So it’s been a dark few years for the brave new world which was cannabis investing.
That’s changed suddenly, powerfully with the alignment of two unlikely stars.
The first is this:
And the second – even more unlikely, is this:
That’s a can of MELO.
This particular THC Seltzer – on the shelves now in North America – is of the grapefruit variety and its very active ingredient is made by the Aussie-listed Althea Group (ASX:AGH).
On Friday in Florida, Althea’s wholly-owned subsidiary – Peak Processing Solutions – signed a binding term sheet with the creator of this luscious beverage, the Nasdaq-listed Flora Growth Corporation (FLGC).
Althea Group CEO and managing director Joshua Fegan told Stockhead, Peak and Flora have already developed five cannabis drinks: two seltzers and three sodas.
“There’s Melo – that’s the JV’s seltzer brand (which contains 5mg of THC) – and it comes in Wild Berry and Grapefruit.
“Then there’s Cloud Cola, the JV’s soda brand, which comes in Classic Cola, Root Beer, and – wait for it – Orange Creamsicle.”
According to Joshua, Peak brings the production and quality expertise, while Flora brings a kind of genius for sales and experience marketing to the uniquely dynamic US lifestyle cannabis audience.
“With our combined expertise and shared vision, we’re committed to utilising a capital-lite model across mature distribution networks – and everyone involved in the joint venture is ready and excited to drive real success and create genuine, sustainable value for our shareholders. And of course, delighting our customers.”
Josh says that’s because the JV’s delta-9-THC cannabis bevvies have been infused with Peak’s proprietary cannabis emulsion (Envision).
And Envision, he reckons, guarantees a few important things for a serious maker of cannabis-rich beverages:
Quality, enriched (proprietary) THC potency
No weird, gross or distracting cannabis-flavoured/bong water tastes
Stability – with a very long 12 month shelf life – where the active THC doesn’t fizzle out or collect at the bottom of the can
Safe, reliable and affordable
And made from natural, ethically sourced local hemp
Via Althea
But maybe the best thing about today’s announcement for beleaguered cannabis stock investors – Melo and Cloud Cola and friends are headed for an extraordinary breadth of US distribution.
Not just in those unnerving US cannabis specialty stores, but in standard US bottle shops.
That means your wine and liquor stores on every corner across the US of A.
Not to mention via Flora’s thriving e-commerce platform, already attracting hundreds of thousands of registered users.
“Today’s a good day. (The binding JV term sheet with Flora) is a testament to some of unmatched talent and expertise we’ve attracted across Peak. It’s not a mainstream science nor a typical career – the cannabis beverage space – and we’ve got at Peak and Althea amazing people who’ve shown relentless dedication to innovation and growth.
Josh says the broader launch date target and first sales have been set down for late July.
And in a nicely delivered plug over Whatsapp, which I reckon he may’ve practised:
“As we embark on this strategic venture, we are unwavering in our commitment to delivering excellence in the rapidly evolving cannabis beverages market in the USA.”
Leverage on the beverage
There might not be a better time to enter the bustling legal hemp derived delta-9-THC cannabis-infused beverages (or maybe just cannabis beverages) market.
The DEA is planning to reschedule cannabis from Schedule 1 to Schedule 3 and while Joshua says that it’s not a done deal yet, this is a big step forward and would eliminate the evil 280E taxation, which would be a whole new sport-changer.
“Cannabis policy here has had its little excitements over the last few years but this is likely the biggest leap forward in US federal policy in over half a century”
The Attoney General Merrick Garland the US Justice Department (DOJ) – on the back of scientific and medical advice from the US Dept of Health (DOH) – came to the conclusion on Monday that:
“There is, at present, substantial evidence that marijuana does not warrant control under schedule I of the CSA.”
Boom. Joe. Boom
The US President Joe Biden also got very tweety about it, calling the decision “an important move toward reversing longstanding inequities”.
Today, my administration took a major step to reclassify marijuana from a Schedule I drug to a Schedule III drug.
It’s an important move toward reversing longstanding inequities. pic.twitter.com/mxNQqQg1s7
— Joe Biden (@JoeBiden) May 16, 2024
Yes, we Cannabis
After years of stop, start cannabis stock prices – all of which have taken an absolute pounding over the last few years – it’s not unheard of for a stock to get a handy leg up whenever there’s a decent announcement alluding to some kind of regulatory inch forward.
Take some of the bigger US cannabis ETFs like Amplify’s US Alternative Harvest ETF (ARCX) or Advisor Shares Pure US Cannabis ETF (MSOS), both of which track publicly held US pot stocks.
And while both ETFs jumped by a full 25% after Associated Press first reported the announcement to reclassify marijuana, it’s probably fair to say that the original enthusiasm for cannabis stocks has somewhat …diminished.
These popular ETFs tell a story.
Via Google
The DOJ’s submission would take cannabis out of the same category as stuff like cocaine and put it down with your codeines and anabolic steroids.
Garden variety marijuana’s been classified a Schedule 1 drug alongside heroin and fentanyl since 1970, Josh says.
Cannabis is now legal in 37 US states – for medical use – and fully legal across 24 others. However, on the federal level, its status hasn’t budged since John Wayne won best actor at the 42nd Academy Awards.
It’s what makes last week’s DOJ move so quietly thrilling for pot stock fans and so many others.
“Maybe the biggest outcome (of cannabis being dropped from Schedule 1 drug to a Schedule 3) would be the elimination of this 280E tax I mentioned – and that’d mean a huge boost to cash flow for companies which process, distribute and sell in the US,” Josh says.
