Beverage Giants Continue to Spark Major Interest in Partnering on New Cannabis-Infused Drinks

April 10, 2019 - Baystreet.ca


Significant buzz was generated once again when reports of how another major beverage giant was rumoured to be kicking tires on a potential cannabis partnership. This time it was one of the most recognizable brands in the world, none other than The Coca-Cola Company (NYSE: KO).

The potential for breakthroughs in the cannabis-infused space is quite large, with a variety of cannabis players potentially getting involved including, Aurora Cannabis (OTC: ACBFF) (TSX: ACB), Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF), HEXO Corp. (OTC: HYYDF) (TSX: HEXO), and CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP).

Initial reports on Coke’s potential partner named cannabis giant Aurora Cannabis but are so far unsubstantiated. In fact, Aurora management outright denied any official announcement the very next day—But not before seeing its shares rise by more than 30% within the next 48 hours on the speculation.

Aurora’s competitor Canopy Growth already received its boost from hype surrounding new drinks. First when it inked a deal with Corona distributors, Constellation Brands, Inc. (NYSE: STZ), and again when Constellation pledged $4 billion into developing these new products.

Next, it was HEXO that signed a deal with Molson Coors Brewing Company (NYSE: TAP) (TSX: TAP), signalling the second major beer manufacturer to get into the space. However, it’s still up in the air over what these products will look like.

When CROP Infrastructure announced its 240-acre Nevada hemp operation, it put itself into a good position for potential partnerships in the future, specifically because of its capability to produce cannabidiol (CBD), which is the non-intoxicating cannabinoid cousin of tetrahydrocannabinol (THC).

To sweeten the pot even more, CROP recently announced it’s already spearheading the development of its own beverage called Canna Drink—a zero calorie, non-GMO, ketogenic-friendly line of soda pop, and will include tea and coffee versions.

WHICH CANNABINOID WILL LEAD THE WAY?

When the public first heard about beer companies and cannabis companies partnering up, many pictured THC-infused beers, that could make consumers feel a high and a buzz at the same time. But that’s not necessarily the case since CBD doesn’t intoxicate the user like THC does, the mainstream possibilities for a company like Coca-Cola paired with CBD are much, much wider.

Television personality Jim Cramer expressed to The Street that, “Coca Cola would be remiss if they didn't talk more about CBD than THC.”

According to a March 2018 report by Grand View Research, Inc., the global carbonated soft drinks market is projected to reach USD 605.6 Billion by 2025—It has also been forecast to grow at a CAGR of 5.62% through to 2021.

POTENTIAL CANNABIS BEVERAGE INNOVATORS

The Coca-Cola Company (NYSE: KO)

Now the secret is out that Coca-Cola is looking to enter the cannabis beverages space. But the question is, which partner will be suitable for the bottling giant? Early reports from Fox Business and Bloomberg pointed at Aurora Cannabis as its likely partner, but the cannabis giant denied any official deal being signed to-date. The red and white soft drink company isn’t stopping at just cannabinoid-infused drinks, as it recently dropped $5 billion on a coffee company, and also recently bought Australian kombucha tea maker Mojo.

Aurora Cannabis Inc. (OTC: ACBFF) (TSX: ACB)

Prior to Molson Coors signing a deal with HEXO Corp., Aurora Cannabis’s name was linked to Molson as a potential suitor for the beer giant. Now, the Alberta-based cannabis producer is being linked to one of the largest beverage manufacturers in the world, in Coca-Cola. Aurora already has a deal in place with Alcanna, Canada’s largest private liquor retail company. However, that deal doesn’t necessarily include beverage expectations at the moment.

Canopy Growth Inc. (TSX: WEED) (NYSE: CGC)

Expectations on Canopy Growth couldn’t be any higher in the wake of news that its partner Constellation Brands will be injecting an additional $4 billion into development of new cannabinoid-infused products. The alliance has a head start on competitors Molson and HEXO, and possibly Coca-Cola and Aurora. Obviously among those products will be a series of beverages, including those with THC and with CBD, but Canopy has also announced it is researching the potential of CBD products for pets.

