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Moosehead Breweries strikes deal to develop cannabis beverages

TORONTO, ONTARIO, CANADA - 2015/05/28: Moosehead beer billboard advertisement with two women and two men holding Moosehead beer bottles   Outfront is a full-service Out-of-Home advertising company, OUTFRONT Media offers over 12,000 advertising display faces in superior locations in all of Canada's top 10 markets. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
TORONTO, ONTARIO, CANADA - 2015/05/28: Moosehead beer billboard advertisement with two women and two men holding Moosehead beer bottles. (Photo by Roberto Machado Noa/LightRocket via Getty Images)

Moosehead Breweries Limited has struck a joint venture deal to develop cannabis beverages.

The New Brunswick-based brewer will produce non-alcoholic cannabis-infused drinks with Sproutly Canada Inc. (SPR.CN).

Moosehead and Sproutly will each hold a 50 per cent interest in the new venture, and have the right to nominate three directors. Financial terms of the deal have not been disclosed.

The companies expect to form the new entity before the end of May, with the aim of having product ready for the market when edibles and beverages are expected to become legal in October.

“We looked around, and we had a lot of discussions with a lot of different companies,” Sproutly CEO Keith Dolo told Yahoo Canada Finance in an interview on Tuesday. “They’re the fourth-largest brewery in all of Canada, and the oldest independent beer company across Canada. They look to be the perfect size and the perfect match for us.”

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Earlier this month, Dolo told Yahoo Canada Finance that Sproutly would strike a deal similar in structure to the Molson Coors Canada Inc. (TPX-B.TO) partnership with Gatineau, Que.-based licensed producer HEXO Corp. (HEXO.TO).

Sproutly is a small Vancouver-based licensed producer with a Toronto subsidiary sanctioned by Health Canada to research and develop cannabis beverage products. The company said it will grant exclusive rights to its “Infuz20” technology for five years under the deal, with a possible two-year extension. The technology allows cannabis beverages to take effect within five minutes of consumption, and wear off after 90 minutes.

Moosehead will provide infrastructure support such as “research and development, operations, finance, and distribution,” according to Sproutly’s news release.

“With the anticipated legalization of edibles in Canada later this year, Moosehead has made the strategic decision to enter the cannabis beverage market,” said Andrew Oland, chief executive officer of Moosehead, said in the release. “As one of the oldest brands in Canada and a leader in the beer category, we believe we are uniquely positioned to be a leader in the cannabis beverage category.”

Dolo said he expects the yet-to-be-named joint venture to release eight or nine different beverages, and is working to determine the right mix of THC and CBD-based product offerings.

In order to comply with Health Canada rules, the joint venture will require a stand-alone production facility separate from Moosehead’s beer and Sproutly’s cannabis operations. A location has yet to be determined.

Matthew Oland, one of Moosehead’s senior executives and a member of the family that founded the 152-year-old brewery, will step down to lead the joint venture as chief executive officer.

“That showed a lot of good faith,” Dolo said. “Rather than being a business to support their breweries, it is very much going to be a focus for both organizations.”

Sproutly’s Canadian Securities Exchange-listed shares fell 5.31 per cent to $0.90 at 1:23 p.m. ET.

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