Molson, Heineken, Constellation dive into marijuana beverages

Beer
companies large and small have been in hot pursuit of a flurry of
deals in the marijuana industry.

Rawpixel
/ Shutterstock

• Big beer companies are looking to develop marijuana-infused
  beverages as a way to revitalize their businesses.
• Lagunitas, Heineken’s California-based brand, recently
  developed a
  hoppy, THC-infused sparkling water. And Molson Coors
  recently entered a
  joint venture to produce marijuana-infused beer for the
  Canadian market, among
  other deals.
• Investors are excited about the prospect of creating a
  whole new class of marijuana consumers, though some questions
  still remain.

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Big beer companies want in on the exploding
legal-marijuana market.

Beer and liquor giants like Molson Coors, Heineken, and
Constellation Brands — the company behind Corona — have pursued a
flurry of deals to develop marijuana-infused drinks that they
hope will give them a slice of the rapidly expanding pie.

A handful of smaller firms and startups are seeking to build out
products lines as well, either by developing their own brews or
through strategic acquisitions.

“It’s the next big evolution of the cannabis market,” Keith Dolo,
the CEO of consumer cannabis company Sproutly, said in a recent
interview.

An ad for Two Roots Brewing on the company’s
website.
Two
Roots

With declining beer sales, a pivot to pot

Beer companies are dealing with a new reality: Young people are

ditching the hoppy beverage in droves.

Molson Coors saw
beer sales slump for the fourth straight quarter, and
Heineken’s sales slipped in the first half of this year.

Marijuana may be a part of the beer industry’s challenge.

Binge-drinking rates have
fallen sharply in states with legal marijuana, according to
Vivien Azer, a cannabis industry analyst at the investment bank
Cowen. Azer expects expanded access to marijuana to hurt beer and
liquor sales, particularly among young people.

Marijuana is legal in nine
states, and Canada is set to
legalize the drug for adults later this year, though edibles
and infused beverages likely won’t be legal until mid-2019,
according to Matt Bottomley, an analyst at investment bank
Canaccord Genuity.

Consumers are
set to spend $32 billion globally on recreational marijuana
in the next four years, according to a report from ArcView Market
Research and BDS Analytics.

It’s no wonder that a number of beer giants are looking to
rapidly expand their footprint in the marijuana industry.
Constellation Brands, the third-largest beer company in the US,
paid $191 million in October
for a stake in Canopy Growth, a Canadian marijuana
cultivator.

And Molson Coors Canada recently
entered a joint venture with Hexo, a publicly listed Canadian
cannabis cultivator, to produce marijuana-infused drinks for the
Canadian market, stoking investor excitement.

Not to be outdone, Heineken’s fast-growing Lagunitas brand has
developed what the company calls a
hoppy sparkling water infused with THC — the active
ingredient in marijuana — for the California market.

A few smaller companies — including Sproutly, Cannabiniers, which is
rolling out its Two
Roots brand of marijuana-infused beers, and Province Brands — are
racing to develop their own lines of marijuana-infused beverages
as well.

Bottomley, the Canaccord analyst, expects that 50% of the US
marijuana sales over the next few years will be “derivative”
products like edibles or beverages.

“We believe that the merger of the cannabis and beverage
industries hold great potential for investors looking to reap the
benefits of innovation in the space,” a group of analysts at
Beacon Securities, the Toronto-based investment bank, said in a
note after the Molson Coors deal was announced.

Lagunitas Hi-Fi
Hops.
Erin Brodwin / Business
Insider

Quick onset, predictable highs

The key to developing marijuana-infused brews, according to the
companies Business Insider spoke with, is giving people complete
control over the experience. A finely tuned potency level factors
into how the brews are manufactured and marketed.

Lagunitas’
Hi-Fi Hops — available in California dispensaries for $8 a
can — offers two nonalcoholic choices. A strong version contains
10 milligrams of THC, which is equivalent to the average edible
you’d buy in a dispensary.

The company also offers a weaker hybrid version, which contains 5
mg of THC along with 5 mg of CBD,
a nonpsychoactive chemical in the marijuana plant that’s thought
to be responsible for a number of therapeutic benefits.

The Nevada-based startup Two Roots is developing a line
of THC-infused beers, including an IPA with the relatively low
dose of 2.5 mg THC — a lower barrier to entry for less
experienced marijuana users. “It’s a socially integrated
product,” Kevin Love, the company’s director of product
development, said.
“It’s designed so you can have four or five of them — like you
may at a bar on a Friday night — to have the desired effect.”

THC-infused beers provide an “easy entrance” to the cannabis
market, he added. “You can see and feel it as a direct
replacement for beer in a social setting.”

According to Dolo, of Sproutly, the onset and offset of the
active high is what’s going to drive a given product’s success.
Each company is working to develop different chemical
formulations that reduce the amount of time your body needs to
feel the effects of the THC.

On that front, Sproutly recently acquired Infusion Biosciences,
which has developed a patent-pending method to infuse the active
ingredients of marijuana into a liquid that can be mixed into
beer or other beverages.

“Overdosing on edibles is a horror story,” Dolo said.

Remember when The New York Times’ Maureen Dowd tried a marijuana
edible in 2014 and
wrote a column about her unwanted out-of-body experience?
That’s what THC brews are trying to avoid.

Both Sproutly and Two Roots claim that drinkers will feel the
effects of their respective brews within minutes and that the
high will last only about an hour and a half, depending on how
much you consume. Two Roots’ formulation is fully patented,
according to Love.

While neither Molson Coors nor Constellation Brands have rolled
out any products yet, Lagunitas’ offering, already available in
stores, is of the more old-fashioned pot-edible variety: It hits
you slowly and it lasts a long time.

“If the products look and feel like a beer, there’s a real market
for it,” Jon Trauben, a partner at Altitude Investment
Management, a New York City venture fund that invests solely in
the cannabis industry. “Consumers can control the experience and
not let it get out of hand.”

Flowering
marijuana plants are pictured at the Canopy Growth Corporation
facility in Smiths Falls.
Thomson
Reuters

It’ll be a while before you can order a pint of marijuana beer

It’ll still be a while before you can order a pint of THC beer at
your favorite happy-hour spot.

Marijuana is considered an illegal Schedule I drug in the US,
which means that some beer companies might be reluctant to enter
the market, fearing a
crackdown by the federal government. Molson Coors is focusing
on the Canadian market.

The price may also be a hurdle. If you’re used to spending 10
bucks on a six-pack, it’ll be a stretch to spend close to $50 on
a THC-infused sixer.

Even in states with legal marijuana, customers will have to buy
THC-filled beers at dispensaries, rather than at bars or liquor
stores. They’ll also have to be consumed on private property,
like other THC-containing products.

There’s also no set timeline for when regulators will let these
drinks become available in bars.

All that said, some investors see the entrance of big brands like
Constellation and Molson Coors as having “validated” marijuana as
a sector that’s ripe for traditional deal-making, Dolo said.

According to Trauben, the future of the marijuana industry will
come down to which brands can quickly gain, and retain, market
share.

Traditional beermakers have a big advantage in their existing
beverage-manufacturing pipelines, but startups are gaining
ground. Two Roots, for example, is working on hiring people from
the beer industry to develop expertise in manufacturing and
distribution, Love said.

Read more of our cannabis industry coverage: