Labatt parent Inbev teaming up with Tilray in beverage research pact

TORONTO AB Inbev, one of the world’s largest brewers, is partnering with cannabis producer Tilray Inc. to research the production of THC and Cbd-infused non-alcoholic beverages, in a move that marks the entrance of another alcohol giant into Canada’s rapidly evolving cannabis space.

The partnership will see both AB Inbev’s Canadian subsidiary Labatt Breweries Canada and Tilray’s adult-use subsidiary High Park Company invest up to US$50 million each into a research program that will be based out of London, Ont., where both Labatt and High Park have operations.

“It’s still early days in this industry but we wanted to get focused on responsible product development on the beverage side,” said Tilray’s CEO Brendan Kennedy. “We had been meeting with Labatt for about a year and they had a team that was looking at this industry and had also met with a number of other licensed producers in Canada. We seemed like the right partner for them,” he added.

The partnership comes just weeks before the federal government is expected to announce draft regulations for the second phase of pot legalization — set to take place in the fall of 2019 — that will likely bring edibles and concentrates to the Canadian recreational market.

“Labatt is committed to staying ahead of emerging consumer trends. We intend to develop a deeper understanding of non-alcohol beverages containing THC and CBD that will guide future decisions about potential commercial opportunities,” said Kyle Norrington, president of Labatt Breweries of Canada, in a press release.

Labatt, and its parent firm AB Inbev, is the third alcohol company to officially enter the pot industry. Last fall, Constellation Brands stumped a $5-billion investment in Canopy Growth Corp., expanding its presence in Canada’s largest cannabis producer. Around the same time, Molson Coors Canada announced a joint venture to develop pot-infused beverages with Quebec-based Hexo Corp.

As to whether the partnership could potentially evolve into a larger investment by the brewery in Tilray, Kennedy was keen to make it clear that he was not interested in being bought out. “We are not interested in being acquired. Altria and Constellation effectively bought Canadian LPS — we don’t want to give up control over our own destiny,” he said, in reference to another recent deal that saw tobacco company Altria buying a 45-per-cent stake in cannabis producer Cronos Group.

He did, however, allude to Tilray’s pattern of relationships with firms outside the cannabis space, suggesting something similar might follow. “Last March we announced an alliance with Sandoz, and then yesterday we expanded to a global agreement with them. That’s how we like to operate at Tilray.”

Tilray’s shares were up almost 20 per cent on Tuesday after the company announced an expansion of its January 2018 agreement to develop medical products with Novartis Pharmaceutical’s Sandoz AG.

The cannabis-infused drinks market could be worth up to $600 million in the U.S. alone by 2022, according to analysts at investment firm Canaccord Genuity, in a September 2018 note. Canaccord’s Bobby Burleson predicted that beverages with CBD or THC could capture about 20 per cent of the U.S. market for all edible pot products in the next four years.

But developing an appealing, consistent, pot-infused beverage is no easy task. Issues such as water solubility, distributing cannabis molecules evenly throughout the drink and regulating the time it takes to feel the effect of the drug are all problems firms seem to be grappling with, according to Kennedy. “It’s hard to find a tasty drink. Cannabis drinks available on certain U.S. markets as well as samples on the illegal market here in Canada indicate that no one has quite got it right yet,” he said.