In three short months, Canada will become the first industrialized nation to legalize the use of recreational cannabis. While the world watches, the global cannabis industry continues to evolve in preparation for the moment. Unfortunately, the legal cannabis market is too new to be predictable. There is no way to anticipate what kinds of product consumers will choose once the new law goes into effect. Some companies, however, are banking on an alternative cannabis market.
Smoking, with all of its health risks, is no longer mainstream. More and more consumers are buying cannabis oils and infused edibles, and the cannabis industry is investing in safer ways to ingest marijuana. In the United States last year, where marijuana is still illegal, edibles and beverages made up fifteen percent of Colorado’s cannabis market. That kind of movement was bound to catch the attention of other brands looking to break off a piece of the cannabis industry.
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This includes big tobacco and alcohol companies, the two industries faced with significant competition where cannabis is legal. Last winter, George State University published a study finding that alcohol sales dropped fifteen percent in states permitting medical marijuana. Sales drop twenty percent when recreational marijuana is involved.
Rather than tap out, many companies are brewing their own cannabis beers. These cannabis-infused brews are not marketed to your typical stoner, either. Brands want to attract the non-smoker, the consumer who would not typically dabble with marijuana, paving the way for a whole new niche in the market. Many companies want to see their beverages as a healthy alternative to alcohol. Because these infused drinks cannot really be called “beer.” They are non-alcoholic, after all.
Even without the alcoholic content, many major alcohol companies were still leery of this risky market. But the floodgates opened last year when Constellation Brands struck a deal with Canopy Growth Corporation (TSX:WEED) (NYSE:CGC). The beverage company acquired almost ten percent of Canopy, and the two are now in talks to develop a signature line of cannabis cocktails that contain more THC than calories or alcohol.
Constellation is not the only big name in beer to cash in on cannabis. Molson Coors’(NYSE:TAP) recent agreement with The Hydropothecary Corporation (OTC:HYYDF) (TSE:HEXO) marks the steady change in the tide that is cannabis consumerism. For starters, HEXO beat out some of the biggest names in cannabis for this deal. Coors was in talks with both Aphria Inc. (TSX:APH) and Aurora Cannabis (TSX:ACB) (OTCQB:ACBFF), two cannabis companies with market caps more than triple that of HEXO, yet Coors passed them up.
The Motley Fool speculates that HEXO’s innovative approach to marijuana influenced Coors’ ultimate decision. After all, HEXO is the first Canadian grower to develop peppermint cannabis oils and marijuana powders. There may not be a peppermint beer in the works, but Molson Coors President Frederic Landtmeters is thinking ahead of the burgeoning market. The new venture will focus on non-alcoholic cannabis-infused beverages that meet consumers’ “evolving drinking preferences.”
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Coors’ choice to focus on product rather than cash and capacity is a noteworthy move. Teaming up with a company known in Canada for its innovation could give Coors a leg-up against competitors like Canopy. But innovative new products means that pot stocks need to be quick on their feet when it comes to commercial cannabis. Not only is the market unpredictable, but legal regulations create another hurdle companies must overcome.
In California at least, it is illegal to sell beverages that contain both alcohol and THC. Alcohol and marijuana cannot even be sold in the same store. Booze faces its fair share of legal issues in Canada, too. The trailblazing marijuana law does not include edibles or infusions, which means cannabis beer will not be available in October when cannabis goes legal. Canadians will have to wait until next year to purchase edibles and beverages without a prescription.
Even with a wait time in Canada, it seems like leaving out the liquor is the effect beverage companies are having on the cannabis industry. Constellation CEO Rob Sands explained his strategy to craft beer news company BrewBound, saying “We’re...making sure we understand what we can do and what we can’t do. We’re looking at it pretty carefully, and if we see that opportunity within the confines of what we can legally do, we will do it.”
With Molson Coors already promising a line of non-alcoholic beverages in Canada, and Heineken-owned brewery Lagunitas already selling THC-infused sparkling water to Californians, it is time for investors to take a good look at their favorite companies strategies. As the cannabis industry evolves, it appears that the most innovative company will take the cake. In this case, innovation means being ahead of the curve, both commercially and legally. If big beverage is teaching us anything, it is showing just how versatile one has to be to keep up with cannabis.