​Beverage companies need to work with cannabis technology companies, not just growers

J. Frank Sigerson  |


In October of this year, Canada will legalize marijuana edibles and beverages, opening up one of the world’s most exciting new markets. Marijuana-infused beverages are increasingly being seen as a promising alternative to smoking cannabis, and the market is expected to be worth more than $1.4 billion by 2024 in the United States alone. Big companies like Canopy Growth Corp.  (CGC), HEXO Corp.  (HEXO), and New Age Beverages Corporation  (NBEV) are all rushing to stake a claim, but can any of these partnerships go the distance?

Adult beverage companies need a way to shore up falling profits

Alcohol sales are struggling and have declined year-on-year for the past five years. The global rate of decline reached 1.3% in 2016 and the demand for non-alcoholic drinks has soared by 30% over the course of 2017. In fact, the non-alcohol beverage market is set to be worth $1.6 trillion globally by 2025.

Global acceptance of marijuana has rapidly increased over the last few years. This comes as health warnings associated with alcohol have become increasingly severe. Interestingly this shift in attitudes has opened up a unique opportunity for alcohol companies. While more health conscious consumers are moving away from alcohol, their attitudes toward marijuana have softened. Indeed cannabis is now regarded as the safer of the two substances.

With legalized cannabis edibles and beverages just around the corner, this is the time for adult beverage companies to move into the cannabis sector. The demand for marijuana beverages is expected to outpace the demand for other cannabis products two times over, and adult beverage companies are already taking note.

High-profile joint ventures already dominate the sector

A number of high-profile companies have already joined forces, and joint ventures are very much a feature of the cannabis beverage space. One of the most highly publicized agreements was the deal between Constellation Brands, Inc.  (STZ)and Canopy Growth Corp.

The deal was worth $3.4 billion and saw Constellation Brands take a 38% stake in the cannabis giant. The deal was made with anticipation of legalization in the United States but the companies already have their eyes on the emerging Canadian market with their “tweed and tonic” concept. The problem here is that they still haven’t produced an actual product.

Heineken N.V.  (HEINY)has already begun to release a cannabis-infused drink via their subsidiary Lagunitas Brewing Company. Through a deal with AbsoluteXtracts, Lagunitas has released “Hi-Fi Hops.” The IPA inspired THC-infused sparkling water marks the first entry of a major brewer into the US cannabis beverage sector.

While this is impressive, there is still an elephant in the room. All existing cannabis-infused beverages are water compatible but not water soluble. Comparatively, aggressive extraction techniques like CO2 rely upon technology that utilizes oil as an emulsifier.

This approach causes a number of problems. Chemically-produced emulsifiers have been linked to adverse health effects in mice and also affect how and when THC is absorbed by the body. When you use oil emulsifiers, the body treats the cannabis molecule like a fat molecule. This leads to wildly varying onset and offset times and can significantly affect the user experience.

Water-soluble cannabis provides the solution

The solution comes from a little-known Canadian cannabis technology company, Sproutly Canada, Inc.  (SRUTF). Sproutly’s Chief Science Officer, Dr. Arup Sen, has created the only truly natural water-soluble solution so far.

Instead of relying on emulsions, Sproutly takes advantage of Dr. Sen’s game-changing Aqueous Phytorecovery Process (APP). This process recovers all water-soluble phytochemicals before releasing the “free oils.” APP is capable of extracting parts of the cannabis plant that can dissolve in water and separating them from non-soluble oils. The result is Infuz2O.

Infuz2O is free from harmful chemicals and only utilizes reagents that are common in our everyday diet. On top of that, it is more predictably absorbed by the body than other solutions, and consumers will better know what effect the Infuz2O solution will have. The water-soluble solution has an approximate five-minute onset time and the experience lasts up to 90 minutes, providing a similar timeframe experience to that of smoking marijuana. The gentle extraction method also makes it much easier to create cannabis-infused beverages with a great taste profile.

Moosehead provides the beverage muscle

Sproutly’s APP method is a significant step up from anything else others can offer but the company would never be able to break into the marijuana beverage market alone. That’s where Moosehead Breweries comes in.

Moosehead is Canada’s oldest and largest independent brewery. The company has made a name for itself producing high-quality brands like Moosehead Lager and partner brands such as Angry Orchard Hard Cider. By working with Sproutly, the company now has the opportunity to bring their eye for quality to the marijuana adult beverage sector.

On April 30th, Sproutly and Moosehead announced a 50/50 Joint Venture with the aim of breaking into the non-alcoholic cannabis beverage market. Sproutly will provide Moosehead with exclusive access to their APP technology for five years, and Moosehead will provide infrastructure support to ensure the smooth running of operations, procurement, finance, sales, and distribution.

A Cannabis Technology Powered JV

While the numbers behind the Sproutly and Moosehead JV might not be as eye catching as the $3.4 billion Canopy-Constellation deal, it is unique in that it is the first cannabis-adult beverage partnership to have developed technology at its core.

Canopy Growth might be a heavy hitting grower but they don’t have an equivalent to Sproutly’s APP technology right now that will allow them to make a marijuana-infused beverage that stands out from the chemically known extraction methods used today. Time will tell, but is is likely they will continue to rely on developing oils as emulsifiers — which is truly not water soluble and makes the onset, offset times to feel the effects unreliable.

By partnering with Sproutly, Moosehead has gained access to a technology that will set their JV apart from anything else currently available. It is likely that as the date for legalization of edibles and beverages looms closer, we will see more companies attempt to emulate Moosehead and look to cannabis technology companies as their partners, not just cannabis growers.

DISCLOSURE: I have no financial interests or connection with any of the companies mentioned in this article.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
HEINY Heineken N.V. ADR (Sponsored) Level 1 54.91 1.11 2.06 35,386
CGC Canopy Growth Corporation 44.42 -0.14 -0.31 2,228,169 Trade
NBEV New Age Beverages Corporation 5.44 0.04 0.74 2,623,218 Trade
STZ Constellation Brands Inc. 198.68 -7.53 -3.65 2,526,918 Trade
SRUTF Sproutly Canada Inc 0.61 0.03 4.73 343,932

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     
BA

     
WMT

     
DIS

     
XOM

     

World Economic Forum at Davos 2019 - Dominic Briggs General Partner Blockwall Management

Matt Bird sits down with Dominic Briggs, General Partner Blockwall Management at the World Economic Forum at Davos 2019