The Tinley Beverage Company

Overview 

The much-hyped cannabis beverage industry hasn’t exactly lived up to expectations. Even though it is finally showing significant signs of life, it still only represented about 2 percent of the industry last quarter. This brings it to about $100 million in California and probably about the same in Canada, the world’s two largest cannabis markets.

It turns out the problem is this: There’s never been anywhere to manufacture these drinks on a large scale, except for a couple of places in Canada backed by major liquor companies. Drinks in Canada have therefore enjoyed more market share than in the USA, as US consumers have had to endure the challenges of high-priced drinks of varying quality, made on rudimentary bottling lines.

The Tinley Beverage Company (CSE:TNY, OTC:TNYBF) struggled with this problem for years, searching California for reliable options to manufacture its premium, scientifically-advanced complex formulations, including Tinley’s #1 and #2 Emerald Cup award-winning drinks. Because major beverage alcohol companies have continued to steer clear of US cannabis manufacturing for legal reasons, the prospects for anyone building a major scaled cannabis bottling facility remained slim.

As a result, Tinley’s decided to take matters into its own hands: Tinley’s has built a world-class, scaled facility with the state’s most varied menu of product formulation, container type and packaging options for infused beverages. It intentionally built this facility far larger than it would need for its own Tinley’s brand cannabis beverages, recognizing the greater opportunity in manufacturing third-party products.

This has proven to be the right move for investors: Manufacturing consistently delivers far higher gross margins than the branded products themselves, without the high marketing costs and inventory risks. Of the $100 million of cannabis drinks being purchased in California, there’s a solid – if not majority – portion of this revenue being spent by these brands solely on manufacturing their products. Yet the margins are mostly going to the manufacturers, because co-packing is mostly a fixed cost business (i.e. the one-time cost to build the bottling lines). So who’s passing on that $100 million to investors – the brands or the manufacturers?

Until recently, there was just Tinley’s Long Beach facility and one other scaled licensed manufacturer in California focusing on third-party brands. With the other manufacturer having been acquired, and in the process of redirecting away from third-party brands to those of its new majority owner, Tinley’s is the only one, essentially with the market for third-party manufacturing beverages pretty much to itself. As a result, Tinley’s can continue to enjoy defensible gross margins until such time as another scaled manufacturer decides to enter the industry… typically a multi-year effort.

Tinley’s team is no stranger to co-packing beverages: Its founding investors and many executive members hail from Cott Corporation, until recently the world’s largest beverage co-manufacturer. If you’ve ever bought a supermarket soda brand, or many other beverage brands and product types, chances are it was manufactured by Cott.

Tinley’s vision is the same – if you purchase a cannabis beverage in California, there’s an increasingly large chance it was manufactured at Tinley’s facility. Will Tinley’s grow into the world’s largest cannabis beverage co-packer, just as Cott did for mainstream beverages? Well, this would take a bigger buildout because a separate bottling line would need to be built in each state until federal legalization occurs. However, California is the largest cannabis market in the USA, so Tinley’s can have become the USA’s largest cannabis beverage co-packing facility the meantime, and based on their clients’ feedback, it already is. Several of its clients have said they’ve never seen a facility anywhere nearly as large or high-quality as Tinley’s anywhere in the USA.

Tinley’s Long Beach facility can manufacture 12 million bottles, 10 million cans (imminently) and 7 million (and increasing) mini “shot” bottles per year, typically at $0.50-$1.20 per unit. Gross margins can well exceed 50 percent given the fixed cost nature of the business, making Tinley’s increasingly a cash cow. The bottle and can lines offer the seamless option of running the drinks through a tunnel pasteurizer – the only such equipment for cannabis in the USA – which enables more naturally formulated, preservative-free beverages, for additional fees. As of a few weeks ago, the company also offers a licensed distribution space, which significantly improves economics for Tinley’s and its clients, as mandatory state testing and the first-mile distribution processes can be completed on site.

All this is run by an all-star leadership team. In addition to past Cott leadership, the team includes Richard Gillis, who was previously the general manager of Coca-Cola’s US Southwest region. In this role, he oversaw 14 bottling lines, thousands of employees and US$2+ billion in revenue.

It's been a long road – several years of struggling to manufacture its own drinks without any co-packers in the state – and then several years to build its own facility. All while burning cash and trying the patience of investors. This long road has proven to be a blessing in disguise for the company and those looking to invest. If it takes several years to build, commission, and optimize a bottling facility, this means it could be years until new entrants pop up, and Tinley’s will be operating with limited competition throughout this entire time.

The company continues to sell its own Tinley’s-branded products, two of which won the #1 and #2 awards at California’s Emerald Cup, the largest cannabis competition in the world. The Tinley’s line-up was crafted by alcohol formulators using non-alcoholic botanicals, flavors and spices that are found in the country’s leading spirits. These crafted concoctions are married with natural terpenes blended to the classic Pineapple Jack Sativa profile, and a micro dose of THC, with science to accelerate onset and deliver a full-flower effect. The margins on these products are still good and getting even better as volume increases. Margins should grow even further as Tinley’s joins forces with its co-packing clients to obtain volume discounts on common ingredients and packaging materials, and efficiently consolidates brands for last-mile distribution to licensed dispensaries and home delivery services.