“Schedule I substances are bound by three tax provisions under a rule called 280E, which prevents companies from taking up standard business tax deductions.”
Last week the listed US cannabis company Curaleaf Holdings Inc (CURLF) said it’d save more than US$150 million in 2024 taxes if 280E is dropped.
So that ball is rolling.
Althea Group (ASX:AGH)
“We operate three distinct strategic business units: Peak Processing Solutions (Peak), Althea & MyAccess Clinics,” Josh told Stockhead.
“MyAccess are among the best medicinal cannabis clinics in the EU, Althea (just Althea) are the Mother Ship and handle all the process, sales and distribution, while Peak – the inspiration of today’s news – partners with consumer-packaged goods (CPG) companies to develop, manufacture and launch (in this case) entirely recreational cannabis products.”
“And Peak is a recognised market leader in the contract development and manufacturing (CDMO) of cannabis-of cannabis-based medicines, with an unrivalled 40% market share in Canada,” Josh says.
They’re the fun side of a business which has had its serious face on for the last few years.
For example:
Or what about…
Screenshot via Melo
Peak USA
But the serious side is never far, and it’s very serious when there are numbers like the ones Althea are looking at.
Josh says Peak USA will replicate the successful business model of Peak Canada.
“Using our proprietary emulsion Envision to produce hemp-derived cannabis-infused beverages, hemp-derived THC cannabis beverages are legal in the USA and anticipated to represent a $19bn market by 2028.”
Peak’s expansion into the US via the JV with Flora looks like being fast, frictionless and capital-lite.
Flora’s status as a prominent cannabis wellness company with established and extensive sales/distribution networks includes the company’s existing successful e-commerce platform with over 350,000 registered customers.
That’s where the first range of MELO Seltzers are already being launched, via its online portal.
“The opportunity,” Josh says, “is significant.”
A very, very large addressable market
The cannabis beverages containing hemp derived delta-9-THC are legal country wide in the US, with significant opportunities for market expansion, Josh says.
“This year it’s valued at USD$966.9 million… but the market is projected to grow at a CAGR of more than 54% to US$19 billion by 2028.
“The JV will be strategically positioned to establish cannabis beverages distribution in the US because we’ve got the partners in place handling regulations and facilitating market access via the CPG channels – like wine and liquor stores – rather than state-licensed recreational cannabis dispensaries.
“This is the right approach. It enhances accessibility and broadens consumer reach, maximising market penetration and growth potential.”
The latest worldwide industry forecasts for cannabis, via US market research firm BDSA, predicts the global legal marijuana industry will collect US$58bn in sales in 2028, and much of that will be fuelled by recretaional sales in the US.
The firm says sales in the USA alone this year will hit $32.4bn up from $29.5bn in 2023.
On its own by 2028, the US should hit $46bn with the fastest growth in the emerging adult-use US markets, which include Connecticut, New Jersey, New York and Illinois.
Peak Althea
After running the shop for a few years now, Joshua says Althea is starting to hit its straps in the bum-tightening business department as well. He no longer feels the cash burn of setting up a global operation. And he knows the language of lean manufacturing and distribution.
“We’ve identified operational overhead cost savings, and in the coming months have a tightly structured cost cutting plan ready for implementation.”
There’s already been $1.8mn in salary reductions.
“Peak is now onboarding more part-time staff which will nix external labour costs, the maturing supply chain is delivering further efficiencies and the overall restructure is expected to deliver $2.5m in annualised cost savings starting this month.”
Peak, he says intends to replicate its Canadian success, (yes, where it has a 40% market share), by manufacturing Envision in the States from locally sourced hemp, which will become the active ingredient in Melo and whatever comes next.
“Peak’s model for this venture is low risk and capital light with production that is co-located within Flora’s existing manufacturing facility, whilst formulation and canning is to be outsourced to a leading third-party co-packer.
“Experienced reps from Peak’s Canadian operation will manage and supervise all aspects of the US operations, ensuring everything adheres to some very strict product quality and taste standards.”
So… what are they like?!
The millennials LOVE them, Josh tells Stockhead.
“So they’re a healthy, safer option than a glass of wine or some other alcohol after a long day.
“THC-infused drinks are low-calorie – Melo’s only 50 calories a drink and the effect, other than bloody refreshing, is a gentle buzz… which is why these cannabis-based drinks are becoming a huge favourite among anyone looking for healthier alternatives.
Ah.
The California Sober Lifestyle.
“Yep. Millennials are showing a growing interest in cannabis-infused beverages because they offer a whole buuch of health and wellness benefits. In contrast to alcohol, cannabis is non-toxic, non-addictive, and does not cause hangovers.”
What? No Hangovers?
The social acceptance of cannabis also plays a crucial role in this shift… Josh says.
“But that’s right. It’s all about healthier lifestyle choices.
“…So A 5mg THC beverage provides an experience distinct from that of alcohol, with more mental than physical effects.
“Your preference, the kind of experience you’re after, and legalities play a role in choosing between them. Typically, you’ll start to feel the effects within 15-30 minutes, which can last up to two hours.
“If you’re new to THC, enjoying it perhaps once or twice a year, start with half a can and wait 30 minutes before deciding if you want more. This cautious approach helps gauge your tolerance and the beverage’s impact.
“For those who partake in THC casually, use THC once or twice a month, one to two cans should suffice to reach the desired state.”
Josh says frequent users – so obviously no one reading this Stockhead article – indulging three to five times a week, might need three to five cans to achieve their preferred effects, reflecting higher tolerance levels.
The post Will this can of cannabis change how Americans drink about marijuana? appeared first on Stockhead.
