With Biosteel Distribution Deal, Canopy Growth Bets Beer Wholesalers Will Eventually Move Cannabis Drinks
Will U.S. beer distributors eventually be the ones bringing cannabis-infused drinks to market?
That’s what Canopy Growth Corporation, one of the largest cannabis firms in the world, is betting on.
On Tuesday, Biosteel Sports Nutrition, which is majority owned by Canopy, announced plans to launch its ready-to-drink beverages at off-premise retail accounts in California, Florida and New York.
To get its sports drinks on store shelves, the company signed distribution agreements with two of the most prominent beer wholesalers in the country: Reyes Beer Division and Manhattan Beer Company.
Biosteel’s portfolio of RTDs — which presently excludes CBD-infused SKUs, something that is expected to change once the Food and Drug Administration clarifies its rules around hemp products — will be distributed to retailers in California and Florida by Reyes, and to stores throughout metropolitan New York by Manhattan Beer.
The deals — which were negotiated by alcohol giant Constellation Brands, itself a 38.6% owner of Canopy — lay the foundation for what many drinks experts have long speculated: U.S. beer wholesalers will one day bring cannabis-infused drinks to consumers across the country.
In a news release, Canopy chief David Klein, who served as the CFO of Constellation before taking over as CEO of the Canadian firm in January, called the deals “milestone distribution partnerships” and touted the “benefits” of Canopy’s investment in the sports drink company.
“By leveraging Constellation’s vast distribution network within the beverage category, we are able to deliver Biosteel sport hydration beverages to consumers across the U.S.,” he said.
Biosteel’s powdered protein and hydration products are already sold at more than 500 Vitamin Shoppe outlets nationwide, as well as at popular chain retail stores like Walmart and CVS. Through the partnerships with Reyes and Manhattan Beer, however, Biosteel’s RTD Tetra Pak line will soon be sold at thousands of grocery, convenience and drugstores in some of the most populated areas of country.
The company’s three-SKU RTD line — which will carry a retail price of between $2.29 and $2.49 per 16.7 oz. package — was previously only available for purchase in 12-packs online.
Recent high-profile endorsements with NFL stars Patrick Mahomes and DeAndre Hopkins, as well as a forthcoming advertising campaign with other sports stars and online influencers, have hastened Canopy's need for a more mainstream retail presence.
Now, in an effort to help make the brand more accessible for consumers, Canopy has asked Constellation to leverage its relationships with hundreds of beer distributors across the country who collectively make up what’s known as the “Gold Network.”
“Working with leaders like Reyes Beer Division, Manhattan Beer and many other partners will help propel sports’ ‘best kept secret’ to new heights and increase BioSteel’s market share in key regions,” Biosteel co-founder and CEO John Celenza said via the release.
Reyes is the largest beer distributor in the country. The company operates in six states and Washington D.C. and delivers more than 235 million cases annually to over 91,000 retail accounts.
For its part, Manhattan Beer distributes more than 45 million cases to 25,000 customers across 15 New York counties every year.
Canopy’s decision to tap into the three-tier system for expanded Biosteel distribution signals that cannabis companies are poised to rely on beer wholesalers as their primary route to market.
Though Biosteel does not currently make any RTD products infused with CBD, Klein has repeatedly hinted at plans to market such products in the U.S.
"We can bring really good, high-performing brands to the market like Biosteel; we can add CBD into those brands as federal regulatory guidelines shift," he told CNBC on Tuesday.
However, Klein admitted that the "real win" for Canopy will be using beer distributors to "bring THC drinks to the market as soon as federally permissible."
It's unclear when cannabis could become federally legal, but Klein believes it will happen by 2022.
In anticipation of prohibition ending in the coming years, Canopy said earlier this month that it would launch its Tweed and Houseplant beverages — which are infused with THC and have been sold across Canada for the last six months — in the U.S. next year via a partnership with New York’s Acreage Holdings.
Recall that Canopy has an agreement to purchase Acreage Holdings for around $900 million once cannabis laws in the U.S. are loosened.
While the initial production and distribution of Canopy’s cannabis beverages will be handled by Acreage, it’s clear that Klein wants beer distributors to carry cases of low-dose THC drinks to both dispensaries and liquor stores.
"We think over time, making sure that the federal regulatory environment is permissive enough to allow cannabis to look a bit more like the alcohol industry will be a big win all around for the consumers, for the government — from an excise tax revenue standpoint — and clearly from Canopy's perspective," Klein said.
To help that effort, Canopy has already spent $150,000 on federal lobbying efforts this year, according to Marijuana Business Daily.
Beer wholesalers are uniquely positioned to capitalize on future federal cannabis legalization. They have spent years developing robust logistics enterprises that are capable of delivering hundreds of different brands to thousands of retailers in big cities and backcountry towns alike.
Moreover, they already have the vast warehouse space to store product, the trucks to haul heavy liquids, and the manpower to move and merchandise cases.
Beer distributors also know how to operate within the framework of a tightly regulated industry that prohibits activities like slotting fees, consignment sales, inducement and other behavior that could stifle competition.
Tuesday’s announcement brings the idea that beer distributors are already preparing to cash in on cannabis back into focus. The news also comes just days after Pabst said it would lend its iconic Blue Ribbon logo to a cannabis-infused seltzer being sold in California.
However, it’s worth noting that Pabst itself does not have a financial stake in the “Pabst Labs” venture that was launched by former employees who are marketing the new beverage.
Nevertheless, if a 176-year-old company is seeing opportunity in a nascent U.S. cannabis drinks sector that only comprised about 4 million units last year, others certainly are too.
Several major beer makers — including Heineken (via Lagunitas and Absolute Extracts), Molson Coors (via Hexo), and Anheuser-Busch (via Tilray) — have already made investments in the cannabis space.
Klein's thesis is that new cannabis users won't enter the category through vaping or smoking. Rather, Canopy and others believe they will be able to recruit new customers with THC-infused drinks.
"These drinks perform better than hard seltzers," Klein told CNBC. "These are drinks that have zero calories. They can taste better than hard seltzer. They have an onset time of about seven-to-ten minutes. An effective 'one drink' is about equivalent to one glass of beer and there is no hangover."
I’ve personally covered the beer industry for a decade and tend to agree with Klein. Beverages are inherently social and already a part of everyone's daily routines. Eventually, interstate cannabis commerce will be permissible and major retailers will be allowed to sell low-dose cannabis products. It's inevitable.
Canopy and others understand this, and they know how the game will eventually be played. That's why they’re setting themselves up to be category leaders from the onset.
Canopy’s decision to tap Reyes and Manhattan Beer for distribution of the Biosteel products reinforces the belief that beer wholesalers will play a role in the cannabis sector moving forward.
Additional information is available in Biosteel’s news release.