However, the magic really happens in the third-party manufacturing, and Tinley might just have this portion of the market mostly to itself in a $100 million (and growing) category in the world’s largest cannabis market for the foreseeable future.

If you buy a cannabis beverage in California today, there’s a fairly good chance it was manufactured at Tinley’s. By the summer, there should be a very good chance that it was made in Tinley’s facility.

As a result, if you believe that there will be growth in the cannabis beverage category – whether to the US$2.8 billion projected by market research – or to a more moderate level – Tinley’s represents the best vehicle for investing in this trend. Why? Because it offers investors perhaps the highest margin function in the cannabis beverage industry, and does so for a highly diversified portfolio of drinks. In fact it probably offers investors exposure to the largest portfolio of beverages of any cannabis beverage company on the planet, given it derives economics from its own drinks plus those of its countless co-packing clients. Plus it’s a pure-play – Tinley’s isn’t affected by margins or industry changes in cultivation, retail, extraction, vapes, edibles or topicals.

Additionally, the products are expected to launch in Canada in Q2 this year. Tinley’s Canadian manufacturing partners have received purchase commitments from the Ontario Cannabis Store, which is perhaps the world’s largest single cannabis wholesale buyer, with exclusive distribution in over 1,000 stores. With the company having thousands of shareholders in Canada, these new products will enjoy a built-in network of customers and ambassadors to drive demand from day one.

At barely a $20 million market cap, there is plenty of room to participate in upside as the cannabis category – and Tinley’s portion of it – continues to grow. The time is now as more and more co-packing clients sign up and the company is beginning to report growing revenue and margins. Plus, potentially there are some new directions for growth given the company, for the first-time, added references to mergers and acquisitions, business development and expansion to other states in its recent materials. The buildup to the launch in Canada – with production beginning imminently – should boost attention to the stock considerably among its heavily Canadian-resident shareholder base.

Company Highlights

• The Tinley Beverage Company is a pure-play cannabis beverage company that manufactures a significant portion of California’s cannabis beverage brands
• The company operates the largest, licensed cannabis beverage manufacturing facility in California; it has 3 bottling lines, each able to produce 7- 12 million units per year
• The Tinley Beverage Company also sells its Emerald Cup award-winning line of cannabis beverages in cannabis dispensaries and via home delivery services throughout California
• These products are targeted to launch in Canada in Q2 of this year
• The company also sells the non-infused versions of its cocktail-inspired beverages in mainstream retails for the “sober curious” consumers. This includes grocery and restaurant chains and e-commerce channels.
• The company’s management team incorporates executives with unparalleled experience and expertise in the cannabis, regulated CPG and beverage sectors.

Key Assets

Largest Cannabis Beverage Facility in California, the USA’s Largest Market

Tinley’s operates the largest licensed cannabis bottling line in California designed for scalable third-party brand contract manufacturing. Services include a wide range of formulation, packaging, labelling options, as well as solutions for licensed warehousing and first-mile distribution. Its three manufacturing lines range from 7-12 million units per year capacity each, with key enhancements underway to accommodate contracted and anticipated demand.

A significant portion of California’s leading cannabis beverage brands are produced in Tinley’s facility, with co-packing clients continually being added.

*Pabst Brewing Company does not have a financial stake in Pabst Labs and will not share in the proceeds from cannabis-infused ‘Not Your Father’s Root Beer’ sales.

Cannabis-Infused products shown are manufactured by:
Lakewood Libations, Inc. Long Beach, California. CDPH Lic.10004047

The Company has entered into a purchase agreement to acquire all of the equity interests in Lakewood Libations, Inc. including the manufacturing and distribution licenses; the closing of this acquisition transaction is subject to certain standard conditions precedent including applicable regulatory approvals.

Award-Winning Tinley’sTM Cannabis Beverages

Tinley’s Emerald Cup award-winning branded cannabis products are sold in Cannabis dispensaries and home delivery services throughout California. They are crafted with distilled botanicals and natural extracts found in premium spirits, with cannabis rather than alcohol. The company also expects to begin delivering this line-up to Canadian markets in Q2 2022.

Management Team

Richard Gillis - President

Richard Gillis was previously the president of Youngs Market Company, which valued at US$3 billion in annual sales and was the second-largest beverage alcohol distributor in Western USA. He was also the general manager and executive VP of Coca-Cola Enterprises in Southwest USA and has over 30 years in various senior positions in the beverage and CPG industries.

Ted Zittell - Chief Executive Officer

Ted served as President, Cott Corporation’s Retail Brands International, building profitable brand programs and contract packing relationships in traditional and new beverage and regulated categories around the world. Ted advises private equity and industry across consumer sectors on trends and opportunities, creating own-and licensed brand assets for retailers, manufacturers and IP owners.

Douglas Fulton - Director & Office of the CEO

Douglas Fulton is an LA-Based, international award-winning television executive & co-founder of LA Christine, a line of premium skincare products. He was also Executive VP, Europe, of SBS Broadcasting and NeuLion.

Ricky Talati - Head of Operations

Ricky Talati, with graduate degrees in chemical engineering and management, was the senior commercialization manager, senior technical program manager and senior manager of supply chain integration at Pepsico Beverages.