Canada Markets close in 6 hrs 12 mins

Canadian cannabis company teases joint venture with ‘major beverage brand'

Sproutly claims to have licensed a technology to overcome two major scientific hurdles for cannabis beverages. (Pexels)

Cannabis beverage company Sproutly Canada Inc. (SPR.CN) is days away from announcing a joint venture with a “major beverage brand” to develop pot-infused drinks like iced teas, ciders, and sparkling waters, according to the company’s chief executive officer.

Keith Dolo told Yahoo Canada Finance the deal will be similar in structure to the Molson Coors Canada Inc. (TPX-B.TO) partnership with Gatineau, Que.-based licensed producer HEXO Corp. (HEXO.TO) The beer and cannabis companies are teaming up to develop drinks under a jointly-owned brand they’ve dubbed Truss.

Sproutly is a small Vancouver-based licensed producer with a Toronto subsidiary sanctioned by Health Canada to research and develop cannabis beverage products. The Canadian Securities Exchange-listed company, which has yet to report any revenues, claims to have licensed a technology that overcomes two major scientific hurdles for cannabis beverages — making the active ingredients water-soluble so the drink doesn’t separate like oily salad dressing, and controlling how fast the high comes and goes.

The company stated that it is “negotiating with a beverage company regarding a potential partnership to jointly develop and market cannabis-infused beverages” on March 28, after IIROC halted the company’s stock.

CSE-listed shares have climbed about 100 per cent between March 25 and Tuesday’s close at $0.84.

“We’re deep into negotiations,” Dolo said in an interview on Monday. “In the next 30 days, you are going to see Sproutly announce its partnership with a major beverage brand that really gives the shareholders … the excitement that we have a branded partner that knows this space inside and out.”

Deals between larger licensed producers and beverage titans have ignited unprecedented excitement among investors in the cannabis sector. The most noteworthy being Constellation Brands Inc.’s (STZ) $5 billion investment in Canopy Growth Corp. (WEED.TO) Beer giant Anheuser-Busch InBev (BUDalso has a $100 million joint venture with Tilray Inc. (TLRY) to research non-alcoholic drinks.

Beverage industry observers are touting cannabis as a potentially healthier replacement for declining beer sales. Last year, Canaccord Genuitey estimated that cannabis-infused beverages could become a US$600 million market in the U.S. by 2022.

A so-called “sessionable” beverage, one you can enjoy a bottle or two of over a few hours and get a steady, moderate high is widely-believed to be the key to mainstream acceptance. The problem is cannabis is not water-soluble like booze. It’s metabolized later in the digestion process, which leads people to misjudge how much they have consumed.

Last August, Sproutly closed a deal to acquire Infusion Biosciences Canada Inc., gaining exclusive regional rights to the biotech company’s Aqueous Phytorecovery Process (APP) technology for Canada, Australia, Israel, Jamaica and the European Union, but not the United States.  Arizona-based Alkaline Water Company Inc. (WTER.V) has a non-exclusive license to utilize the APP process, according to a news release from that company.

Infusion Biosciences claims to be able to pull out natural, water-soluble derivatives of molecules from within the cannabis plant. The APP technology is said to produce a natural water-soluble cannabis liquid called Infuz2O that takes effect within five minutes and starts to wear off after 90 minutes.

“The big piece that people aren’t remembering is the offset time, which is probably the more important piece. When you stop feeling the effects of the beverage,” Dolo said. “If a drink has oil in it, no matter what chemical you use to speed up the onset time, the offset time is dependent on the body, your metabolism, how much you ate that day, your size and so on. It could be different for you on a Monday than a Friday.”

Sproutly’s competition is also boasting about their own solutions to get around the problems of mixing oil and water, and producing a predictable high. Trait Biosciences Inc., for example, attaches a glucose molecule to the cannabinoids, which they say improves onset time and avoids the “salad-dressing effect.” The company has also filed a patent for a process to bind cannabis compounds to water-soluble proteins.

“We went out and found a naturally water soluble solution the exists already within the cannabis and hemp plant, and found a way to remove that,” Dolo said. “We are utilizing a very different technology. I know everybody says that.”

He said the substance removed by the APP process easily blends into any type of beverage.

Edibles are expected to be on the legal market by Oct. 17, 2019. Ottawa released draft regulations for edible cannabis and infused beverages last December. The rules for beverages limit each container to 10 mg of THC, ban cannabis drinks with vitamins, caffeine and alcohol, and mandates child-resistant packaging. Companies are also barred from appealing to kids, making health or dietary claims, and associating products with alcoholic beverages or brands.

Dolo said Sporutly has already developed 60 completed beverages. He’s confident that iced teas, ciders, sangrias and sparkling water will be crowd-pleasers early on, followed by “functional beverages” with added vitamins and minerals, if the rules open up.

However, lingering regulatory uncertainty has him questioning what consumers will actually have available in the days after drinks and exibalies are legalized, and how retailers will cope with the change. 

One problem he’s noticed right off the bat is most new brick-and-mortar cannabis stores are fairly small, lacking the space to display pallets of bottled products, and refrigeration to keep them chilled. He said that’s sure to frustrate major players used to shipping in high volume, like Constellation Brands and Anheuser-Busch InBev.   

“Most dispensaries, if anything, have one tiny college fridge with a glass front on it that holds maybe 30 beverages,” Dolo said. “It’s going to be painful for the consumer to actually try to purchase all these products.”

Download the Yahoo Finance app, available for Apple and Android.