Introducing the Cannabis-Infused Beverage Industry

Near the end of December last year Donald Trump signed the Agriculture Improvement Act of 2018 into federal law (you may have also heard of it referred to as the “Farm Bill”). Within the 807 page document is a small section which has opened the floodgates on a billion dollar industry: legalized hemp.

The Agricultural Improvement Act removes hemp (defined as cannabis sativa with less than 0.3% THC in its flower and includes extracts, cannabinoids and derivatives) from the Controlled Substances Act (CSA) and categorizes it as an agricultural commodity. THC is the part of cannabis that gets you high and hemp, despite being called cannabis sativa, contains so little THC that for all intents and purposes you can’t get high off of it.

A Movement in the Works

Hemp used to be an agricultural crop and used for its strong fibre until it was grouped together with its psychoactive cousin (cannabis with high levels of THC in its flower – the kind that get you high) and banned in 1937 under the Marihuana Tax Act. It was then formally made illegal under the 1970 Controlled Substances Act. The 2018 Farm Bill legislation reverses decades of improper categorization of a harmless plant.

So how much is this new industry worth? According to the industry group US Hemp Roundtable the wording of the Farm Bill legalizes hemp derived cannabinoids, including CBD. According to New Frontier Data, a cannabis analytics firm, CBD sales could surge to $845 million in 2019, $1.2 billion by 2020 and over $2 billion by 2022. In 2017 the industry grew by nearly 40% and the Farm Bill will only open up more opportunities for hemp and CBD.

Big beverage and consumer goods companies are already eyeing the CBD market. There’s been a ton of buzz (the legal kind) about Canadian Licensed Producers (LPs) of cannabis as the go-to companies for CBD partnerships. Coca-Cola (NYSE: KO) was reportedly in talks with LP Aurora (TSE: ACB) to develop drinks infused with CBD last year.

A Coca-Cola spokesman (Kent Landers) was quoted on Bloomberg saying “[Coca-Cola is] watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world – the space is evolving quickly.” Diageo (LON: DGE) the UK based beverage behemoth was in talks with three different Canadian LPs looking toward a CBD-infused beverage line of products. Molson Coors (NYSE: TAP) has entered a joint venture with Quebec Canada based Hexo Corp (TSE: HEXO) to create their own cannabis-infused beverage product line.

Creating Long-Term Partnerships

This partnership may develop drinks that are infused with THC as well as CBD like Lagunitas, owned by Heineken (AMS: HEIA), who launched a line of THC-infused alcoholic beer last summer. Infusing beer with cannabis is a hot space with Canadian LP Tilray (NASDAQ: TLRY) partnering with Anheuser-Busch InBev (EBR: ABI) to get in on the action by creating a $100 million partnership with the goal of creating a cannabis-infused substitute for beer.

Troy Dayton, CEO of cannabis market research firm Arcview Market Research, sees large players in the food and drink industry such as PepsiCo (NASDAQ: PEP) and Constellation Brands (NYSE: STZ) looking for opportunities in the burgeoning cannabis-infused food and beverage industry, which did an estimated $1 billion in sales in the US and Canada in 2017 and is on track to reach $4.1 billion by 2022, but says that this is “just the tip of the iceberg.”

Featured image courtesy of Shutterstock.