Constellation Brands just invested $4 billion to raise its stake in Canopy Growth to 38%, armed with an idea to propel the cannabis beverage industry to new heights in Canada’s upcoming recreational market. Is this just hype or is there something to it?
Several months ago, I was pretty intrigued with the fact that huge liquor companies are interested in partnering up with the cannabis industry to create a new generation of marketable products. We’ll call these “drinkables”.
Drinkables were never a huge thing in the stoner culture to begin with, so the thought of them being referred to as vaporizing 2.0 was, in my mind, pretty much an equivalent to Steve Harvey misreading the winner’s card at the Miss Universe show. Basically, pure cringe.
That’s what I thought initially. But boy was I wrong.
To demystify how the hype around weed drinkables all started in the first place (and why your 65-year-old neighbor Bob is twirling his mustache at the thought of getting high with beer) we need to travel back to 2016, when a 10 year long study titled “Helping Settle the Marijuana and Alcohol Debate: Evidence from Scanner Data” found that US states that legalized cannabis saw a 15% decrease in alcohol sales.
In the same year, another study came out and confirmed that it’s actually the beer that’s under-performing in states where cannabis is legal. Now, if I were a huge beer company, I’d be worried.
According to PotNetwork, mass brewers have seen the biggest drop and sales of beers dropped from 4-6%. When you deal with huge volumes, 4% is something you should be concerned about.
Now, even though one study found that cannabis and alcohol markets have overlapping customers, I think the real origin of weed drinkables was conceived in fear. Fear of one industry losing sales to another. Fear of cannabis replacing beer.
On the other side of the spectrum, we have a burgeoning cannabis industry. Growing market, that’s a bit volatile, but nevertheless packed with potential. There’s very few people who grow up without at least trying pot once, which means that there’s a lot of potential customers, especially in states that legalized cannabis fully.
Even though it seems that the weed industry has everything figured out, it doesn’t. It lacks product diversity in order to grow.
What I mean by this is that just producing dried flowers doesn’t cut it anymore—people can get that from their neighbourhood dealer, craft growers, dispensaries. There’s plenty of weed to go around. In 5 years, there is probably going to be an oversupply of weed in Canada and in order to clear out your warehouse, you have to figure out how to craft a product from all that weed.
That is why the cannabis and the alcohol industry decided to take over the world and put a real bud in that Bud Light.
Constellation Brands was being proactive when they bought a 10% stake in Canopy Growth last year for $240 million. They needed a strategic way out of their own industry and decided to diversify with cannabis. Apparently, they like the idea so much that they’ve bumped that investment up to $4 billion total.
In February 2018, Heineken’s CFO Laurence Debroux went on Bloomberg and openly said that they “have absolutely no interest in investing in cannabis market”. I guess the sales have been that bad that 4 months later they decided to ditch their weed-proof vision and craft a THC-infused beverage for the California market.
Molson Coors followed by making a deal with The Hydropothecary Corporation and WeedMD also signed a beverage-oriented deal with Phivida—Canadian company that makes CBD/hemp products.
So, the investor hype is there, but what do the actual customers say?
One thing that poses an immediate issue is that edibles (and drinkables) are not included in the recently approved legislation, which means we’ll probably have to wait at least a year until we see cannabis infused beverages on the store shelves.
Another issue is that most brick and mortar stores in Canada will be supplied through crown corporations, which opens a lot of doors to monopoly.
Third, and something I’d like to open a discussion about, is do we really want this? Do we really need to smoke pot and then grab a THC sparkling water afterwards?
According to my research and the available studies, it turns out that the answer is a resounding “yes”.
The fact that people use cannabis to replace beer means that we actually do want more choice with edibles and drinkables. People are growing sicker of smoke and alcohol hangover is never enticing. As it turns out, we actually want to replace conventional ways of relaxing for a few gummy bears and a THC-infused Corona.
Don’t believe me?
Just take a look at this Reddit thread.
Riel Roussopoulos May 9, 2019 at 12:47 pm
Yea, I think more choice is better. The issue is really distribution. When Canada can get over itself and let distribution happen in a way that is similar to alcohol and tobacco for packaged goods (like beverages, pre-rolls & Edibles), then we'll really see product diversification the way we have with micro brews.