Focus: Canada dry? Cannabis-infused drinks fizzle due to production, distribution challenges

Acreage Holdings

29/10/2020 10:00

By Shariq Khan
    Oct 29 (Reuters) - Investors pinning hopes on
cannabis-infused drinks to propel growth of the legal marijuana
industry may have to wait a bit longer, as companies struggle to
produce and distribute the highly-sought beverages in a
profitable way.
    Nearly eleven months after regulators allowed their sales,
very few brands have been able to reach shelves.
    Canada at the start of this year allowed sales of so-called
Cannabis 2.0 products, which include edibles, vapes and drinks.
The products have been a big hit with customers during
coronavirus-induced lockdowns, but producers have struggled to
maintain timelines for the launch of the THC beverages.
    Analysts and industry insiders had eagerly anticipated these
beverages, hoping they would attract large swathes of the public
to pot from booze, and bring back investor dollars after the
industry fell out of favor due to a lack of profitability.
    Common production challenges include short shelf-life,
maintaining a consistent taste, inconsistent potency, and the
length of time it takes to achieve the desired "high," said
Karan Wadhera, managing partner at cannabis venture capital firm
Casa Verde Capital.
    "There are also high production costs, expensive
distribution, and a lack of dispensary infrastructure to intake
and display the products," he added, referring to cannabis shops
without loading docks or refrigerators.
    The COVID-19 pandemic has made funds even more scarce for a
sector that has disappointed the market with missed financial
targets and many producers forced to withdraw dollars from
developmental products that promise future profits to focus on
maintaining the core business.
    "This is certainly true of Canadian LPs (licensed producers)
who have had massive layoffs and reductions of production," said
Medical Marijuana Inc  MJNA.PK  Chief Executive Stuart Titus.
    "The drop-off in investor capital has also had a negative
effect on product development, so the supply of effective
cannabis-based beverages remains relatively small," he added. 
    
    GETTING IT RIGHT
    Technical issues involving basic chemistry have also slowed
bringing some of these THC-infused beverages to market.
    Most cannabinoids are insoluble in water, explained Joshua
Swider, co-founder and CEO of Infinite Chemical Analysis Labs
(InfiniteCAL).
    To overcome that issue, companies use emulsions. But even if
they can make an emulsion that gets the high-inducing
cannabinoids to properly mix with the beverage, maintaining that
mix is itself a challenge.
    InfiniteCAL said its tests show some beverages can degrade
in as little as a few days, leaving the THC that induces the
desired high stuck to the can liner lowering the drink's
potency.
    "Everyone has really great ideas in this market, but people
are coming to find that actually executing the idea is much more
difficult," said Narmin Jarrous, vice president at Exclusive
Brands, a Michigan-based cannabis retailer.
    Despite facing its own challenges and delays putting
beverages on the shelves, Canopy Growth Corp  WEED.TO , the
largest pot producer by market value, has established a strong
foothold.
    The company had planned to launch its drinks in January,
when sales were first authorized in Canada, but scaling up
production and other issues delayed their introduction.
    With backing from Corona beer-maker Constellation Brands Inc
 STZ.N , Canopy's products did hit the market in March, well
before major rivals got there. It now controls more than 70% of
the cannabis-infused drinks market, a company spokeswoman said.
    The company has sold close to 2 million cans of its
THC-infused beverages in Canada since March. The top three
cannabis beverages in Canada are all Canopy products, the
spokeswoman added.
    CEO David Klein, a Constellation veteran who took on the top
role at Canopy in December, told investors in August the company
expected to double its drinks output for that month after having
already doubled it the previous month.
    The company announced plans this month to begin selling the
products in the United States next summer, initially launching
THC-beverages in the fast-growing California and Illinois
markets through a partnership with New York-based Acreage
Holdings Inc  ACRGau.CD .
    "Given the choice of a traditional alcoholic beverage and a
THC-infused beverage, I believe that THC beverages would rival
alcoholic beverages for their popularity with consumers," Titus
said.

 (Reporting by Shariq Khan in Bengaluru; Editing by Denny Thomas
and Bill Berkrot)
 ((Shariq.Khan@thomsonreuters.com; Within U.S.+1 646 223 8780,
outside U.S. +91 80 6182 2681; Twitter: @shariqrtrs;))