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Will HEXO Corp. Be Able To Catch Up To Canopy Growth To Be The Cannabis Beverage King Of Canada?

Oct 26, 2020 • 7:37 AM EDT
4 MIN READ  •  By Michael Berger
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Cannabis infused beverages is a vertical of Canada’s market that has become a major revenue generator for companies that have been able to execute on the opportunity.

We do not use the phrase able to execute lightly. Several leading Canadian Licensed Producers (LPs) have tried to bring a cannabis infused beverage product line to market and have failed in the process.

When Canada’s cannabis industry was trading at peak valuations in 2018, rumors surfaced about a potential joint venture between Aurora Cannabis Inc. (ACB.TO) (ACB) and The Coca-Cola Company (KO). The joint venture was rumored to be focused on the CBD beverage opportunity, but Coca-Cola CEO James Quincey denied that the claim and said that the company was not planning to get involved in the cannabis market.

Although Aurora Cannabis had the potential to be a leader in the Canadian cannabis sector, the management team made a series of acquisitions of companies that we greatly overvalued.  These transactions spread the business to thin and forced the company to write down more than $1 billion of assets this year.

When it comes to the Canadian cannabis beverage market, we believe that Canopy Growth Corporation (WEED.TO) (CGC) is the clear leader and consider HEXO Corporation (HEXO.TO) (HEXO) to be an up and comer.

Through a series of acquisitions and an organic growth strategy, Canopy Growth has been selling cannabis-containing products for several years. So far this year, the company has recorded strong sales from beverages in Canada and has plans to expand the beverage business in the US with BioSteel.

In a short period of time, Canopy Growth has reached a major milestone and has already sold more than 1.5 million drinks since the launch of its products in March. These numbers are impressive, and we expect to see continued growth on a quarter-over-quarter basis. Canopy Growth has formed strategic distribution agreements with established brands and celebrities like Martha Stewart, who promotes and sells CBD oils and wellness products for it.

Last year, Canopy Growth acquired a majority stake in BioSteel Sports Nutrition, a manufacturer of nutritional products for athletes. The investment in the beverage brand has already proved to be a strategic investment and we are bullish on the growth prospects that are associated with it. Canopy recently announced a cooperation between BioSteel and two large beverage suppliers (Manhattan Beer and Reyes Beer Division) that will deliver BioSteel drinks in New York, California, Florida and other larger markets in the US.

This relationship is expected to be a substantial growth driver for Canopy Growth on a going forward basis and are favorable on how this aspect of the story has advanced so quickly. The Canadian cannabis producer is backed by one of the largest alcohol companies in the world and we expect the relationship to play an important role in the continued growth of the cannabis beverage business.

Although HEXO Corporation is trailing Canopy Growth in the cannabis beverage market, the company recently announced a few major developments as it relates to this aspect of the business.

Like Canopy Growth, Hexo is also backed by one of the world’s largest alcohol companies and has a strategic partnership with Molson Coors (TAP.CN). Truss Beverage Co. is the name of brand that was formed by the companies and we are favorable on how the business has advanced so far.

A few months ago, HEXO and Molson reported a major milestone as it relates to the partnership and introduced 5 cannabis beverage products in Canada. Truss Beverage has a well-rounded portfolio of cannabis beverages and will sell both CBD and tetrahydrocannabinol (THC) products that are designed to meet the needs of consumers.

One of the reasons we are confident with the partnership is related to the track record of success that Molson adds to it. The Molson Coors name has been around for decades and is a brand that is trusted by consumers. We believe that the launch of high-profile brands like Truss will result in an increase in the number of Canadian cannabis infused product consumers and expect the industry to benefit from the involvement of a company like Molson Coors.

Before the end of the year, Truss plans to roll out additional cannabis beverage products and are favorable on the potential value that can be created for HEXO. The last few months have been significant for the Canadian cannabis producer as it works to turn the operation around and become relevant once again.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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