Spending on Cannabis Drinks Gains Investor Attention

- July 11th, 2019

Marijuana makers are eager for the arrival of infused beverages, but how significant is this play for stakeholders and investors?

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

Investors have heard from multiple marijuana firms on 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 a perfect format technology and novel products for the market.

However, there’s been doubt of how appealing these products will be as demonstrated by existing adult-markets showing these beverages gaining little cache with consumers.

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The debate lies in the refinement of the beverage itself. Some legal producers that now have partnerships with alcohol markers claim the drinks being developed for the legal market will change the status of cannabis infused beverages in the edibles totem pole.

The marijuana industry’s two market divisions of the beverage space are recreational drinks meant to serve as alcoholic beverage replacements and drinks to better oneself, which will appeal to the health and wellness market.

There is also the possibility for these drinks to act as an aggregate of the current recreational cannabis spending seen in the Canadian market.

“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 indicated. The study was completed from consumer surveys.

Click here to read the first part of our feature on the cannabis beverage market and why makers of these drinks have to adjust to regulations from Health Canada.

Market gains legitimacy thanks to deals with beverage makers

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

Constellation is known as the alcohol producer of Corona beer and SVEDKA vodka, among other alcoholic drinks.

As part of the 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 solely on these beverages.

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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 this market.

Similarly to HEXO, Tilray (NASDAQ:TLRY) formed a joint venture partnership with Anheuser-Busch InBev (NYSE:BUD) to produce these 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 signaled this entry from established beverage makers as a way to keep up with a growth sector that offers a direct ownership for a direct competitor of 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 is 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 Hill Street Beverage (TSXV:BEER), told INN.

What does research say about beverage consumption?

Early projections for the marijuana edibles market are bullish on its impact in the Canadian economy and as a rising threat to alcohol.

Research and business practice firm Deloitte published its study in June. Cannabis infused beverages will account for C$529 million per year according to the report, which would make it the second highest category behind pure edibles, representing 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 indicated.

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

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Read our new report today

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 vs 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 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 told INN.

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 sales of infused beverages as the rest of the market.

Battley expressed concern about the level of interest from consumers, despite what the projections have made it out to be.

“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, according to 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 were 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 roll-out of these products and which ones catch the attention of consumers.

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.

Editorial Disclosure: 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.

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