Cannabis-infused beverages are legal in Canada, and the market has been a testing ground for drink makers. Rather than waiting for the U.S. market to legalize marijuana at the federal level (which may still be years away from being a reality), beer makers can legally launch products north of the border to gauge the popularity of certain items. Constellation Brands, Molson Coors, and Anheuser Busch (NYSE: BUD) are among the big brewers to join forces with cannabis producers in recent years.
While these companies have gained insights and collected valuable data from the industry's early growth stages, experimenting in this field hasn't led to instant success. One company appears to be done with the segment, at least for now.
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Labatt to wind down its cannabis beverages operation
In 2018, Anheuser Busch announced it would be entering into a "research partnership" (via its subsidiary, Labatt Breweries of Canada) with marijuana producer Tilray Brands (NASDAQ: TLRY) that would focus on cannabis-infused beverages. The agreement would ultimately lead to the creation of Fluent Beverages. Each company would contribute $50 million, which, for beverage giant Anheuser Busch, is a drop in the bucket -- last year, its sales totaled more than $54 billion.
A year later, Fluent would launch its first cannabidiol-infused beverage brand, Everie, in Canada. At the time, the cannabis beverage market was just opening up as edibles became legal in 2019, a year after the country initially legalized recreational marijuana. But despite being open for a little over two years since then, it looks as though Anheuser Busch is done with the partnership.
According to the Canadian Press, the CEO of Fluent Beverages, Jorn Soquet, recently emailed the media to notify them that Labatt will be winding down its cannabis beverages operation. There weren't details offered on the reason behind the move, and Labatt will use what it has learned from the business, suggesting that it will still monitor the cannabis industry and potentially be active in it in the future.
Investors first learned that things were ending in January when Tilray announced in a regulatory filing that it had concluded its relationship with Anheuser Busch. The cannabis producer would effectively take over the cannabis beverage operation on its own.
There's still major potential in cannabis beverages
The initial excitement about the possibility of cannabis beverages hasn't translated into results yet. In the Canadian and U.S. markets, infused beverages account for no more than 2% of the entire cannabis market. After generating a lackluster $31 million during the first nine months of 2021 in Canada, there hasn't been a whole lot for Anheuser Busch or any other beer maker to be encouraged about.
The positive, however, is that there may still be room for much more growth down the road. Researchers at Fortune Business Insights estimate that the global cannabis beverage market was worth $915 million last year and that it will grow to a value of more than $19 billion by 2028. That translates into a compounded annual growth rate of more than 54%.
Pot investors need to remain patient
While Anheuser Busch is pulling out of the cannabis beverage market, it doesn't mean the segment has been a colossal failure. After all, the company didn't plan to be a major player. It noted in the initial release announcing the deal that it wanted to learn about cannabis beverages to "guide future decisions about potential commercial opportunities." And its relatively modest investment seemed to confirm that this was a testing ground.
For investors, it serves as an important reminder that the industry is still in its early stages and there is still lots of risk, especially as companies find out what works and what doesn't. While news of a big alcohol company partnering with a cannabis producer can be promising for shareholders, it doesn't guarantee a long or successful partnership, or even that it will generate a big jump in revenue. Investors who are unwilling to be patient with the industry and who are expecting immediate results could incur significant losses.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
