Carlsberg Group on Wednesday announced an all-cash deal worth $4 per share for all shares of Waterloo Brewing, which bills itself as the largest Canadian-owned brewery in Ontario and a pioneer of the current “craft brewing renaissance” in Canada.

The deal still requires court approval — and approval from TSX-traded Waterloo’s shareholders, although Carlsberg has already signed up Waterloo company directors and officers holding a combined stake of about 39 per cent, with “irrevocable” support and voting agreements.

A committee of Waterloo independent directors is also recommending the remaining shareholders vote in favour of the deal, on which the two companies expect to close early in the first half of the new year.

In business since 1984, starting as Brick Brewing and rebranding in 2019, Waterloo Brewing produces the Waterloo line of premium craft beers and a “value” brand, Laker.

It also holds the Canadian rights to Seagram Coolers and the LandShark and Margaritaville beverage lines, and already has been producing Somersby cider in Canada on Copenhagen-based Carlsberg’s behalf since 2020.

“One of the priorities of our SAIL’27 strategy is to grow our business in attractive markets where we are small today, such as Canada,” Carlsberg CEO Cees ‘t Hart said in a separate release Thursday. Buying Waterloo Brewing, he said, “significantly improves our growth prospects in the Canadian market.”

“This exciting opportunity will scale our business in Canada. The brand portfolios are complementary. Local sourcing will secure long-term robustness of supply, and increase commercial flexibility and speed to market for innovations, step-changing the way we operate,” Carlsberg Canada managing director Anders Rud Jørgensen said in the same release.

Waterloo Brewing’s portfolio of “long-standing co-packing relationships will benefit from these combined operations,” he added.

“We’ve enjoyed a close relationship with Carlsberg and are excited about becoming part of one of the largest brewing companies in the world,” Waterloo Brewing CEO George Croft said in Wednesday’s release, adding the the board “is confident that joining Carlsberg is the best long-term solution for our employees, partners, customers, consumers and community.”

Waterloo on Wednesday also announced results for its third quarter ending Oct. 30, reporting declines in both net revenue and gross profit in what Croft described in a separate release as “a challenging year for the industry.”

Waterloo said it’s “continuing to see consumers trade-down as a result of ongoing inflationary pressures,” which has led to sales growth for the Laker brand but has “negatively impacted the company’s premium beer brands and ready-to-drink products, which is putting pressure on gross margin.”

Waterloo has since raised the price on its single-serve 473-millilitre Laker cans, a change it said is “consistent with the balance of the industry and will have a significant and positive impact on gross margin in the fourth quarter.”

The company also reported renewals with “strategic” co-manufacturing partners, which it said will result in about $18 million of combined revenue over the extended terms of those contracts.

For its last full fiscal year ending Jan. 31, 2022, Waterloo had booked $5.803 million in net income on $180.825 million in gross revenue, up from $3 million on $156.8 million in the previous fiscal year. — Glacier FarmMedia Network

The post Carlsberg to buy Ontario’s Waterloo Brewing appeared first on Farmtario.

The deal gives Leamington, Ont.-based Aphria a U.S. distribution point at a time when cannabis is gaining broader acceptance in that country, with four more states voting to legalize recreational cannabis on Tuesday and the Democrats promising to decriminalize marijuana federally if elected to the White House.

The merger also comes close on the heels of a recent announcement by larger rival Canopy Growth Corp. to launch its pot-infused beverages in key U.S. markets through a partnership with Acreage Holdings next summer.

While Atlanta-based SweetWater does not sell any pot-infused beverages, it is famous for its “420” beer that smells like weed, and Aphria’s CEO Irwin Simon said the deal helps his company raise brand-awareness in the U.S. and capitalize on future legalization at state or federal level.

A host of alcohol brands have taken stakes in cannabis companies, including Corona beer maker Constellation Brands, which backs Canopy, but Aphria’s purchase reverses the trend to be the first large pot producer to enter the beer market.

The deal gives the company access to a growing $29 billion craft brew market, and the company will distribute SweetWater’s 420 line and other beverages in Canada, it said in a statement (all figures US$).

The pot producer expects the merger to be immediately accretive to its earnings per share and is likely to close before the year-end.

