Infused beers and wines are offering consumers a new alternative to alcoholic beverages.

Cannabis legalization is taking hold at a time when some consumers are beginning to seek out beverage options with fewer calories and less — or even no — alcohol. As a result, recreational cannabis companies have an opportunity to encroach on this massive space. Alcohol might be losing its appeal among some consumers, but even those that leave it behind may not want to lose the social habits associated with alcohol, or even that relaxing Friday night buzz. To capture this group, cannabis companies are attempting to replicate the social experience of alcoholic beverages in the emerging category of cannabis-infused beer, wine and cocktails.

According to a February 2019 report by Zion Market Research, the global market for cannabis beverages is projected to grow at a compound annual growth rate of 15.6 percent to reach US$4.46 billion by 2025. The cannabis beverage market is already beginning to gain steam in US legal cannabis states, with the US cannabis drinks market expected to hit US$1.4 billion by 2024. In Canada, cannabis edibles, including beverages, are expected to be legalized for adult use on October 17, 2019 with sales expected to begin in December. According to Deloitte, the Canadian beverages market is projected to generate C$529 million in revenue in the first year of legal sales.

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Hill Street Beverage Company Inc. (TSXV:BEER) is creating a vertically-integrated cannabis-infused beverage company, using its established portfolio of award-winning alcohol-free beverages as a foundation for its cannabis-infused beverages line.Send me an Investor Kit

Infused beer and wine

The alcohol market has begun to stagnate in recent years. Beer consumption in the US has been declining for the past five years, with volumes falling by 1.5 percent in 2018 and 1.1 percent in 2017, according to the International Wines and Spirits Record (IWSR). Growth for wine and spirits has continued, but the pace has slowed. The beverage market could be in need of a shakeup, and several major beverage producers, including Constellation Brands (NYSE:STZ), AB InBev (NYSE:BUD), Molson Coors (NYSE:TAP) and Heineken (OTCQX:HEINY), are already looking at cannabis to inject new life into the space and their product offerings. Meanwhile, smaller companies have an opportunity to jump into a brand new market segment as the cannabis beverage space establishes itself.

Cannabis companies and beverage companies alike are betting on cannabis as an alternative to alcohol that fits neatly into pre-existing social rituals. In markets where legal cannabis is available, younger adults are already beginning to leave alcohol behind in favor of cannabis. Cannabis beverages are the best way to replicate the experience of cracking open a cold one upon returning from work or sitting down and having a few drinks with friends.

One of the reasons that the alcohol market has been stagnating could be that the increasingly health-conscious consumer is now more aware of the damaging effects of excessive alcohol use on the body. In one IWSR survey, more than half of all respondents claimed that they were trying to reduce their overall alcohol consumption. The other major appeal of cannabis beers and wines over their traditional counterparts is more short-term. THC lacks the dehydrating effects of alcohol, meaning that cannabis drinkers won’t have to worry about the dreaded Sunday morning hangover.

Outside of beers and wines, a number of cannabis companies are rolling out soft drink-style cannabis beverages. Cannabis-infused iced teas, lemonades, sodas, etc. will likely have their place in the market as well. However, just as the existence of sweet wine coolers and hard lemonades has not impeded the traditional beer market, cannabis beer and wines could appeal to cannabis drinkers who prefer more “adult” and sophisticated flavors of cannabis beer and wine over sweeter options.

The cannabis beer and wine markets are brand new and ripe with opportunities for innovation. Cannabis companies and beverage makers are still developing and discovering the methods to add cannabinoids to these beverages to achieve the best effect and taste. There’s the possibility to develop whole new beer and wine varieties developed specifically to work with the unique flavor profile of cannabis.

“We believe the shortest journey for the consumer to take to enter the new world of cannabis-infused beverages is to give them products that match the flavor profile and intoxication level of the most common intoxicants on the planet, which are beer and wine,” said Terry Donnelly, chairman and CEO of Hill Street Beverage Company (TSXV:BEER).

Companies entering the cannabis beverage space

Hill Street Beverage Company is one of the pioneers in the Canadian cannabis beer and wine markets. Hill Street is one of the few companies to approach Health Canada about producing alcohol-free cannabis-infused wines in the country, giving the company a potential advantage over the many others that will be producing cocktails and beer in this market segment.

The company has developed a portfolio of cannabis-infused beers and wines using proprietary technology from Lexaria Bioscience (CSE:LXX,OTCQB:LXRP) that allows Hill Street to infuse products without affecting the taste, smell and quality of the beverage. The technology also gives the psychoactive effect of the infused cannabis onset and duration times that mirror those of traditional alcoholic beers and wines. Hill Street recently announced the acquisition of OneLeaf Cannabis, a premium craft cannabis producer capable of producing exceptionally high-quality dried flower and oils.

“We’ve primarily focused on the taste of our products to ensure that they appeal to consumers. Our alcohol-free products have already sold millions of units in grocery and drug chains, so we know we have winning tastes already. The technology platform that we’ve licensed from Lexaria allows us to create products that have no impact on the taste of the award-winning beverages we already produce. And no matter what we’re producing, we won’t have to fight with the taste of cannabis to ensure it will be a delicious-tasting beverage,” Donnelly told INN. “The experience we’re able to create with OneLeaf’s cannabis and Lexaria’s full-spectrum infusion capabilities will ensure that all the terpene content and major and minor cannabinoids are there.”

Like Hill Street, Province Brands is taking a novel approach to cannabis beer with a unique method for brewing beer directly from cannabis stocks, stems and roots, rather than taking traditionally brewed beer and infusing it with THC. The result is a non-alcoholic and yet intoxicating brew with a flavor that is drier and less sweet than most traditional beers.

In 2018, Molson Coors (NYSE:TAP) acquired a controlling stake in a joint venture with licensed producer HEXO (TSX:HEXO) with plans to create non-alcoholic cannabis-infused beverages for the Canadian market. Similarly, AB InBev has invested US$50 million in a joint venture with licensed producer Tilray (NASDAQ:TLRY). Constellation Brands (NYSE:STZ) acquired a 38 percent stake for C$5 billion in Canadian licensed producer Canopy Growth (TSX:WEED,NYSE:CGC) in 2018.

Takeaway

Canada is about to legalize further cannabis products, including cannabis-infused beverages. Additional US states are expected to legalize recreational cannabis in the next few years as well, creating ample opportunity for growth and innovation in the still-nascent cannabis drinks space. As more consumers look to reduce their alcohol consumption, cannabis-infused beer and wine options will allow beer enthusiasts and wine connoisseurs to enjoy their beverage of choice while dispensing with many of the issues associated with alcohol consumption. The promise of fewer calories, no hangover and no toxicity is expected to appeal to a broad range of consumers.


This INNSpired article is sponsored by Hill Street Beverage Company (TSXV:BEER). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Hill Street Beverage Company in order to help investors learn more about the company. Hill Street Beverage Company is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Hill Street Beverage Company and seek advice from a qualified investment advisor.

Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

 

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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s current potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business potential, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed to work on the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be at the moment.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance.

In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadians waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent an increase to their already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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Ayurcann has commenced trading on the Canadian Securities Exchange (” CSE “) on April 8, 2021 and subsequently announced a private placement of up to $500,000 (” Financing “), as per the Company’s press release dated April 12, 2021. The proceeds of the Financing are intended to be used to further pursue Phase 2 of the expansion of the production capacity of the Company’s Pickering facility.

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