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Summer Could Heat Up Buzz for Cannabis Drinks in Canada
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.
Cannabis Weekly Round-Up: Drake and Canopy Growth Call it Quits
A new report shows Drake is no longer working alongside Canopy Growth (NASDAQ:CGC,TSX:WEED) to build out a cannabis business.
Meanwhile, researchers in the US scored a victory this past week as federal authorities in the country lifted some rules regarding the use of cannabis for advanced research.
Keep reading to find out more cannabis highlights from the past five days.
Drake and Canopy Growth split up
According to a new filing first reported by BNN Bloomberg, two Canadian leaders are separating their business interests. Canopy Growth has cut ties with Drake’s More Life Growth Company.
A facility in Scarborough, Ontario, designed to help with the Drake partnership will now serve the Canadian firm as a research and development site, Canopy said.
The partnership was first revealed back in late 2019. On paper, the deal was initially sold as a business union in which Canopy would provide a facility and expertise, with Drake bringing a high profile for the new entity. Canopy has formed other celebrity endorsement and business partnerships in the past, most notably with Martha Stewart, who recently increased her duties.
“In many regards, at its essence, it’s almost a real estate play where More Life is going to do a lot of activity on cannabis destinations. I don’t know if that still fits anybody’s way of thinking, at least in the COVID world,” Canopy Growth CEO David Klein told BNN Bloomberg last year when speaking about the status of the business partnership with Drake.
It’s unclear what lies ahead for Drake’s cannabis business interests in Canada and abroad.
Aside from that, this past week Canopy Growth issued results for its fourth fiscal quarter and full 2021 year, reporting a net loss of C$700 million for the quarter. The losses continue to pile up for the Canadian producer, and these most recent results affected the firm’s share price again.
Obtuse research rules change in the US
Those conducting American research studies will no longer have to secure their cannabis from only one government facility that is allowed to grow the plant.
The US Drug Enforcement Administration is moving ahead with a chance to register new companies to grow and produce the plant for medical research. This change could help boost the number of cannabis studies and therefore the number of resulting discoveries on uses for the plant.
Dr. Steve Groff, founder and chairman of Groff North America, told NPR this decision will spark a “decade or more of explosive cannabis research and potential new therapies.” His company is one of the first new entities to receive an early stage approval to grow research cannabis.
Cannabis-based medicine has shown slow but meaningful progress as a key substance to combat chronic pain and other deficiencies. The most notable achievement for medical cannabis on a pharmaceutical level has been the US Food and Drug Administration’s approval of the Epidiolex product, a CBD-based drug developed by GW Pharmaceuticals (NASDAQ:GWPH).
Cannabis company news
- PharmaCielo (TSXV:PCLO,OTCQX:PCLOF) issued its financial report for Q1 period. “While we are still early in our growth curve, PharmaCielo is positioned to continue steadily building its revenue base, while leveraging higher volume more effectively through a more efficient cost structure,” Henning von Koss, CEO of PharmaCielo, told investors.
- Aurora Cannabis (NASDAQ:ACB,TSX:ACB) told shareholders it has completed a restructuring effort for its balance sheet. According to the company, after clearing its finances it now has a cash stance of C$430 million. “Delivering on this priority allows us the ability to operate the business and pursue growth opportunities unconstrained by our balance sheet,” said CEO Miguel Martin.
- Kiaro Holdings (TSXV:KO) completed the acquisition of Sculthorp SEO, an operator managing a retail space in Toronto and three separate ecommerce platforms, for a total prize of C$1.3 million split between C$850,000 worth of Kiaro common shares and C$500,000 in cash.
- 48North Cannabis (TSXV:NRTH) released its financial statement for the final period before it is acquired by HEXO (NASDAQ:HEXO,TSX:HEXO). “The combination with Hexo should deliver meaningful synergies that are beneficial to our shareholders, customers, partners, and stakeholders,” said Charles Vennat, CEO of 48North.
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.
Cannabis Weekly Round-Up: HEXO Buying Spree Continues
Canadian cannabis producer HEXO (NYSE:HEXO,TSX:HEXO) showed this week that it isn’t done making purchases, revealing another acquisition.
Also this week, a cannabis retailer broke ground by confirming its shares will be heading to a senior exchange in the US.
Keep reading to find out more cannabis highlights from the past five days.
HEXO moves ahead with purchasing plans
HEXO announced plans to buy Canadian private cannabis producer Redecan for $925 million, split into $400 million in cash and $525 million paid in HEXO shares. As part of the transaction, HEXO was required to complete a private offering with an “institutional purchaser and certain of its affiliates or related funds” for US$360 million. This was done to complete the cash portion of the acquisition agreement.
“With the addition of Redecan, we intend to leverage our combined expertise in product development, manufacturing and branding in Canada,” said Sebastien St-Louis, HEXO CEO and co-founder.
The company said this acquisition will give the new company the top position for market share in Canadian recreational cannabis.
“We will also be able to provide consumers across Canada with a diverse and innovative range of high-quality products, with an enhanced brand offering that will enable us to better compete against other LPs in Canada, while positioning the company for future expansion in the United States,” St-Louis said.
Hexo's M&A spree this year, so far, includes:
—$235 million for Zenabis Global
—$50 million for 48North Cannabis
—$925 million for Redecan
—US$6 million (+ retrofit) for Colorado production facility— Matt Lamers (@matt_lamers) May 28, 2021
Canadian retailer headed to the NASDAQ
Calgary-based retailer High Tide (TSXV:HITI,OTCQB:HITID) confirmed it has received approval from exchange regulators to begin listing its shares on the NASDAQ, meaning another Canadian cannabis company can now reach a US investor audience directly.
Raj Grover, president and CEO of High Tide, thanked shareholders through the process and said this event marks a new start for the company.
“This listing makes our shares more accessible to a larger audience of both retail and institutional investors and enhances our ability to pursue larger M&A (merger and acquisition) targets,” Grover said.
Shares of High Tide will begin trading on the NASDAQ on June 2, the firm told shareholders.
Cannabis company news
- Planet 13 Holdings (CSE:PLTH,OTCQB:PLNHF) released its financial statement for Q1. The company credited an increase in Nevada tourism for helping boost its finances. “After a year of fighting against the largest possible macro storm, it feels great to have the wind at our backs and to see all the improvements we put in place start to pay off,” Larry Scheffler, co-CEO of Planet 13, said.
- Tetra Bio-Pharma (TSX:TBP,OTCQB:TBPMF) announced the entry of its first patient into a REBORN1 clinical trial exploring a drug formulation of THC and CBD.
- Nova Cannabis (TSXV:NOVC) told investors its shares have been added to the Cannabis ETF (NYSE:THCX). Darren Karasiuk, CEO of Nova, said the inclusion shows a “strong validation of our business strategy and unique, focused position within the retail cannabis landscape.”
- Halo Collective (NEO:HALO,OTCQB:HCANF) confirmed its warrants started trading on the NEO Exchange this past Thursday (May 28). Just over 65 million warrants are issued and outstanding, according to the company.
- The Valens Company (TSX:VLNS,OTCQX:VLNCF) issued the results of its most recent annual and special meeting of shareholders, confirming its newest board of directors.
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.
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