Unitholders of SweetWater, which will become a wholly-owned unit of Aphria, will get $250 million in cash and about $50 million in Aphria stock. It will fund the deal with debt, new stock sales and cash on hand.

— Reporting for Reuters by Shariq Khan and Nivedita Balu in Bangalore.

The post Canadian pot producer Aphria to buy U.S. craft brewer appeared first on Farmtario.

Nearly 11 months after regulators allowed their sales, very few brands have been able to reach shelves.

Canada at the start of this year allowed sales of so-called ‘Cannabis 2.0’ products, which include edibles, vapes and drinks. The products have been a big hit with customers during coronavirus-induced lockdowns, but producers have struggled to maintain timelines for the launch of the THC beverages.

Analysts and industry insiders had eagerly anticipated these beverages, hoping they would attract large swathes of the public to pot from booze, and bring back investor dollars after the industry fell out of favor due to a lack of profitability.

Common production challenges include short shelf-life, maintaining a consistent taste, inconsistent potency, and the length of time it takes to achieve the desired “high,” said Karan Wadhera, managing partner at cannabis venture capital firm Casa Verde Capital.

“There are also high production costs, expensive distribution, and a lack of dispensary infrastructure to intake and display the products,” he added, referring to cannabis shops without loading docks or refrigerators.

The COVID-19 pandemic has made funds even more scarce for a sector that has disappointed the market with missed financial targets and many producers forced to withdraw dollars from developmental products that promise future profits to focus on maintaining the core business.

“This is certainly true of Canadian LPs (licensed producers) who have had massive layoffs and reductions of production,” said Medical Marijuana Inc. CEO Stuart Titus.

“The drop-off in investor capital has also had a negative effect on product development, so the supply of effective cannabis-based beverages remains relatively small,” he added.

Getting it right

Technical issues involving basic chemistry have also slowed bringing some of these THC-infused beverages to market.

Most cannabinoids are insoluble in water, explained Joshua Swider, co-founder and CEO of Infinite Chemical Analysis Labs (InfiniteCAL).

To overcome that issue, companies use emulsions. But even if they can make an emulsion that gets the high-inducing cannabinoids to properly mix with the beverage, maintaining that mix is itself a challenge.

InfiniteCAL said its tests show some beverages can degrade in as little as a few days, leaving the THC that induces the desired high stuck to the can liner lowering the drink’s potency.

“Everyone has really great ideas in this market, but people are coming to find that actually executing the idea is much more difficult,” said Narmin Jarrous, vice president at Exclusive Brands, a Michigan-based cannabis retailer.

Despite facing its own challenges and delays putting beverages on the shelves, Canopy Growth Corp., the largest pot producer by market value, has established a strong foothold.

The company had planned to launch its drinks in January, when sales were first authorized in Canada, but scaling up production and other issues delayed their introduction.

With backing from Corona beer-maker Constellation Brands, Canopy’s products did hit the market in March, well before major rivals got there. It now controls more than 70 per cent of the cannabis-infused drinks market, a company spokeswoman said.

The company has sold close to two million cans of its THC-infused beverages in Canada since March. The top three cannabis beverages in Canada are all Canopy products, the spokeswoman added.

CEO David Klein, a Constellation veteran who took on the top role at Canopy in December, told investors in August the company expected to double its drinks output for that month after having already doubled it the previous month.

The company announced plans this month to begin selling the products in the U.S. next summer, initially launching THC-beverages in the fast-growing California and Illinois markets through a partnership with New York-based Acreage Holdings.

“Given the choice of a traditional alcoholic beverage and a THC-infused beverage, I believe that THC beverages would rival alcoholic beverages for their popularity with consumers,” Titus said.

— Shariq Khan reports on North America’s resource and energy sectors for Reuters from Bangalore.

The post Cannabis-infused drinks fizzle on production, distribution challenges appeared first on Farmtario.

Meat substitutes from plants in burgers, nuggets and many other foods are a fast-growing industry, driving up demand for crops that produce them.

Canada is among the world’s largest growers of peas and the biggest producer of canola, crops high in protein that technology companies like Burcon — a joint-venture partner in Merit — can separate and isolate for use in foods and beverages.

