During the last year, the global cannabis industry has recorded a number of advancements as existing markets matured and as new markets have opened up. The transformation has created a number of attractive growth opportunities for businesses that are focused on the cannabis industry and this is a trend that our readers need to be aware of.
One of the most exciting trends is related to the infused cannabis product market and this is a vertical that has been generating traction with consumers. From edibles to drinkables, the cannabis infused product market represents a major growth opportunity for cannabis businesses and we have been focused on companies that have brought infused drinks to the market.
According to BDS Analytics, there were 88 beverage brands on the market in mid-2019. When compared to the same period from the prior year, there has been a substantial increase in the number of brands and this is a trend that we are following. According to the cannabis analytics company, beverages made up 6% of the total edibles market in the United States in 2018. That percentage is rising steadily and BDS predicts that it could be a $1 billion market by 2022.
In late 2019, Health Canada approved the sale of cannabis infused products to medical patients and to recreational consumers. This represented a major step forward for the cannabis infused product market and we are favorable on the increase in consumer demand as a result of the change. Today, we want to highlight 3 companies that are capitalizing the cannabis infused product market and are specifically focused on the drinkable segment of the industry.
Canopy Growth Launches a Line of Cannabis Infused Drinks
Canopy Growth Corporation (WEED.TO) (CGC) is one of the first companies to come to mind when we are thinking about the infused drink market. Last month, the Canadian cannabis producer launched its line of cannabis infused drinks and recorded strong demand for the product. The launching of the product line represents a major milestone for the business and we are monitoring how the company continues to bring new products to market.
From a balance sheet standpoint, Canopy Growth is the strongest company in the cannabis sector and we find this to be significant when it comes to the long-term opportunity. With approx. $2 billion of cash on the balance sheet, the company will be able to weather the storm and continue to bring new products to market.
Through a strategic agreement with a multi-national alcoholic beverage company, Canopy Growth has been able to position itself as a leading player in the cannabis infused product market. We expect to see the company continue to penetrate provinces across Canada and emerging international markets. Canopy Growth is a global leader in the cannabis sector and we are favorable on the leverage that it has to the infused product vertical.
Over the next year, we expect to see Canopy Growth expand its cannabis beverage product line into new markets (as much as regulations will allow for it). Once the US changes its federal law as it relates to cannabis, we expect to see the company focus its resources on this market and this is an opportunity that our readers need to be aware of.
HYTN is a Leading Cannabis 2.0 Brand
HYTN is a cannabis infused beverage company that is generating significant traction on the Canadian market and is a brand that our readers should be aware of. After conducting significant research on the types of flavors and formulations that consumers are demanding, the company has launched an odor-less and tasteless product. Consumers can taste the actual flavor of the product and the company has done a great job at masking the cannabis flavor. When it comes to edibles and drinkables, tastes and onset times are the most important factors that are associated with the product and we are favorable on the focus on this.
Before focusing on the cannabis aspect of the beverage, the management team spent several months working on the development of a sparkling water beverage formula. HYTN is led by a management team that has significant experience with consumer-packaged goods (CPG) and in the beverage sector. We are favorable on the strategy that the team has used to bring products to market and expect to see it replicated with additional products.
Phase 2 for the company is related to the immersive market and this represents a potential catalyst for the business. The product is infinitely shelf stable and it can be added to any alcoholic or non-alcoholic beverage. Going forward, the company plans to launch an edibles product line that is similar to its beverage line and we are bullish on the growth prospects that are associated with it.
Earlier this year, HYTN entered into an agreement with Zenabis Global Inc. (TSX: ZENA), a Canadian licensed producer, to produce a range of cannabis-infused beverages and we are bullish on the growth prospects that are associated with the relationship. The companies have already launched cannabis-infused sparkling water beverages under the HYTN brand. The products are listed in all of the provinces that Zenabis has agreements with and we are favorable on the distribution that is associated with the relationship.
HYTN represents a differentiated play on the Canadian cannabis 2.0 market and we believe that it also represents a multi-faceted growth story. The company is focused on growing at a pace that can be maintained and expanded upon and we find this to be significant. In an industry that is filled with companies that expanded too large too fast, HYTN is taking a methodical approach to growing the business and we are favorable on this.
HYTN has visible growth prospects and has been highly focused on penetrating the Canadian cannabis market. Through a series of strategic partnerships, the company has been executing on its growth strategy and we expect the products to quickly start to gain traction at the consumer level. We believe that HYTN is positioned to have a first mover advantage on a major growth vertical of the Canadian cannabis sector and is an opportunity to be watching.
Dixie Brands has Not Lived up to Expectations
Dixie Brands was one of the first major cannabis infused product brands in the US and is an opportunity that we have been closely following. Although there was a lot of hype surrounding the company ahead of its initial public offering (IPO), Dixie Brands has failed to generate significant traction and the trend has been to the downside.
The US cannabis infused product company has failed to live up to expectations and is an opportunity that we are monitoring. Last year, Dixie Brands announced a major milestone and reported to have entered into a licensing agreement with Arizona Beverage Co., the firm behind Arizona Iced Tea.
Under the licensing agreement, Dixie will manufacture cannabis-infused products and distribute them through state-legal cannabis retailers. As part of the agreement, Arizona Beverage was given the right to purchase an ownership stake in the cannabis brand business for up to $10 million. The agreement has not lived up to the market’s expectations and we continue to monitor how it will benefit the business.
Although Dixie Brand’s products are offered in burgeoning cannabis markets in the US, revenue numbers have not lived up to expectations and this has negatively impacted the stock. Over the next year, we will monitor how the business is able to expand and will monitor how the management team will be able to bring the business down a path to profitability.