Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB) is holding back investments in the cannabis beverage market due to signs of weak demand for the product, company executives said May 15.
– Cam Battley, Chief Corporate Officer of Aurora Cannabis
Data from BDS Analytics supports Aurora’s assessment, showing beverages make up a small fraction of the total edibles market and less than 0.5 per cent of legal pot sales in the U.S.
But relying on data from the U.S. might be flawed since only 10 states have legalized recreational cannabis currently and pot companies cannot centralize operations for beverage distribution throughout the country. And with the industry still waiting for the U.S. Food and Drug Administration to regulate cannabis drinks, it creates challenges for national brands that have strong distribution networks setup already.
And with legal ambiguity in the U.S., some companies are hesitant associating with the cannabis industry out of fear that it could damage brand reputation.
Edmonton-based Aurora did leave the door open for future investment and may look closer at the beverage market by watching rival Canopy Growth Corp. (NYSE: CGC) (TSX: WEED), who partnered with beverage giant Constellation Brands Inc. (NYSE: STZ) last August. The two are expected release a cannabis beverage line October, or shortly after, when edibles become legal.
But waiting on the sidelines may give Aurora’s competition a big head start. First-mover advantage could prove to be vital in an industry hindered with red tape and limited ways to advertise. Canada will be a testing ground for the cannabis beverage market and many big companies are betting on it to bring in revenues. Molson Coors Canada (TSX: TAP.B) and Diageo Plc (NYSE:DEO) have invested in cannabis beverages, while beverage powerhouse Anheuser-Busch InBev (NYSE:BUD) partnered with Tilray Inc. (NASDAQ:TLRY) to conduct research.
Is its focus on other industries?
Aurora may be cold on the beverage market due to its inability to land a deal with a major brewer. But the pot company could look to tobacco and pharmaceutical companies who’ve shown interest in cannabis, and even retailers like Alimentation Couche-Tard Inc (TSX:ATD.B) are looking to stock cannabis on their shelves.
But with Molson Coors Canada projecting the cannabis beverage market will be $3 billion in Canada once it mature, Aurora’s neglect could be hurt its bottom line down the road.