Why Are Beverage Companies Interested In Cannabis?

It was a marriage waiting to happen. 

Attracted to the prospect of a new market, prominent multinational beverage companies are making forays into the cannabis industry. After tobacco, they are the second industry to evince a keen interest in cannabis. 

Coca Cola Inc. (COKE) is eyeing a possible entry into the cannabis industry by infusing cannabidiol (or CBD as it is popularly known) from cannabis into “functional wellness beverages around the world”. Preliminary research has indicated that CBD has significant medical benefits in the treatment of neurological disorders. It is also non-psychoactive, meaning that it does not have an adverse effect on a person’s awareness of their surroundings. 

Constellation Brands (STZ), which makes the best-selling Corona and Modelo beers, also made a cannabis play last year by acquiring a 10% stake in Canada’s largest cannabis producer Canopy Growth Corp. (CGC). According to reports, the beer company plans to develop beverages infused with cannabis. 

Two other beer companies have also joined the cannabis party. Dutch beer company Heineken launched Hi-Fi Hops, which is available at select medical marijuana dispensaries in California, through its American brand Lagunitas. Instead of alcohol, the drink, which tastes like beer, contains tetrahydrocannabinol (THC), a psychoactive agent from cannabis. 

Then there’s Denver-based Molson Coors Brewing Company (TAP) which has partnered with Canada’s Hydropothecary brand. Both companies plan to “pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization.” 

Why Are Beverage Giants Getting Into The Cannabis Industry? 

There are a couple of factors driving the decision by beverage makers to enter the cannabis industry. 

First, there is the market size. According to the latest estimates from the Brightfield Group, the cannabis industry is expected to be worth $22 billion by 2022. Garnering even a fraction of that market could boost the bottom line of beverage makers. 

That figure looks even more attractive at a time of dwindling sales in states that have legalized marijuana. A recent longitudinal study found that alcohol sales declined by 15% for the period between 2006 to 2015 in marijuana-legalized states. Well-known brands, such as Heineken and Molson Coors, were among companies witnessing declines in purchases. 

Second, new drinks, which incorporate marijuana, could invigorate moribund product lines that might seem stale to millennial customers craving novelty. According to this Bloomberg piece, beer makers and beverage companies are worried about the “substitution effect” in which their customers exchange their usual drinks for a THC drink that provides them with a similar high but minus the calories. Innovation is key to stave off this effect. In an interview with CNBC this July, Canopy CEO Bruce Linton provided additional detail about their cannabis drink, which is expected to hit Canadian markets next year. “We expect we’ll be able to make beverages and those beverages will be no calorie, they will cause you to feel upbeat,” he explained. The proposed drink could contain up to 80 different mixtures of cannabinoids, he said.

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