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To Drink or Not To Drink? Is Now the Time to Invest in Cannabis Beverages?

August 18, 2021 |by Jim Baudino | 0 Comments | Blog, Industry News | , , , , ,

August 18, 2021 by Evan Eneman and Jim Baudino from Sands Lane

Cannabis beverage is one of the fastest growing verticals in cannabis. Beverages currently represent just over 1% of overall cannabis sales and are poised to grow at a healthy rate over the next several years as the format becomes more ubiquitous and desirable.

The category has had some help recently, backed by the tailwinds of recent success for CANN, a cannabis infused social tonic.  This smart startup has already thought about ways to expand reach beyond just wide reaching PR and celebrity backers like Gwyneth Paltrow, they also have an UN*SPIKED line, to touch on traditional DTC beverage access and success.  Upon her entry into the category, Paltrow called cannabis the ‘hero ingredient of the future’, and many agree with her.

One of the first big names in the space began their cannabis beverage journey through CBD.  Interscope Records recording artist Ryan Tedder, lead singer of the group OneRepublic, launched MAD TASTY, his brand of infused sparkling waters in 2019.  

And it’s not just big named personalities. Pabst Brewing Company recently launched a licensed brand under Pabst Labs, offering a line of cannabis infused seltzers. And before them, former craft brew darling Lagunitas (now owned by Heineken) entered the cannabis space with its Hi-Fi Hops in partnership with CannaCraft. The Boston Beer Company also announced in May that it would set up a subsidiary to begin researching cannabis beverages in Canada.  And lets not forget non-alc brands, like Jones Soda, revealing it’s plans to produce cannabis-infused beverages.

And it’s not just the little guys….

Many major BevAlc brands have made investment into the category directly and indirectly, in the US and Canada. Constellation Brands was one of the first and biggest, with their CA$5.8B investment in Canopy Growth. Molson Coors and Anheuser-Busch  have both made their foray into the space over the past few years as well. With beer sales declining by 2.9% last year, alcohol brands are looking for additional revenue streams including nonalcoholic and cannabis infused alternatives, while looking much further ahead to a full legal framework and the share of buzz that cannabis infused beverages will hold.

The amount of interest and activity clearly indicates that the segment not only has “legs”, but may very well be the dominant consumption format in the future.

So how do you get involved?  You can follow the path of Ayr Wellness who just acquired a Massachusetts only cannabis beverage brand for $20M in stock and cash, or you can look for earlier stage opportunities like what Harmony Craft Beverages provides, allowing investors and operating partners alike to find a diversified portfolio approach as well as a bespoke brand incubation model. If public markets are your preference, many large operators will have some exposure to cannabis beverages, like Canopy Growth as well as GTI.

If you’re a brand, what do the prospects of raising capital for your business look like today? We asked several cannabis beverage brands to share their experience. Most brands have raised one or more rounds of outside funding, mostly from friends and family, angel investors and family offices. Deal structures have followed normal early stage formats using a combination of straight equity, and SAFE or Convertible Notes. 

As you start this process, remember that fundraising can be a long process, between six to eighteen months, sometimes longer; for the operators that start building relationships well before they start to fundraise, that timeline can be much shorter.  Overall investor sentiment for the category ranged from nervous to excited about the space, and all seeing the long term potential.  So when you go out to market, be patient, have your operations in order, and be ready to answer the hard questions about the cannabis beverage sector. In the early stages of fundraising, investors generally invest in people and the “opportunity”, not your net earnings.

So, to answer the question posed in the title of this article…yes.

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