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Canopy Growth launches new CBD drinks in Canada, U.S. challenges loom

Canopy Growth (WEED.TO)(CGC) has launched CBD-based drinks aimed at pushing beverage-based pot beyond occasions where it’s socially appropriate to get high. While the Canadian pot giant continues to expand its infused drinks lineup at home, challenges lay ahead as the company looks toward the American market.

Speaking in the opening hours of U.S. election day, Canopy’s global head of beverages joked about launching drinks many will use to reduce stress, as untold numbers were glued to a tense political drama.

Andrew Rapsey is convinced Canadians will embrace fizzy CBD drinks, some of which could be sipped during work hours without catching a typical cannabis buzz. Putting Canopy’s pot drinks in American hands, he admits, will be no small task.

The job will fall to Acreage Holdings (ACRG-BU.CN), the New York-based multi-state cannabis company that Canopy has agreed to purchase if pot sales become permissible under U.S. federal law. Last month, the companies announced a plan to launch Canopy beverages in Illinois and California next summer.

Shipping drinks from Canopy’s Smiths Falls, Ont. headquarters across the Canada-U.S. border isn’t an option. Due to the lack of legal interstate transportation options for cannabis, Acreage will be forced to build beverage facilities in each state where it wants to sell drinks, rather than use one large production hub to serve all markets. A change in the Oval Office could rewrite such rules. However, Cowen & Co. cannabis analyst Vivien Azer recently dampened expectations for swift cannabis reforms by a Joe Biden-led administration.

Rapsey joined Canopy in January, the same month chief executive officer David Klein announced problems with producing cannabis drinks on a commercial scale, resulting in months of delays. Rapsey said Acreage will be able to draw upon the expertise of Canopy, and by extension booze giant Constellation Brands (STZ), but ultimately it will be responsible for getting operations up and running and ensuring Canopy’s drinks are correctly replicated.

“They will licence the formulas and the brands from us. It will be an Acreage-run operation,” Rapsey told Yahoo Finance Canada in an interview. “They’ve got to basically do something that they’ve never done before. And they’ve got to do it at scale, which creates a lot of challenges.”

Acreage has not produced a cannabis beverage before. With a population roughly in line with Canada’s in the California market, the company could potentially look to replicate Canopy’s sprawling 150,000 square foot beverage facility to supply the state.

Howard Schacter, Acreage’s vice president of communications, said he could not share details about what preparations are under way ahead of the anticipated launches in Illinois and California in the summer of 2021.

Rising competition

Canopy’s drinks have benefited from an early start in Canada. Since launching its first beverage in March, the company claims to have sold over two million cans, commanding a more than 70 per cent market share in the relatively small cannabis drinks category.

Competition from Canopy’s Canadian rivals is heating up, threatening to add to the wide array of infused beverages already sold in U.S. markets. On Wednesday, Aphria (APHA.TO)(APHA) announced it will acquire Georgia-based SweetWater Brewing Company in a US$300-million deal which could pave the way for a U.S. drinks-based expansion. Truss Beverages, a joint venture between HEXO (HEXO.TO)(HEXO) and Molson Coors (TPX-B.TO), is pursing hemp-derived CBD beverages in Colorado.

Rapsey says he welcomes the competition, believing it will lure more consumers to the drinks category. He said sales so far have mimicked the seasonality of beer, strongest in the summer, tapering as the weather cools. He expects the introduction of CBD-focused products will smooth out such peaks and dips.

“The category will be more representative of something like a seltzer, which is less seasonal than beer,” Rapsey said, noting the importance of luring new consumers who may not be comfortable rolling an old school joint to the success of the nascent category.

“It’s really about unlocking new customers,” he added. “If the category stays the way it is, it’s just a bunch of companies competing for a very small market.”

Canopy’s new CBD beverage line

The Quatreau lineup features two CBD-only beverages (20 mg), and two with equal parts THC (2 mg) and CBD (2 mg).
The Quatreau lineup features two CBD-only beverages (20 mg), and two with equal parts THC (2 mg) and CBD (2 mg).

The addition of four new beverages under the Quatreau banner on Thursday brings Canopy to nine varieties on the market. The launch marks the company’s first products focused solely on CBD or cannabidiol, a non-intoxicating cannabis compound widely marketed to lower anxiety, ease pain and help with a host of other ailments.

The Quatreau lineup features two CBD-only beverages (20 mg), and two with equal parts THC (2 mg) and CBD (2 mg). Canopy said the two CBD-only drinks have the highest level of the popular non-intoxicating cannabinoid at the lowest price on the market ($4.49 per can MSRP). In keeping with the brand’s wellness pitch, the Quatreau drinks are sugar-free and low calorie.

“We think this will do incredibly well in the Canadian market,” Rapsey said. “Someone might drink a Quatreau to replace that after work glass of wine, but they also might drink a Quatreau during the work day when they’re looking to pause and relax.”

Canopy said consumers will be able to buy a maximum six cans in a single purchase, in accordance with Health Canada limits that the company openly opposes.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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