Cannabis beverages are coming soon to Canada.
The problem is we still don’t know much about who has developed what or what the rules will be governing edibles and beverages in particular. There have been rules that have been drafted, but nothing official as of yet. With concerns of another rollout potentially in danger of falling flat, the Cannabis Beverage Producers Alliances has been formed by cannabis and alcohol companies. The group includes both Molson Coors Canada (TSX:TPX.B) and Hexo Corp (TSX:HEXO), which are working together under a joint venture. A total of 10 companies are included in the Alliance.
Proposed rules would add significant costs
There are a few points of contention that stand out to the group. One of the biggest concerns is the need to be able to produce cannabis and non-cannabis beverages in the same facility. The group believes that by requiring separating facilities for processing cannabis beverages, it will be a severe barrier for new entrants. Without being able to utilize existing facilities, it’s going to mean a lot of capital right off the bat that is needed for a prospective supplier. It’s also going to increase costs by having to manage multiple facilities for companies that produce both types of beverages.
The group notes that additional costs will only make it harder to compete with the underground market. We’ve already seen those issues in the recreational market pop up, with the black market being much more competitive on pricing. Sales and excise taxes alone give the black markets an edge, throwing in red tape and obstacles that will result in more costs being pushed onto consumers will only make matters worse.
Marketing continues to be a battle
One area where cannabis companies didn’t make much traction on in the past is advertising. In the U.S., we see all sorts of colorful packing and products on marijuana products. There’s even been a cannabis commercial released. In Canada, however, the packaging has been abysmal with all cannabis products looking the same and you can forget about trying to spot a logo from afar. The restrictions have been severe, to say the least.
However, this coalition of companies is hoping that it can make some headway when it comes to marketing cannabis beverages. One of the stranger restrictions that Health Canada has proposed includes a company not being able to use its existing name or brand on a drink. Presumably, this would be to prevent Constellation Brands (NYSE:STZ) from being able to market cannabis beverages that use the popular Corona name or brand to help sell drinks.
The group notes that even using the word “beer” is prohibited when it comes to cannabis beverages. These are all issues that can make it difficult for the industry and the edibles segment to reach its potential.
– Lisa Campbell, CEO of Lifford Cannabis Solutions
The problem is that the government has shown no willingness or interest to care about those things. And coalition or not, there’s likely going to be little movement on these issues.
