Summer Could Heat Up Buzz for Cannabis Drinks in Canada

Cannabis Investing News
cannabis beverage canada

Major cannabis players have made large investments in beverages, but so far the potential of these drinks hasn’t been realized. Why not?

Cannabis-infused beverages are not a new product concept, but this summer Canadian drink makers hope consumers will discover them for the first time.

Recreational cannabis beverages have beguiled Canadian producers through different avenues, and many continue to make investments. The promise of these drinks lies in the potential of a more welcoming option for new consumers who may be out of their depth with rolled-up dried flower.

But it hasn’t been an easy task to set up a vibrant beverages market that can prove its worth to the cannabis producers keen on cementing the status of drinkable options.

Industry insiders have pointed to brand appeal and marketing challenges in the Canadian market as key reasons beverages haven’t taken off in the country just yet.

Emily Paxhia, co-founder and managing director with well-known cannabis investment fund Poseidon Asset Management, said beverages will be a key part of the industry’s future, particularly when it comes to reaching a new consumer base that may not feel comfortable with smokable or edible products.

However, the US-focused investor was quick to point out that at the moment this category represents an “incredibly tiny” part of the overall cannabis product market.

“I do think we have a ways to go before that is a dominant form factor,” Paxhia told the Investing News Network (INN).

Numbers don’t yet back up cannabis beverage promise

At least for the time being, data shows consumers are still not entirely sold on cannabis beverages. A study conducted by the Dalhousie University Agri-Food Analytics Lab in Halifax found only 4 percent of cannabis consumers in Canada picked drinks as their top choice.

The study was done to determine consumer enthusiasm for edible and other infused products in Canada by evaluating over 1,000 cannabis consumers across the country.

According to the study, Canadian consumers overall seem less interested in the edible and infused category. “Twenty-five per cent of cannabis consumers say they typically prefer edibles, down from 36 per cent in 2019,” Dr. Sylvain Charlebois, senior director at the Dalhousie University Agri-Food Analytics Lab, told 660 News in June 2021.

Similarly, a report by cannabis analytics firm Headset found that in Canada, cannabis beverages have only commanded a market share of 1 to 1.5 percent since January 2020.

When it comes to the percentage of cannabis drinks inside any given purchase, beverages didn’t fare that much better. By the end of summer 2020, a rise had stabilized at 4.5 percent in terms of cannabis transactions containing a cannabis drink.

However, the data is encouraging in showing the incremental growth of new consumers who are willing, little by little, to give cannabis beverages a try.

As part of an annual market evaluation report, the Ontario Cannabis Store (OCS) revealed sales numbers for cannabis drinks in the province. Beverage sales amounted to C$12.8 million from April 2020 to the end of March 2021, accounting for 1.5 percent of the province’s sales.

Also of note is that the OCS indicated that sales of cannabis drinks were higher at retail stores than through its own online portal.

Looking at what companies came out on top for beverage sales, the OCS pointed to Tweed, the cannabis brand from Canopy Growth (NASDAQ:CGC,TSX:WEED), as the leading drinks brand in the province.

Tied in second and third place were Everie, a brand put forth by Fluent Beverages, a joint venture set up between Tilray (NASDAQ:TLRY,TSX:TLRY) and AB InBev (NYSE:BUD), and Houseplant, the Seth Green cannabis brand associated with Canopy Growth.

It’s clear though that the current numbers on beverages in the Canadian market still have some catching up to do with the lofty expectations and excitement from members of the industry.

In 2019, Deloitte estimated cannabis drinks would amount to C$529 million in sales per year for the Canadian market. This projection was part of a total worth of C$2.7 billion for the entire edibles and extracted product category.

As part of the report’s announcement, author Jennifer Lee, a partner at Deloitte and at the time the firm’s cannabis leader for Canada, said cannabis beverages would be so popular that they could threaten the market cap of alcoholic beverages.

The report was prepared in the lead-up to the legalization of the “Cannabis 2.0” product category, meaning edibles and infused items. The federal government elected to delay the legalization of these items until a year after official recreational cannabis legalization.

Pursuit of taste variety to drive future of cannabis drinks

The Valens Company (TSX:VLNS,OTCQX:VLNCF) has two cannabis drinks currently available, and according to an executive, the company is encouraged for what’s to come with this category.

