Moosehead Enters Cannabis Market

Moosehead Breweries Ltd., one of Canada’s largest brewers, is getting into the cannabis business.

The Saint John, N.B.-based brewer announced it plans to form a joint venture with Sproutly Canada Inc., a cannabis producer and extractor, to develop pot-infused beverages that will be released later this year in the Canadian market.

“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, CEO of Moosehead, in a 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.”

The joint venture will be led by Matthew Oland, a former Moosehead vice president who ran the brewer’s supply chain operation. Moosehead will provide infrastructure support such as R&D, operations, procurement and distribution for the still-to-be-named joint venture, while Sproutly will provide its proprietary technology that takes water-soluble cannabis and infuses it into finished beverages.

Financial terms of the deal have yet to be finalized, Sproutly CEO Keith Dolo said in a phone interview. The company will have exclusive rights to use Sproutly’s technology for five years with a potential two-year extension, Dolo added.

“This is a research and development-like contract between two organizations, but for a cannabis company, it’s almost a finalization of who our partners are going to be to get our products on the shelves quickly,” Dolo said.

With Moosehead now looking to develop pot drinks, the market for such beverages is becoming increasingly crowded. Canopy Growth Corp., the world’s biggest cannabis company, is putting the finishing touches on a bottling line it is developing with its key investor Constellation Brands Inc.

Meanwhile, Molson Coors Brewing Co. also has a joint venture with Quebec-based pot producer Hexo Corp. There are also several other smaller craft cannabis drink makers such as Province Brands of Canada and Hill Street Beverage Company Inc., which also plan to enter the space.

The market for cannabis-infused beverages remains fairly niche, accounting for less than 0.5 per cent of sales in the U.S. legal pot market, according to BDS Analytics. However, the category could be worth as much as US$600 million in the U.S. by 2022, according to recent figures from Canaccord Genuity Group Inc.

Dolo says the current market for pot drinks in the U.S., the only jurisdiction where they are legally available, is more of a “novelty product” that takes 60 to 90 minutes for a consumer to feel any effects and may last as long as four to eight hours.

Sproutly’s product uses a “soak and strain” method that makes cannabis water soluble and eliminates a process that uses a chemical to mix cannabis oil in a drink. That results in a drink that takes less than five minutes to take effect and lasts about 90 minutes before wearing off, he said.

“Where we’ve seen Constellation and Molson enter the space in Canada, you’re going to see the beverage space grow exponentially,” Dolo said. “They’re going to create – along with Moosehead and Sproutly – better beverages that cater more to a market that wants to target a repeat purchaser.”

Cannabis-infused edible products, including drinks, will be allowed to be sold in Canada no later than Oct. 17, 2019, according to Canadian legislation. Health Canada released draft regulations in December outlining how these products will be able to be marketed and sold in the country, with a final set of regulations expected to be released shortly.

Some pot drink makers have since formed a lobby group, and criticized the draft regulations as being too onerous. The group wants them amended to allow for better marketing to consumers. For example, certain terms related to alcoholic beverages are also prohibited from use in connection with cannabis-based drinks under the draft regulations.

With competition looming in a still-opaquely regulated space, Dolo stated it’s likely to take at least three years for the Canadian pot drink market to mature. He hopes that his product – which may or may not be Moosehead-branded – will be one consumers embrace.

“It’s going to be highly competitive off the bat, but there’s probably going to be a bunch of beverages that don’t last,” Dolo said.