In December 2019, just over a year after the legalization of adult-use cannabis, Canada legalized the second wave of cannabis products.
While Canadians were initially denied the right to enjoy tasty cannabis treats, the national market now offers a plethora of edible cannabis products and infused beverages. The most refreshing of these infused products, cannabis-based beverages, offer a unique opportunity for product development. Cannabis companies and long-running beverage companies alike are seeing major opportunities in the cannabis beverage market. While development is in its early stages, many expect there could be a “cannadrink” for just about every type of cannabis consumer in the near future.
Cannabis beverages could cause major disruption for both the beverage industry and the cannabis market. Some of the biggest names in the beverage market have either shown interest or made concrete plans to get into cannabis in one form or another. Coca-Cola (NYSE:KO) is reportedly watching the CBD functional beverage market closely. Most of the major international brewers, like Constellation Brands (NYSE:STZ), AB InBev (NYSE:BUD) and Molson Coors (NYSE:TAP), have partnered with cannabis producers with plans for infused beers. Arizona Beverage Company has also partnered with a producer to develop infused versions of its iconic iced teas.
The global cannabis beverage market is projected to be worth US$5.04 billion by 2026, and it’s not just big names in the beverage industry that stand to gain. Cannabis companies of all types and sizes are finding their place in what could be the next big cannabis growth driver. Cannabis-focused investment company Redfund Capital (CSE:LOAN,OTCQB:PNNRF,FWB:O3X4), for example, has created a division specifically for cannabis beverage companies in anticipation of a rush of opportunity in this space.
People have been consuming beverages for a psychoactive or functional effect for thousands of years. For consumers seeking an alternative to smoking or vaping, enjoying cannabis as a beverage replicates the experience of cracking open a beer or canned spirit, something with which most adult consumers are already familiar. Additionally, the beverage space provides companies with ample opportunity for product differentiation with countless options for different flavors and styles.
Marijuana stocks targeting infused beverages
Some of the earliest interest in cannabis beverages has come from the beer industry. With the traditional beer market stagnating in recent years, major brewers could be looking at the emergence of cannabis beer as a much-needed shakeup in the industry. In addition to creating a novel product category, non-alcoholic cannabis beers could help win back the segment of young consumers who have been increasingly reducing or ceasing their alcohol consumption in the name of health consciousness.
The emergence of a new category in the beer market creates an opportunity for new players to enter the market. Hill Street Beverage Company (TSXV:BEER) has developed a line of non-alcoholic beers and wines that can be infused without impacting the taste, smell and quality of the beer. Hill Street says that the psychoactive effect of its beers mimics the onset time, duration and intensity of traditional alcoholic beers. Hill Street is also one of the first companies in Canada to develop non-alcoholic cannabis wines.
Not every consumer is a beer drinker, however, so the cannabis market is also expected to offer a wide range of soft drink-style cannabis beverages. The flavor possibilities for these soft drink-style drinks are as varied as the drink section of even the most well-stocked convenience store, which is expected to create plenty of opportunities for emerging cannabis beverage companies to find their own niche.
For example, BevCanna Enterprises (CSE:BEV) has developed two beverage lines for the adult-use infused soft drink space: the THC-dominant, fruit-flavored Anarchist Mountain and the milder CBD/THC balanced Gruv iced tea. Cannabis drinks are not expected to be limited to the adult-use recreational market. One of the biggest stories of the legal cannabis industry as a whole over the last few years has been the emergence of non-psychoactive CBD products. CBD’s popularity has exploded in recent years as a treatment for chronic pain, inflammation and anxiety without the characteristic high of THC. These properties make CBD ideal for the functional beverage market. Companies such as Sire Bioscience (CSE:SIRE,OTC:BLLXF,FWB:BR1B) are working to formulate CBD drinks in the form of sports drinks to relieve post-workout soreness and other nootropic benefits. In the supplements space, Nutritional High International (CSE:EAT,OTCQB:SPLIF) has developed HempOmega, a hemp-based nutritional supplement that can be added to beverages.
Extraction and infused beverages
Many of the companies producing cannabis beverages are focused on the formulation side of beverage development, leaving it up to specialized cannabis extraction companies to produce the active ingredients for their beverages. Beverage producers are partnering with extractors, often using proprietary methods to produce the optimal cannabis extract for their particular beverages.
Growth in the cannabis beverages market could mean big opportunities for diverse cannabis companies like GTEC Holdings (TSXV:GTEC,OTCQB:GGTTF,FWB:1BUP), which offers third-party analytical testing for the medical cannabis, environmental and food industries. Valens GroWorks (TSXV:VGW,OTCQX:VGWCF) and Nextleaf Solutions (CSE:OILS,OTCQB:OILFF,FWB:L0MA) have also developed proprietary extraction technologies to serve the cannabis beverage industry.
The way cannabis is infused into a beverage can have a major impact on the quality of the final product. Earlier renditions of cannabis beverages were known for an unpleasant “weedy” taste caused by lingering plant matter in the extracted cannabis. Today, cannabis technology companies are finding new ways to put cannabis drinks together so that the consumer only tastes the ingredients that are meant to be tasted. To make sure its cannabis beers taste like beer and not cannabis, Hill Street Beverage company has partnered with Lexaria Bioscience (CSE:LXX,OTCQX:LXRP) to provide extraction services. Lexaria’s proprietary DehydraTECH is capable of removing the taste and odor of a cannabis extract before infusing it into a beverage.
Cannabis beverages could become one of the hottest cannabis product categories after the second wave of cannabis legalization allows them into the Canadian market. The beverage space creates opportunities for innovative and distinctive products that are varied enough to appeal to the tastes of just about any cannabis consumer. After a year of cannabis legalization, infused beverages could provide the refreshment needed to drive the cannabis market forward.
This article was originally published by the Investing News Network in November 2019.
Disclaimer: Redfund Capital, Hill Street Beverage Company, BevCanna Enterprises, Sire Bioscience, Nutritional High International, TransCanna Holdings, Valens GroWorks, Nextleaf Solutions and Lexaria Bioscience are clients of the Investing News Network.
The companies selected for this article are clients of the Investing News Network and were selected as each of them are developing their businesses in the Canadian cannabis market in the lead up to the legalization of the recreational market on October 17, 2018.
This article was written according to INN editorial standards to educate investors.
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