The agreement with Nestle is long-term, with no expiry, Burcon CEO Johann Tergesen said in an interview. Nestle will buy pea and canola proteins from a 20,000-tonne-per-year Merit plant to be built by the end of this year in Winnipeg.

Merit will process the proteins using Burcon technology under a licensing agreement.

“It’s a little bit like Christmas morning for those of us who have been doing this for 20 years,” Tergesen said.

“In the early days, I had to explain to people what protein was. Now it has been a wild ride.”

Burcon stock jumped 36 per cent in Toronto to $1.89 per share, touching its highest price in nearly three years. Nestle stock rose 0.9 per cent in Switzerland.

With the deal, Burcon expects to report its first-ever commercial revenue and profit in 2021. Terms were not released.

Nestle launched soy and wheat protein-based “Incredible Burgers” in Europe last year. The deal gives the company access to a range of ingredients for its foods and beverages, using the “unique expertise” of Burcon and Merit, Nestle chief technology officer Stefan Palzer said.

It comes after Beyond Meat this month struck a similar supply agreement with France-based Roquette, which is also building a pea protein plant about 90 km west of Winnipeg at Portage la Prairie, Man.

The new commercial demand “provides a real sense of optimism for the future,” said Gord Bacon of Pulse Canada, an industry group representing pulse farmers and processors.

“To have a diversified market base is what every group producing commodities or ingredients in Canada would hope for.”

With so much of Canada’s peas exported raw, finding enough supply to satisfy the Nestle deal will not be a challenge, said Ryan Bracken, Merit’s co-CEO. The company is already planning to expand the Winnipeg plant under construction to more than double production.

— Reporting for Reuters by Rod Nickel in Winnipeg and Silke Koltrowitz in Zurich; additional reporting by Kelsey Johnson in Ottawa.

The post Nestle to source plant proteins from Winnipeg appeared first on Farmtario.

So-called cannabis 2.0 — legalization of marijuana derivatives including edibles, beverages, extracts and vape pens — takes effect on Thursday, with sales seen beginning in mid-December.

While that’s expected to help sagging share prices, the crucial factor for a turnaround is a significant increase in the number of stores selling the products, investors, companies and analysts said.

Share prices in the Horizons Marijuana Life Sciences Index ETF have slumped as companies’ revenues missed expectations. Cannabis producers, investors and analysts have blamed Canadian regulations that have slowed the opening of new retail outlets, strangled sales and imposed higher costs.

Investment bank and advisory firm Seaport Global figures Canada needs about 1,055 stores to realize the cannabis market’s true potential.

About half that number currently exist, with about 300 of those stores in Alberta, which has looser regulations than the rest of the country, while the most populous provinces of Ontario and Quebec have lagged far behind.

“We would probably give the first year a C minus,” said Seaport Global analyst Brett Hundley, giving the industry performance a barely passing grade.

The slow roll-out of stores “creates a real problem for Canadian licensed producers, because they’ve expanded rapidly with cultivation and production facilities and have nowhere to go,” he added.

Lacklustre results from cannabis producers “will continue and potentially worsen,” Hundley cautioned.

Canada’s biggest cannabis companies including Canopy Growth and Aurora Cannabis reported larger-than-expected losses in the latest quarter and pushed back their timelines to profitability, blaming their woes on the need for more stores to sell their wares.

Regulations for the new marijuana products market, which include restricting each package to 10 milligrams of THC — the psychoactive compound in cannabis — will add to companies’ costs, said Ryan Greer, co-chairman of the Canadian Chamber of Commerce’s National Cannabis Working Group, which is made up of Canadian marijuana companies.

With each province responsible for its own retail rules and taxes, the fragmented approach to regulating the industry will continue to raise costs and create distortions in the market, Greer said.

Investors spooked

One such distortion is evident in prices, with consumer paying far higher prices for legal weed, according to industry experts.

“Too high a level of taxation at the inception of a legal consumer system can be a disincentive for consumers to make that move from black market to legal market,” said Aurora chief corporate officer Cam Battley.

Challenges facing the industry and disappointing financial results have spooked investors who had piled into the sector amid initial euphoria in the run-up to legalization of recreational cannabis last Oct. 17.

