In late March, cannabis investment firm SOL Global Investments (CSE:SOL) said that it had purchased a 9.8% stake in alternative lifestyle-driven soda maker Jones Soda (OTCQB:JSDA). Since Sol Global is focused on investing in cannabis and cannabis-related companies in marijuana-legal states and hemp and CBD marketplaces, this newest investment was interpreted as its official foray into cannabis/CBD drinks.
Immediately, the market saw this as a prime opportunity for Jones Soda—a craft soda brand selling offbeat drinks with quirky flavors for a trendier consumer set—to take advantage of the wide-open cannabis-infused soda market. Drinks produced by Jones Soda have a range of interesting flavors that appeal uniquely to millennial and post-millennial customers, and cannabis drinks featuring unconventional taste profiles could prove to be a hit with this demographic.
Assuming Jones Soda does jump into the cannabis soda business, it could be one of the first well-known non-alcoholic brands to tap the enormous market potential of cannabis-infused beverages. So far, only alcoholic brands have publicly shown signs of interest, starting in 2017 when Heineken-owned Lagunitas Brewing first put out an Indian Pale Ale with marijuana terpenes for the California market. Then last year, Constellation Brands (NYSE:STZ), whose portfolio includes Corona, Modelo Especial, and Black Velvet Canadian Whisky, invested $3.9 billion in major cannabis grower Canopy Growth (TSX:WEED). Molson Coors Brewing (NYSE:TAP), through a joint venture with HEXO Corp. (TSX:HEXO), and AB InBev (via a research partnership with Tilray (NASDAQ:TLRY), have also joined in.
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However, since the 2018 Farm Bill, which was signed into law in December last year and removed hemp (including hemp-derived CBD) from the list of controlled substances, we’ve also seen an uptick in interest from major food and beverage companies. Coca-Cola (NYSE:KO) has recently been venturing into the “craft cola” trend of premium non-alcoholic soft drinks and held discussions last year with Aurora Cannabis (TSX:ACB) about the potential of developing CBD-infused non-alcoholic beverages. However, the beverage maker stated in an October earnings call that investing in CBD would still be a considerable challenge given the current US regulatory environment at the federal level.
While hemp-based CBD could potentially be legal and regulated under the Farm Bill, it is still banned in food and drink, according to the US Food and Drug Administration (FDA). On a positive note, the FDA recently responded to pressure from Congress by setting a date for its first hearing on CBD for May 30th. That hearing will look into how to properly legalize the compound for addition to food and drinks, with findings to be shared as early as this summer.
There’s every indication of a robust market, with 41% of US consumers reporting an interest in trying cannabis-infused foods, according to a 2018 A.T. Kearney study. Zion Market Research has also forecast an approximately $4.5 billion cannabis beverage market by 2025, up from $1.6 billion in 2018. At the moment, competitors in the cannabis soda space include names such as Manzanita Madrone’s the Fizz, Keef Cola, and California Dreamin’. All of these sodas are produced by startups, which means that cannabis soda space remains open to more established brands such as Jones Soda.
There’s been one significant hitch, however: According to a recent Wall Street Journal report, cannabis beverages still taste “terrible,” and the drinker won’t feel its effects immediately. So even if CBD beverages do get the FDA stamp of approval throughout the US, it may still take some additional experimentation to improve on this end user experience.
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