabis, so I think that’s what’s fueling the excitement. I actually think that regulations aside, that’s going to fuel a more rapid adoption than we’ve otherwise seen,” David Pullara, chief marketing officer of Hill Street Beverage (TSXV:BEER), told INN.

What does research say about beverage consumption?

As mentioned, early projections for the marijuana edibles market are bullish in terms of impact on the Canadian economy and as a rising threat to alcohol.

Research and business practice firm Deloitte published the study discussed above in June. Cannabis-infused beverages will account for C$529 million per year, according to the report, making them the second highest category behind pure edibles, which represent C$1.6 billion.

“For nearly one in three likely cannabis consumers, edibles such as cannabis-infused beverages are seen as a safer alternative to other products,” the study states.

According to Deloitte’s study, beverages are the third most eagerly anticipated cannabis product by Canadian consumers. The report indicates that beverages will appeal to younger demographics.

When asked about the at-large enthusiasm for these drinks, John Kaye, CEO of BC-based retailer Burb, told INN he can’t justify some of the towering expectations on these products.

“For us as a retailer we’re definitely taking the approach that all of these products still need to be sold versus bought,” Kaye said.

The retail executive explained that the targeting of younger consumers for these infused beverages doesn’t take into consideration the appeal of pop culture regarding marijuana consumption. He added that a large swath of millennials are still driven by visuals of smoking cannabis.

“But I think for the older crowds it’ll probably be better received as an alternative to smoking,” he said.

During a conference call with analysts and investors, Cam Battley, chief corporate officer at Aurora Cannabis (NYSE:ACB,TSX:ACB), said the marijuana producer isn’t as interested in the sale of infused beverages as the rest of the market.

Battley expressed concern about the level of interest from consumers, despite projections.

“We’ve made a rational decision to focus priorities in areas that we know have strong demand based on a model we’ve seen in legal US states,” Battley said during the call, as per a report from BNN Bloomberg.

In the federal government’s Canadian Cannabis Survey of 2018, only 4 percent of consuming respondents said cannabis-infused beverages are their top choice of consumption.

Investor takeaway

Marijuana producers with partnerships will make every attempt to guarantee the presence of infused drinks, and investors will have to pay close attention to the rollout of these products and which ones catch the attention of consumers.

This article was originally published by the Investing News Network in July 2019.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Hill Street Beverage is a client of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.