The Investing Opportunity in Cannabis-Infused Drinks
As we wrap up another “Dry January” where an effort is made (by some) to abstain from consuming alcohol, we thought we would revisit the topic of alcohol-free drinks. Unlike a previous article we wrote on low content and alcohol free beverages, we are going to shift focus away from alcohol and put it on an emerging trend – cannabis-infused drinks.
Cannabis is becoming an increasingly legally available substance. As long as commerce in cannabis and cannabis-related products remains within the borders of states that have legalized it, the federal government has indicated they will not seek to preempt state law. For reference, 18 states (as well as Washington D.C. and Guam), currently have fully legalized use, 4 states have laws criminalizing use and the rest have laws permitting use of products ranging from Cannabidiol (CBD) medicinal use as well as decriminalizing possession.
With the exception of Idaho, Nebraska and South Dakota, Cannabidiol, which is derived from Cannabis’ non-psychoactive cousin hemp, is legal for sale as drops or infused in a variety of beverages. While not officially approved or recommended by the FDA, CBD proponents report an overall calming effect as evidenced by various studies examining CBD as helpful in dealing with issues in anxiety and depression and anxiety induced sleep disorders. There is at least one study linking the use of CBDs to a reduction in seizures brought on by epilepsy. There’s also promising research about the effect of CBD on other anxiety disorders like panic disorder, post-traumatic stress disorder, and obsessive-compulsive disorder.
Aside from any potential medical applications, there is enough consumer enthusiasm for CBD-infused beverages that the CBD beverages market was valued at $86 million in 2018, and is expected to grow to $1.4 billion by 2023 for a CAGR of 75%. While many companies in this space are still private, companies like Alkaline Water Company (WTER), Canopy Growth Corporation (CGC) and New Age Beverages Corp (NBEV) are active in the space and offer opportunities for investors to participate.
Anheuser-Busch Inbev (BUD) fueled a lot of optimism in the space when it inked a development deal through Canadian Brewer Labatt with cannabis grower and distributor Tilray (TLRY) back in 2018. They created Fluent Beverages, which launched the Everie brand of CBD-infused tea and soon followed up with a line of CBD-infused flavored sparkling water drinks in Canada. While BUD has exited the collaboration on THC-infused products, they still maintain an interest in the CBD marketplace.
As consumer acceptance of CBD grows and more concrete findings on its health and wellness benefits are discovered, adding CBD to consumable products may make it easier for consumers to incorporate it into their lifestyles to reap those benefits.
Tetrahydrocannabinol (THC) is the psychoactive element found in cannabis and is the element that has had growers and processors diving into the science of cannabis for decades. Readers of a certain age might remember friends who would simply crush and bake buds into brownies or other baked goods. Those days are long gone, as food scientists have developed ways to extract THC directly from cannabis resulting in an oil similar to CBD oil, but much more potent. This technology has enabled the emergence of the global edibles market, estimated at $2.88 billion in 2020 and expected to grow to $12.65 billion by 2025 with a CAGR of 20.3%.
THC-infused products represented a market of $422 million in 2020 which is expected to grow to $1.2 billion in the combined North American and European market by 2026. Much of this growth projection is spurred by expectations that global beverage manufacturers will continue distributing CBD-infused beverages and develop and begin to market THC-infused drinks. An example of this can be found in Canada where Molson Coors Beverage Co (TAP), in a joint venture with cannabis goods company Hexo Corp (HEXO), launched a line of CBD-infused drinks and CBD extracts under the Truss Beverages Brand in the U.S. They also have a line of THC-infused drinks in Canada that offers drinks with THC:CBD combinations of various strengths. While CBD extracts can be added to any beverage (tea, coffee, etc) both infused beverage lines use sparkling water as a base to deliver these cannabinoid concentrations.
Global brewer Heineken (HEINY, HEIA-NL), through wholly-owned brewer Lagunitas, currently offers what it is billing as beer but is actually infused sparkling water that also incorporates hops flavoring to create a drink that tastes like beer but doesn’t feel like it. Similar to Truss, they offer THC:CBD combinations as well as a potent 10mg THC only version.
As mentioned earlier, cannabis is still an illegal substance at the Federal level, despite many states’ regulators legalizing it within state borders. If and when Federal laws change, cannabis markets will be able to transact business across state lines, which includes not just expanding distribution nationally, but also accessing banking services and readily accessing capital markets. While it is yet to be seen what broader societal impacts will be regarding large scale adoption of cannabis-infused beverages, there is a large body of evidence to suggest that a reduction in alcohol consumption wouldn’t be the worst thing for many consumers’ health and overall wellbeing. Companies like the ones mentioned here, as well as others like Aurora Cannabis (ACB), are well positioned to benefit from this emerging shift in consumption.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.