This top-selling iced tea company is going all in on cannabis…
Arizona Beverage Co. makes the best-selling iced tea in America, and it has identified cannabis as a growth area for its business.
It’s hard to overstate the importance of this deal.
It is the first instance of a mainstream U.S. consumer products brand making its valuable trademarks available for THC products.
Heineken has a similar deal for a hops-based beverage in California, but it used its trademark for Lagunitas, rather than its Heineken one, and Lagunitas has been a cannabis-friendly brand since before Heineken even purchased it.
Companies without that avowedly pro-cannabis history are worried not just about the federal prohibition on THC products, but also about the “reputational risk.”
Arizona has decided that risk is low because a majority of Americans support cannabis legalization.
And not only are company executives hoping to profit from their brand name, they also hope to profit from investing in the cannabis industry.
The Dixie Deal
Arizona is getting the right to acquire up to about 10% of Dixie’s stock.
For our Lifetime Members, you may recall that we talked about Dixie back in March.
The teas will carry Arizona’s name, though, the exact packaging has not yet been worked out. I suspect that Arizona and Dixie will incorporate some design element to make the THC easy to distinguish from the regular iced teas.
Dixie will formulate, make, and distribute the beverages. The company operates in California, Colorado, Maryland, Michigan, and Nevada.
THC beverages are not legal in Maryland, so the products won’t be available there. The companies did not disclose a target shipping date for the other states.
Now that you know a little bit more about how the deal is going to work, let’s take a look at what this means for cannabis investors.
Arizona Beverage Co. Is Ready to Cash in on Cannabis
Arizona was the perfect beverage maker to make this unprecedented leap.
It is a privately-held company, so there won’t be any upset stockholders confronting company management.
But the fact that the company is allowing its most valuable trademarks to appear on a cannabis product is significant, as is Arizona’s willingness to take an equity stake in Dixie. Previously, we had seen similar deals occurring in Canada, where there is no complication with the federal government when it comes to cannabis.
However, even in Canada, companies have not lent their trademarks to cannabis – Molson Coors has a joint venture with Hexo Corp. (NYSE: HEXO) to make THC beverages when they become legal. Though, those beverages may not sport the Molson brand.
Similarly, there are no Corona-branded cannabis products, even though Constellation Brands (NYSE: STZ) has invested more than US$4 billion in the industry.
I suspect we’re still some time from seeing another blockbuster deal like Constellation’s investment in Canopy, but smaller investments like Arizona’s will become common, especially as companies find they can make a profit before they ever ship any product.
These announcements send stocks up, and Arizona already has a $300,000 profit on an investment it hasn’t even yet made!
But there are still some issues to consider.
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Understanding the Arizona/Dixie Deal
THC beverages have not yet caught on the way some other categories of new cannabis products have. Most cannabis beverage sales are an “add-on option” to a larger order – few consumers go into a dispensary and purchase beverages alone.
Currently, beverages make up a tiny fraction of total cannabis sales.
That makes Arizona’s move particularly audacious.
We can only speculate what information a big company like that must have that moved them to this investment at this time, but you can bet that other food and beverage companies are looking at the same data as Arizona. One piece of data we do have is that Canaccord Genuity projects cannabis beverages will be a $600 million market by 2022, with $340 million of that being beverages with THC.
Overall, I have two questions about this deal.
How well will a national brand do on cannabis shelves?
The Lagunitas products were initially flying off the shelves more quickly than the manufacturer could make them, but now, just about any dispensary I visit in California has a good stock. There are plenty of iced tea brands on dispensary shelves in places where it is legal, so will Arizona blow them away because of the power of its brand, or will consumers prefer the smaller, local brands?
I think the Arizona brand will dominate the iced tea category as long as Dixie does a good job formulating the product.
But there are no guarantees.
My next question: When will we see the next similar deal?
There are almost certainly companies that were afraid to go first but are willing to be second, third, or fourth now that Arizona has taken the leap. I suspect there are a lot of phone calls happening this week, and we could see more deals this fall.
And these already-established brands will be an important challenger to any company seeking to establish a brand in the cannabis industry with a similar product.
For our Lifetime Members, you can access our full analyst report about Dixie right here.
Executive Director, National Institute for Cannabis Investors
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9 responses to “Cannabis Hits the Mainstream Again Thanks to the Arizona Beverage Co.”
August 12 2019