Aurora Cannabis Inc. (ACB.TO) is second guessing the infused beverage trend that whipped up unprecedented investor enthusiasm for the sector last year.
Speaking on a conference call following the company’s fiscal third quarter earnings released after the closing bell on Tuesday, chief executive officer Terry Booth questioned demand for pot-powered beverages.
“The proven market is certainly not in beverage,” he told analysts on Wednesday. “There are not going to be any cannabis bars like there are alcohol bars any time soon.”
Edmonton-based Aurora’s chief rival, Canopy Growth Corp. (WEED.TO), sparked a pot stock frenzy in the wake of the company’s blockbuster deal with Corona beer-maker Constellation Brands Inc. (STZ) last summer. Other cannabis producers are teaming up with beverage alcohol players, including HEXO Corp. (HEXO.TO) and Molson Coors Canada Inc. (TPX-B.TO), and more recently Moosehead Breweries and Sproutly Canada Inc. (SPR.CN).
Aurora and The Coca-Cola Co. (KO) were in “serious talks” to develop cannabis beverages, BNN Bloomberg reported in September. No collaboration has been announced. Coca-Cola said it has “no interest in marijuana or cannabis,” but is “closely watching the growth of non-psychoactive CBD as an ingredient.”
The true heft of the cannabis drinks market remains to be seen.
Data from BDS Analytics shows cannabis-infused beverages amount to less than 0.5 per cent of sales in the U.S. legal pot market. Canaccord Genuity Group Inc. released figures suggesting pot beverages could be worth US$600 million by 2022.
Last year, Molson Coors chief executive Mark R. Hunter suggested Canada’s cannabis market could be worth somewhere between $7 billion and $10 billion, with about 20 to 30 per cent of that coming from cannabis-infused, non-alcoholic beverages. He said that values the beverage segment at about $1.5 billion.
Booth predicts government restrictions on marketing will be a major challenge for companies looking to grow a customer base for a product that is unfamiliar to the vast majority of consumers.
He added the physical effect of a psychoactive drink could be a problem as well.
“The more you have, the less you want in a very short amount of time, once it starts taking effect,” Booth said.
“If we are leaning towards any beverage, it would be on the wellness side. We think there is a tremendous market potential there. On the intoxication side of the fence with respect to cannabis drinks, the market is just not there. It’s not proven to be a popular item anywhere.”
Chief corporate officer Cam Battley told analysts that while he doesn’t want to sound “too negative” on beverages, they should expect Aurora to prioritize vape, edibles like chocolates and mints, cosmetics, and soft gels.
“Products such as infused beverages are also under development. But considering the anticipated relatively low market share of these products, we are not rushing this,” he said.
Aurora reported a $158-million loss on net revenue of $65 million, compared with a loss of $238 million on revenue of $54 million in the prior quarter.
Analysts had expected a net loss of $52.6 million on net revenue of $77 million in the quarter ended March 31, according to Thomson Reuters Eikon.