Jeff Fallows, president of Valens, told INN the firm aims to open a beverage facility in Ontario this year.

The executive said he thinks consumers are looking for a better overall experience when it comes to cannabis drinks, particularly in terms of the variety of products.

“I think you’re starting to see some better products on the market now,” said Fallows. “And I also think you’re starting to see better variety, flavors, profiles, types of beverages.”

Fallows said he believes the current consumer base is looking for more potent drinks given their established relationship with cannabis.

“I think that has a lot to do with the profile of the consumer in the market right now — they still are largely the cannabis-friendly type of consumer that is either already or historically has had exposure to cannabis,” he said.

From his perspective, Valens’ technological progress in the beverage-making process will also help broaden the reach of cannabis drinks. As he explained it, better emulsion technology allows for the masking of flavor profiles related to cannabis.

Fallows argued that the taste experience for beverages needs to be refined and more closely aligned with the wide availability of flavors from the general beverage market.

For beverages, “the taste profile impacts the experience more,” he said.

How much are marketing rules affecting cannabis drinks?

Despite the promise of refined beverage products, they are still struggling to find a steady audience. One of the biggest obstacles may be the branding rules still surrounding cannabis in Canada.

Companies continue to lament the Canadian government’s strict decisions on marketing regulations and the way brands are allowed to promote cannabis products in the country.

Last year, a dispensary owner in Toronto penned a letter explaining that retailers feel restricted in how they talk about products to consumers.

“We’re highly regulated, there are a lot of limitations to what we can and cannot do in developing and promoting a brand,” said Leah Thiel, vice president of marketing at Indiva (TSXV:NDVA,OTCQX:NDVAF).

Fallows told INN cannabis beverage makers in Canada can’t guide consumers on how to best integrate these drinks into their lives in the same way the alcohol industry can.

“That’s the advantage that will come when we have more flexibility from a marketing or advertising perspective, because you can help the consumer sort through when and how a cannabis beverage makes sense,” the Valens executive said.

As it stands, Fallows sees the market operating as defined by user experiences based on drink taste and effectiveness. Some of that user experience will be primarily driven by recommendations from budtenders at stores, according to one cannabis beverage maker executive.

“The budtenders are critical,” Marcello Leone, chairman and CEO of BevCanna Enterprises (CSE:BEV,OTCQQ:BVNNF), told INN.

Leone also sees problems with Canadian cannabis promotion regulations, and expressed his frustrations about what he considers challenging conditions for his products.

One of the ways to combat that for the time being, according to Leone, is for companies to have supreme confidence in their consumer education efforts, retail partners and budtenders, who are a starting point for the uninitiated in the regulated cannabis market.

“As a brand, a business has to have a strong retail sales team that can articulate clearly your products and can get everybody very familiarized with your product,” Leone said.

Truss Beverages, the joint venture set up by HEXO (NYSE:HEXO,TSX:HEXO) and Molson Coors Canada, recently pointed to the summer as a critical moment in time for the progress of cannabis-infused drinks.

The company proudly announced it expects this time period to represent a key moment in which consumers “embrace cannabis beverages throughout the summer of 2021 and beyond.”

Lori Hatcher, the head of marketing at Truss Beverage, said the summer period represents a “huge buying opportunity” for all cannabis drinks.

“We’ve worked in close collaboration with our community of consumers and budtenders to bring together a selection of fresh, new beverages made with natural flavours that are perfect for those outdoor summer occasions,” Hatcher said.

When asked about what’s missing for cannabis beverages to take off in Canada, Leone went big with his request and told INN he wants to see a not-so-revolutionary concept — a retail lounge space in which consumers can safely consume and explore their choices with cannabis drinks. Sound familiar?

“We’re in the early days of the end of prohibition of cannabis and cannabis beverages,” he said. “We need the social adoption and social consumption of lounges, bars … (where) people can feel comfortable.”

Investor takeaway

Despite technological advances and modern branding efforts, it remains to be seen how keen consumers will be to incorporate CBD or THC beverages into their lifestyles in a more regular manner.

Beverage makers are encouraged by what’s ahead of them, but for now the demand for cannabis beverages doesn’t match the output of effort from those within the industry.

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

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

Editorial Disclosure: BevCanna Enterprises 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.

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