Cannabis-Infused Beverages Have Arrived: Explaining the Tech

Cannabis-Infused Beverages Have Arrived: Explaining the Tech

  • With billions in additional cannabis revenues on the table, investors need to better understand the tech behind these (new) products

The Seed Investor has been very bullish on the potential of cannabis-infused beverages. This is despite the fact they currently account for only a small portion of overall market share.

Why? Several reasons.

At the top of the list: consumers want (and need) an alternative to alcohol use in social settings. Cannabis is that natural alternative. But smoking is an undesirable delivery mode. Even vaping is less user-friendly in social settings than simply sipping on a beverage.

Reason #2. The technology to produce truly water-soluble cannabis-infused beverages has arrived. A recent NBC headline expands on this.

Why is water solubility such a critical factor in cannabis-infused beverages, and cannabis-infusion in general?

The primary reason is to provide a faster and more consistent onset of effects (either medicinal or recreational). Cannabinoid molecules are naturally fat soluble.

Because of this (and unlike water-soluble alcohol molecules) cannabinoids normally pass through the digestive tract. This includes the ultimate filter: our livers. This not only dramatically slows down the onset of effects, much of the efficacy is literally consumed by the digestive process.

Water soluble cannabinoid technology prevents this “first pass”. How?

Nanotechnology. By encapsulating cannabinoids at the molecular level, cannabinoid molecules (either THC or CBD) become water compatible. They behave like water-soluble molecules and avoid the undesirable first pass through the digestive system.

This leads to Reason #3: taste. The first generation of cannabis-infused beverages (which lacked this nanotechnology) contained fat-soluble cannabinoids that did not avoid first pass. They were also reputed to be rather foul-tasting.

The NBC article provides additional context.

“If you go back a few years, THC drinks were a little like salad dressing. They had to be shaken, and a lot of them didn’t taste or smell that good,” said Rick Gillis, president of Tinley Beverage Co.’s [CAN:TNY US:TNYBF] North American business. “But thanks to nanotechnology — and this has only happened in the last couple of years — the THC molecule can be solubilized so it can suspend beautifully in the liquid.”

Faster acting. More consistent effect. No more unpleasant tastes or odors. Technology that has arrived.

This leads back to Reason #1.

As noted in a previous Seed Investor article, alcohol sales are now in permanent decline. This is because of increasing issues (and consumer awareness) regarding the dangers of alcohol use.

Cannabis is a safe alternative. Unlike toxic/addictive alcohol, cannabis is non-toxic and non-addictive. Alcohol’s toxicity makes it dangerous in combination with many prescription drugs. Cannabis is safe to use with other drugs.

Alcohol is a $1 trillion per year global industry. This is the single largest potential market for adult use cannabis. If consumers replaced alcohol use with cannabis just one day per week, that would represent an additional $150 billion per year in revenues for the cannabis industry.

It would represent an additional $4 billion per year in California’s cannabis market alone and more than $3 billion per year in additional revenues for the Canadian cannabis industry.

Then there is the industry that is losing this market share: the alcohol industry.

Big Alcohol has already made a splash in the cannabis industry. It has started to aggressively buy its way into Canada’s cannabis industry – even in advance of the legalization of cannabis infused beverages.

Constellation Brands (US:STZ) and Canopy Growth (US:CGC / CAN:WEED). Molson Coors (US:TAP) and HEXO Corp (US:HEXO / CAN:HEXO). Other alcohol giants have been rumored to be pursuing deals.

Cannabis-infused beverages become legal in Canada in October. How much more interest will Big Alcohol have in Canadian cannabis-infused beverages once they are legal – and this new technology can be shown to have arrived?

In a separate article, Jeff Maser, Tinley’s CEO explained why California-based Tinley is eager to move into Canada’s cannabis market. The Seed Investor covered this previously.

It’s all about costs and price points. With the opportunity for national distribution and scale (and generally less complicated regulations), Canadian infused beverage companies should be able to go to market with cheaper products.

This makes them more attractive to consumers. It makes them a greater threat to take market share from the alcohol industry.

Cannabis-infused beverages are (almost) here in Canada. The technology has arrived. The market potential is enormous.

Big Alcohol’s entry into this space will soon become a stampede.

Published at Tue, 06 Aug 2019 16:01:08 +0000

Posted in: News

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