HEXO Corp. (OTC: HYYDF) (TSX: HEXO)

When the dust settled on the courtship period for beer giant Molson Coors’s entry into the cannabis space, it was HEXO Corp. (then named “The Hydropothecary Corporation”) that ended up winning out. Both Molson and HEXO entered into a definitive agreement to form a joint venture to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization in October. The terms of the deal left Molson as a majority stakeholder (57.5%) of the new joint venture company, with HEXO retaining the rest. The partnership allows Molson to have a separate entity for cannabis drinks, while bringing an immensely valuable beverage distribution network to HEXO for its new product line.

CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP)

CROP Infrastructure recently made a major move into the hemp-derived CBD market, as well as a symbiotic move into developing CBD-infused soft drinks. On the company’s Nevada Hemp farm, CROP added 750 acres of production land for the 2019 season, bringing the total space to 1,065 acres, with 240 acres under pivot. Key to the announcement was the detailing of four housing units and a building on site that are to be converted into an extraction facility to process hemp biomass for CBD isolate on site. Now CROP has also announced its new beverage line, named Canna Drink, which joins its portfolio of over 55 assets and distribution rights in the US and Italy.

MAJOR PROFIT POTENTIAL FROM CBD ALONE

Prior to announcing the launch of its new cannabinoid-infused beverage line, Canna Drink, CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP), established a supply line in Nevada for the hemp-derived CBD it will need in order to manufacture these new drinks. Both the beverages and the CBD isolates themselves present major profit potential for the up-and-coming company.

When announcing Canna Drink, CROP Infrastructure Director and CEO, Michael Yorke said, "The cannabis-infused beverages market has attracted the attention of world class beverage companies as legalization spreads. We see it as a tremendous opportunity for CROP Infrastructure's branding & IP portfolio and as an opportunity for each of our cultivation tenants Globally.”

CROP’s entry into the beverage sector is a natural progression, given its already 55 intellectual property assets, and distribution rights into US and Italy of several of its products. Canna Drink fulfills a company goal of producing what are called “functional beverages”.

"Functional beverages are a new class of products that offer beyond basic nutritional ingredients including vitamins, minerals, herbs, amino acids and probiotics. We believe that cannabis's medically known benefits will enhance our own formulations, so we are bang on target with our CANNA DRINK line," added Yorke.

While Canna Drink comes with much attention, the company also can boast the CBD-driven potential of its Nevada facility where 240 acres of CBD Hemp were planted. It’s estimated that the 240 acre pivots will yield 240,000 pounds of hemp flower, which with two harvests per year, brings the potential yield to 480,000 pounds of hemp flower—or 217,724kg.

The genetic analysis on CROP’s hemp’s CBD content was established as greater than 15%. Many of today’s popular US hemp strains can reach levels of 15-20% CBD.

Depending on CBD content and quality, current hemp prices are between $20-$50 per pound of dried flower. But the big money is in high-purity CBD isolate. A 15% flower can be upgraded into a +99.0% CBD isolate at a 100/15, or 6.67 to 1 ratio— +~10% for any recovery loss or 7.337.

Therefore, CROP’s 217,724kg from the 240 acres already in rotation, could feasibly be concentrated down to 29,674kg of CBD isolate— Keeping in mind also that CROP just boosted their footprint to over 1000 acres. But the biggest key for CROP will be developing a state-of-the-art extraction facility which it states is the next phase of development.

The current price for CBD isolate is somewhere between US$5,000 and US$6,500 per kilogram. CROP’s cost of production is not expected to exceed $700,000, and the first harvest is expected in early Q4 this year. By upgrading of value of the 15% CBD hemp, to +99.0% CBD isolate CROP has the potential to upgrade its 217,724 kg growing potential to a whopping $193 million annual earning potential.

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