Cannabis beer: The genie is out of the bottle
A $5B transaction between Constellation Brands and Canopy Growth Corporation (TSX: WEED) triggered a new rally in cannabis stock. Earlier in the month the Canadian arm of Molson Coors Brewing Co. and another ACMPR licensed producer Hydropothecary Corp. announced their plan to form a joint venture to work on developing non-alcoholic, cannabis-infused beverages. Last week, cannabis stocks rallied on rumors that other Canadian cannabis producers are in similar talks.
The Cannabis Act took the genie out of the bottle. It is bobbing gently in mid-air with his arms crossed and looking perplexed.
Investors should have three wishes for the genie in the beer bottle:
Wish number one: Edibles on Canadian shelves
Investors wish for edibles to be permitted in Canada in July 2019 as per the Canadian Government’s commitment.
Cannabis beer is classified as an edible cannabis product which include oils, baked goods, confectionary, infused foods, drinks, etc. These products are very popular in jurisdictions where cannabis is sold legally for recreational use. For example, edibles constituted 13% of sales in Washington State in 2016 and edibles sold in 2016 in the states of Oregon, Washington and Colorado were valued at $269.8M US. Consumers often see edible cannabis products as a healthier and easier way to consume cannabis
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Analysts estimate that marijuana-related products and services could eventually be worth between C$12 billion and C$22 billion in Canada compared to smoking or vaping. For this, the government will need to draft and implement regulations dealing with the sale and production of edibles. This will no doubt be a significant undertaking, as edibles are a contentious and complicated component of the regulation of cannabis. The speed at which this will take place will depend largely on how well the sales of dry cannabis and oil will satisfy the regulator that licensed producers and retailers meet the terms of the Cannabis Act.
Wish number 2: Quality products
Investors wish for companies to produce a variety of cannabis-infused drinks that will be appealing to a variety of demographics. Because most beer is made from barley, cannabis beer offer the opportunity to create gluten-free, zero-calorie products with sufficient clout to take the genie on a magic carpet ride.
Brewing beer is easy but making a drink that has consumer appeal is not trivial. Cannabis infused beer requires a massive amount of research and development to make products that taste good, have reasonable shelf life and offer a euphoric effect that is superior to alcoholic beer. Cannabis beer cannot compare in quality with near-beer/non-alcoholic beer.
Under the right scenario, it is possible that cannabis beer will capture a significant part of the cannabis market. Likewise, it is also entirely possible that quality cannabis beer will capture a significant market share from traditional beer.
Wish number 3: US recreational cannabis
Investors wish for the United States to legalize cannabis. In 2014, Canadians consumed 220 million liters of beer for annum while the United States consumed 24 billion liters of beer.
The investment by breweries into Canadian cannabis companies is a prelude for a once-in-a-lifetime opportunity. There is hope among investors that one day the US will legalize cannabis, which will permit Canadian companies with expertise, products and brands to quickly mobilize into the US’ 24 billion liters beer consumption per year. This would be an incredible magic carpet ride.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>