U.S. pot drinks maker 'closing in' on Canadian cannabis partnership ahead of beverage legalization

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A California-based cannabis beverage company says it’s nearing a deal with a Canadian licensed producer to bring its lineup of alcohol-inspired, THC-infused drinks north of the border once sales become legal.

The Tinley Beverage Company (TNY.CN)(TNYBF) is on track to announce a deal with a Canadian partner before cannabis drinks are expected to hit store shelves in December, according to chief executive officer Jeff Maser.

“We’re closing in on a deal with a Canadian licensed producer,” he told Yahoo Finance Canada. “Health Canada hasn’t finalized the manufacturing licenses yet. As soon as those types of licenses are awarded to our intended partner, we’re ready to go.”

Maser declined to name the Canadian producer engaged in talks with his company, saying only that he would not strike a deal that would restrict Tinley to a single cannabis source.

“We want to make sure that we have the ability to source at very competitive prices in Canada,” he said. “I think it will be 12 months until there is supply balance, and 24 months until there is excess supply.”

Cannabis-infused beverages, along with edibles, concentrates and topicals, are set to become legal for sale on Oct. 17. Last month, government officials said they expect only a limited selection of products will be available in stores and online “no earlier than mid-December 2019.”

Many in the cannabis industry are betting that drinks will surge in popularity once they hit the market. Several Canadian licensed producers have struck deals with beverage alcohol companies in advance of the second wave of cannabis legalization, including Canopy Growth Corp. (WEED.TO)(CGC), Tilray Inc. (TLRY) and HEXO Corp. (HEXO.TO)(HEXO)

A report released last month by Deloitte predicts the Canadian market for edibles and other alternative cannabis products will be worth more than $2.7 billion annually. Deloitte expects infused beverages will contribute $529 million to that figure.

Cannabis drinks, while absent from Canada’s legal pot landscape, are widely available in U.S. states that allow sales of the drug. Tinley currently sells its THC-infused, non-alcoholic products in California with plans to expand to additional cannabis-friendly U.S. jurisdictions.

The company has two single-serve beverages on the market, one inspired by margaritas and another by the Moscow mule cocktail. It also sells a trio of hard liquor-style drinks based on coconut rum, amaretto and cinnamon whisky.

“The Moscow mule-inspired drink is our biggest seller for sure,” Maser said.

Regulations in Canada and California restrict the company from using terms related to alcohol to market their products.

Canadian pot drinks will be cheaper than US beverages

Maser is preparing to speak to 3,000 attendees at the sold out Cannabis Drinks Expo in San Francisco on Thursday, underscoring the massive interest in the product category.

He plans to discuss the headwinds currently facing cannabis drinks producers. He said the challenges have shifted from mixing non-soluble cannabinoids into a liquid and perfecting the onset of the high, to bringing down prices by operating at a large scale and getting products into a number of stores comparable to booze.

“Where the rubber hits the road is very much on cost. People enjoy these drinks, but they are too darn expensive. It’s not because of the THC. THC is actually one of the least expensive inputs to our product,” Maser said. “The fixed costs are mainly labour and production.”

Cannabis drinks sell for $6 to $10 per serving in the U.S., he said, several dollars more than a beer or cooler, and two to three times the cost of an equivalent amount of dried pot. He expects Canadian prices will be less expensive due to the fact that producers have better access to financing and will build larger production infrastructure.

While cannabis retail in Canada has faced a myriad of challenges from a lack of brick-and-mortar stores to persistent product shortages, Maser expects the introduction of drinks will run smoothly.

The biggest problem he foresees is drawing customers to a new product category under strict government rules mandating plain and child-resistant packaging.

“The problem with that is packaging is more critical to drinks than it is to other product categories. Drinks have to look good because you are carrying them around at parties and putting them on your table at dinner. Smokeables and edibles, you pull the product out and put the container away,” Maser said.

“Beverage is brand- and image-driven. Having nice packaging is really critical.”

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