The next-generation of cannabis products are coming to Canada at the end of the year, and companies are positioning themselves for the expected next industry boom. Zenabis Global Inc. (TSX:ZENA) announced Monday it had reached an agreement with an unnamed “Canadian beverage technology company” to produce pot-infused drinks.
Zenabis provided little details on the partnership, or what beverages they would produce, but the Vancouver-based company said the deal would allow it to produce beverages that use water-soluble inputs that are odourless, colourless and flavourless.
The Canadian market for these beverages is estimated to be worth $529 million, so the ability to infuse cannabis in beverages; without affecting their taste, smell or appearance; strengthens Zenabis’ position relative to the many other companies planning to commercialize similar products.
– Andrew Grieve, CEO of Zenabis
The company is eyeing the size of the new segment that’s coming to Canada at the end of the year based on estimates provided by Deloitte in June, and believes its new partnership will help seize the market opportunity.
Zenabis generated rising revenues of $25 million last quarter, but it’s still far behind some of the bigger cannabis companies in Canada. To try and bridge that gap, it is aiming to diversify its revenue stream. Getting into beverages could be an important step forward, as it can take advantage of the hype that’s sure to surround the launch of second-wave cannabis products.
Deal gives Zenabis more beverage options
The beverage partner will provide the technology for the drink products while using cannabis supplied by Zenabis, the company noted. Also, the unnamed drink company has the option to create a production line for Zenabis at the pot producer’s Stellarton, Nova Scotia facility.
Zenabis said it plans to produce CBD-infused kombucha drinks with its 51 per cent owned subsidiary Hillsboro Corp Inc. its True Buch brand. Zenabis can use the same inputs provided by its new beverage partner to develop the cannabidiol-based products.
While a cannabis-infused kombucha beverage may be a niche product, it could provide Zenabis with an important way to differentiate itself from its competitors. Consumers will eventually have many options to choose from after the marijuana alternatives market launches. With the beverage-making technology at its disposal, Zenabis has the flexibility to work on different products to see what’s popular with customers and what isn’t.
Zenabis said it expects to produce cannabis-infused beverages with its new partner that have onset times less than five minutes. One of the concerns with infused products is how it can take a long period of time for the cannabis to hit the consumers blood stream. That can lead to unexpected consequences and companies want to provide options where the consumer feels in control.
Will partnership boost slumping stock?
To say that Zenabis has struggled this year would be an understatement. While the entire sector is down this summer, Zenabis has suffered an all-out free fall dropping more than 80 per cent since the start of the year. At around $1 a share, management will keep trying to inject the stock with some life.
Zenabis’ Monday announcement has helped pushing shares of the company up 15 per cent. But a day later those gains dropped to only 5 per cent.
Some investors remain bullish on Zenabis, despite its slumping share value, due to its capital plans in place to reach capacity of 143,200 kilograms annually. This would place the company among the top Canadian cannabis producers, and maybe a better risk/reward scenario with a minor market capitalization of only $200 million.