Cannabis products have been legal in Canada for a year now. In 2018, Canada legalized marijuana for recreational purposes. This year, Canada included edibles, beverages, topicals, and concentrates in the second phase of legalization. Deloitte estimates the cannabis beverage market could be worth 529 million Canadian dollars annually in Canada. Let see why Canadians are anticipating the introduction of cannabis beverages so eagerly.
Do Canadians prefer cannabis beverages?
It appears that consumers in Canada are more inclined to try weed in an edible or beverage form rather than smoking it. Deloitte’s paper “Nurturing New Growth” shows the results of a consumer survey that indicates which weed products are in high demand.
The new forms of weed products are expected to hit the stores by December. According to Deloitte’s survey, 59% of consumers would like to try edibles, and 53% would like to give topicals and ointments a try. Furthermore, 37% of consumers would be interested in consuming cannabis-infused beverages.
According to Arcview Group’s research, the Cannabis 2.0 market could be worth more than $4.1 billion in Canada and the US by 2022.
How could alcohol and marijuana companies take advantage?
To cash in on this opportunity, many beverage makers (both alcoholic and non-alcoholic) are partnering with marijuana companies. On October 17, the Canadian Press reported that Hexo (HEXO) and partner Molson Coors planned to launch a variety of marijuana-infused beverages by the end of this year. I discussed the beverage products that Hexo’s joint venture company Truss Beverage Company plans to launch in Why Did HEXO Rise 17% on Thursday?
According to a June 18 Financial Post article, Jay McMillan, Hexo’s vice president of strategic development, noted, “We’ll have a very large supply so we’ll be in a good position to be able to meet the demand of the marketplace and at the same time also ensure that we’re meeting the variety that the marketplace wants.”
Cannabis player Tilray also plans to launch CBD-based drinks this month. However, the company’s management stated that the company would require additional research to launch THC-infused products. THC is the psychoactive part of the cannabis plant.
What are Canopy Growth’s plans for the beverage market?
An October Forbes article stated that the alcohol industry could be dented once cannabis beverages hit the market. Notably, this trend is the main reason that beer-maker Constellation Brands showed interest in one of the significant cannabis players, Canopy Growth (CGC) (WEED).
Constellation invested a significant amount in Canopy and is now the largest shareholder of the company. Both Constellation and Canopy plan to launch a wide range of cannabis-infused beverages this month.
Canopy’s research also suggested that non-cannabis users would like to give pot-infused drinks a try. This would help increase the consumer base for the beverages market beyond its current level for Cannabis 1.0 products. Canopy announced that it received a new license from Health Canada on November 22 for its Ontario beverage facility. The company started the production of cannabis-infused beverages on November 25.
To learn more about these products, please read Canopy Growth Is Set to Launch New Products. Additionally, Canopy is keen on capturing the health beverage market through its new acquisition, BioSteel Nutrition Company.
Why cannabis-infused beverages are so popular
Cannabis-infused beverages are popular due to the health benefits cannabis offers that are not available with alcohol. Research has shown that cannabis products help relieve stress and anxiety and can also act as a pain killer. Deloitte’s survey also revealed that 39% of consumers would choose cannabis-based beverages over smoking or vaping weed.
Currently, Cannabis 1.0 sales are in the doldrums, as black market sales still outpace legal marijuana sales in Canada. Even after a year of legalization, these sales figures seem to be declining. Cannabis companies having a difficult time maintaining their profitability. Analysts and investors have expressed concern about whether cannabis stocks can recover from their losses this year.
This year hasn’t been good for the cannabis sector. Year-to-date, CGC stock has lost 30.8% while Aurora stock has lost 49.6%. Cronos Group (CRON), Aphria (APHA), and Hexo have declined 34.0%, 16.7%, and 58.9%, respectively, year-to-date. The Horizons Marijuana Life Sciences ETF (HMMJ) also has lost 36% year-to-date.
What do we expect?
The projections for the edibles and beverages market looks good. So, it seems that in 2020, marijuana companies would be able to make up for the losses they’ve suffered this year.
However, Health Canada’s new regulations require a 60-day application process. As a result, sales for Cannabis 2.0 products would most likely begin by the end of this year. To learn more about the regulations related to Cannabis 2.0 products, please check Cannabis 2.0 Legalization: Canada Is Ready. Notably, many analysts feel that cannabis companies can increase their revenue and profitability next year if edibles and beverages sales kick off as expected.
According to an April 23 Vice article, Dooma Wendschuh, the founder of weed beer producer Province Brands, noted, “If more people believe that beverages are going to be the biggest sector in cannabis more people will invest in it and if the companies get more money than they can do better and then maybe it will be the biggest sector.”
Some industry observers worry that marijuana beverages could dominate the market and affect the sales of Cannabis 1.0 products. Canada is already struggling with black market cannabis sales. However, the Deloitte survey shows that beverage demand could balance and not replace spending on existing products. The survey results showed that 44% of existing consumers and 53% of future consumers agreed to buy beverages along with the existing marijuana products.
Please visit 420 Investor Daily if you’d like to know more about the cannabis industry.