Cannabis Drinks – A Good Investment Opportunity?
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Back in the Dark Ages of Marijuana, when a good score was a $25 quarter-ounce bag of Mexican dirt weed that wasn’t too seedy, we would sometimes convert a soda can into a makeshift pipe. It was a brilliant piece of engineering: Crunch the can in half, poke a half dozen or so holes in the middle for burning the bud, and a larger one in the back as the carb. Suck through the mouth of the can. Little did we know that a few decades later we could skip the part where we’re likely inhaling carcinogens and just pop open a cannabis drink for a quick buzz.
The days of smoking bud—or flower, in the parlance of our times—appear numbered. About the only people who will still own a bong in 10 years are Tommy Chong and all the stoners who still watch Cheech and Chong movies (not counting the Corsican Brothers, of course). Based on data from Arcview Market Research (both a cannabis data firm and investment firm), Forbes reported that in 2016, California alone gobbled up more than $180 million worth of marijuana-infused food and drinks last year, 10 percent of the state’s cannabis sales. And that stat is from well before the state began recreational sales this year.
Edibles like cannabis drinks command higher prices than flower. Forbes said edibles can account for up to 60 percent of the profits at a marijuana dispensary. Drinking weed is actually better than eating it in terms of being a faster-acting edible, as well. That’s because some of the liquid is absorbed sublingually under the tongue where the THC is more readily absorbed, as in a tincture. The liquid itself works more quickly through the digestive tract than a more traditional brownie or cookie.
Investing in Cannabis Drinks
The market potential is attracting some big-time players, particularly from the original legalized industry of sin—the alcohol industry. Let’s start with the $191 million investment last year by Constellation Brands (NYSE:STZ), which owns the watery beer brand Corona (among other adult-beverage companies), in Canopy Growth Corp. (NYSE:CGC), probably one of the biggest marijuana companies in the world, with a market cap of $6 billion. Constellation Brands reported that it has already reaped rewards from its bet: It received $258 million in “pre-tax unrealized gain from the change in fair value of the Canopy Growth investment and warrants.” (Constellation just announced an additional $4 billion investment in CGC this week, propelling the cannabis supplier to a whole new high.) Craft beer brand Lagunitas (owned by watery beer conglomerate Heineken) has launched a THC-based cannabis drink called Hi-Fi Hops, which it says is a mashup of a non-alcoholic IPA and sparkling water.
Meanwhile, Molson Coors Brewing (NYSE:TAP) just announced this month it would partner with Canadian cannabis producer HEXO (formerly The Hydropothecary Corporation) on a joint venture to develop non-alcoholic, cannabis drinks for the Canadian market. The joint venture will be structured as a standalone startup company with the beverage giant owning a 57.5 percent controlling interest with HEXO (TSX:HEXO) getting the rest. The announcement follows HEXO’s graduation in June to the Toronto Stock Exchange from the TSX Venture Exchange. It’s certainly a big turnaround from a few years ago when a penny stock company called Canadian Cannabis Corporation tried to buy HEXO for a reported $21.3 million before the deal fell through.
Naturally, the announcement threw a new spotlight on HEXO, which sports a modest market cap of about $580 million (that’s U.S. greenbacks). The company produces dried bud, oils, and even dried powders but no actual drinks at present. Like just about every Canadian cannabis producer in the country, HEXO is ramping up for full legalization to take effect. The company just harvested the first plants from a new 250,000-square-foot greenhouse, bringing total production capacity to 310,000 square feet. And there’s still a one-million-square-foot facility to go live by the end of the year. The Motley Fool reported that the company nearly cut its production costs this year by nearly half compared to 2017, which should help it to compete with established players like Canopy Growth Corporation. Still, those with money to burn who are jonesing to invest in a marijuana stock might be better served to look at CGC or even Tilray (NASDAQ:TLRY), which is traded on the NASDAQ and has an international presence, or even one of the many marijuana ETFs coming online.
Cannabis Drink Startups
The variety of cannabis drinks being brought to market reflects a rapidly maturing market for thirsty stoners. Startups are producing everything from soda and beer to juice and coffee. There’s even a cannabis-infused wine. Below we take a look at a few startups culled from data firm CB Insights, Crunchbase and other sources that we could locate (limited to firms with at least $100,000 in investments.)
Cannabis Elixirs
Founded way back in 2009, Denver-based Dixie Elixirs has raised $12 million, including a $4 million round in April. The company’s original flagship brand of Elixirs has expanded into a much larger line of edibles including chocolate, gummies and even mints. The startup recently announced an exclusive licensing agreement with Toronto-based Auxly Cannabis Group, which trades on a minor league version of the Toronto Stock Exchange called TSE Venture. It’s sort of like Canada’s version of an over-the-counter exchange but apparently with a better reputation because it’s backed by the same company over the TSE.
The company is giving Auxly license to Dixie’s intellectual property, product branding and formulation methodologies related to over 100 cannabis-infused products. That will give the Denver startup access to international markets in Canada and Mexico.
Cannabis Beer
Founded in 2016, Toronto-based Province Brands has also picked up nearly $12 million for brewing a cannabis beer. The company picked up an $8 million Series A in May. There’s not much detail available on the startup’s website, but a profile in The Guardian says Province is brewing up a different kind of cannabis beer. Most brands will produce a standard beer and infuse it with marijuana oil. Province is actually brewing its cannabis beer using stalks, stem, and roots from the marijuana plant. The result is a non-alcoholic beer that gets you high with a single dose beverage sporting an average 6.5mg THC.
Province has plans to build a nearly $40 million brewery, the first-ever dedicated to cannabis beer. Cheers to that.
Cannabis Soda
Founded in 2017, California Dreamin’ naturally comes out of San Francisco, having raised $2.4 million in a Seed round, most of it earlier this year. Y Combinator, one of the premier early-stage accelerators, was an early fan. Other investors include Paul Buchheit, creator of Gmail. The startup’s specialty is soda, with four flavors that deliver 10mg THC per bottle. The company claims its “special formulation” delivers the desired effects within 20 minutes, “enough to make you smile more, but not enough to raise grandma’s suspicions.” Interestingly, co-founder and CEO Amy Ludlum credits her time to working at a bitcoin startup in Kenya for knowing how to launch and grow a company, according to Forbes. No judgments here, of course. Bottles retail for $8 each.
Founded in 2014, California’s Sprig is producing the cannabis industry’s version of LaCroix with THC or CBD. According to their CEO, Sprig has raised $2.8 million so far. Four packs of its CBD line cost $16 and pack 20 mg CBD. Fizzy stoner water with 10 mg THC only comes in single-serve cans.
Cannabis Drink for Instant High
Mirth Provisions out of Washington state has raised a reported $1.8 million through Arcview and its investor membership program. The startup focuses on cannabis-based sparkling tonics, botanical beverages and sublingual sprays that feature the company’s Gravatine technology that enhances bioavailability, or how quickly your body absorbs THC or CBD. It reportedly works four times faster than any other non-smoked marijuana product and is up to three times more potent than conventional tinctures. The company just announced it will incorporate a sequel to Gravitine, Gravitine II, for its sparkling tonic line, with promises that the beverage will hit users with a “bliss-filled” buzz in 15 minutes or less. Your biggest problem is now peaking too early before the Phish concert even starts.
Cannabis Wine
Founded in 2012, Sonoma County’s Rebel Coast Winery has raised a reported $175,000. While the winery produces the usual California whites and reds, it has gained notoriety for what it calls the first cannabis-infused wine with the alcohol removed. The Sauvignon Blanc instead packs about 16 mg THC per bottle, but carries a steep price of $59.99. That’s not a lot of doobage at that price point. We’re more beer guys, anyway.
Conclusion
It’s hard to say if consumers will swallow the high prices that come with many one-serve cannabis drinks, but companies appear to be appealing to a certain lifestyle, whether it’s craft beer snobs or kombucha-swilling millennials. The market is increasingly trending toward edibles, and the entrance of big brands like Molson Coors and Constellation signify mainstream acceptance of cannabis. Can an exit via acquisition of one or more of these startups be far behind? We wouldn’t even be surprised if Coca-Cola, which has shown a willingness to keep up with the times through artificial intelligence and big data, might spill over into an experiment with cannabis-infused beverages. Have a Coke and a smile and chill the hell out.
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Don’t forget Tinley Beverages in California. They have a delicious alcohol free lime Margarita on the shelves in dispensaries in California getting rave reviews . Soon to be released Coconut Rum, Amaretto, Cinnamon Whiskey , all are alcohol free infused with Pineapple Jack strain . Giving new meaning to happy hour . Cheers
Thank you for that Greg. A few things here worth noting.
Tinley Beverages appears to be a publicly traded stock, so we may do a follow up article on them. Note that we strongly advise that investors avoid over the counter stocks or small stocks that reverse mergers on foreign exchanges. We’re not sure if Tinley falls under either of these categories but we’ll take a look. Even if it doesn’t, we strongly advise that novice investors avoid investing in the marijuana theme altogether.
Many of our MBAs frequent dispensaries while doing “research” for our articles on the marijuana theme and we’ve noticed a huge number of players in the cannabis drinks space. It will be viciously competitive and that’s why we think the large beverage companies will likely dominate this space.