“Now, this year these companies are coming more under the microscope by investors and people are saying, ‘hey, when are you going to start making money?'” said Andrew Kessner, analyst at William O’Neill + Co.

For a new sector and industry, the current investor sentiment is a bump in the road, Loui Anastasopoulos, TMX Group’s president of capital formation for equity markets, told Reuters in an interview.

“Valuations got ahead of themselves and this is a reset … but we do expect capital will flow back into the industry,” Anastasopoulos said.

Emily Paxhia, co-founder of Poseidon Asset Management, echoed those comments, adding that “future capital is going to expect a more prudent approach.”

An investment in excess of $4 billion in Canopy led brewer Constellation Brands to report a quarterly loss this month. But Canopy CEO Mark Zekulin remains optimistic about the long-term prospects for the industry.

“It takes a lot of capital money, a lot of operating money, bringing these large facilities up to scale,” Zekulin told Reuters.

“But at the end of the day,” he said, “the multi-100-billion-dollar cannabis opportunity that existed yesterday still exists today.”

— Reporting for Reuters by Nichola Saminather in Toronto, Shariq Khan in Bangalore and Siddharth Cavale in London.

The post As ‘Cannabis 2.0’ kicks off, industry strangled by limited retail outlets appeared first on Farmtario.

The alliance, the latest in a string of deals by global alcohol and tobacco giants in Canada’s cannabis sector, comes amid booming demand for cannabis and a long-term decline in alcohol consumption and smoking.

AB InBev’s Labatt Breweries of Canada, which makes such brands as Blue, 50, Alexander Keith’s, Kokanee and Budweiser, will work with Tilray’s Canadian cannabis subsidiary, High Park Co., which develops and sells cannabis products in Canada, the companies said in a statement.

Canada, which became the world’s first major country to fully legalize the recreational use of cannabis in October, is expected to approve cannabis-based products including beverages and edibles in October 2019.

“It’s too early to know how big cannabinoid-based beverages will be but we think it’s a massive opportunity and it’s something we’re interested in investing aggressively in,” Tilray CEO Brendan Kennedy told Reuters Wednesday.

AB InBev and Tilray said they each plan to invest up to $50 million to research drinks with cannabidiol (CBD), a component of cannabis that does not cause intoxication, and tetrahydrocannabinol (THC), the substance that makes people high (all figures US$).

Discussions about commercialization are likely to follow, and Tilray’s objective is to have beverages ready when they become legal in Canada, Kennedy said.

A gradual increase in legalized recreational use of cannabis for adults in U.S. states and in medical cannabis around the world has sparked investment and partnership deals for Canadian companies.

On Tuesday, Tilray said it will work with Sandoz, a unit of Swiss drug company Novartis, to develop and distribute medical marijuana worldwide.

Tilray is also exploring opportunities to make acquisitions in 2019, both within and outside the cannabis space, Kennedy said.

In the cannabis industry’s largest investment, Corona beer maker Constellation Brands added $4 billion to its $200 million investment in Canopy Growth in August to help fund the Canadian cannabis producer’s global expansion.

In a more modest deal that same month, Molson Coors, the No. 2 beer maker in North America, struck a Canadian joint venture with marijuana producer Hexo Corp. to make cannabis drinks.

In the tobacco industry’s first major foray into cannabis, Altria Group said this month it would invest $1.8 billion in Cronos Group for up to 55 per cent of the Canadian cannabis producer.

— Reporting for Reuters by Susan Taylor and Nichola Saminather in Toronto.

The post Labatt to partner with Tilray to tap cannabis drink market appeared first on Farmtario.

The move by the maker of Corona beer and Svedka vodka comes as Canada and a growing number of U.S. states move to legalize marijuana for recreational use, raising question marks over its illegal status at the U.S. federal level.

Constellation said it had no plans to market cannabis or lobby for its legalization in the U.S. in the near future and analysts said the relatively small stake would allow it to take advantage of any future boom — or to exit if one does not materialize.

“One of the hallmarks of our success over the years has been our commitment to identify and stay ahead of early stage consumer trends,” the company said in a statement on the deal.

“This is another step in that direction,” it added.

Eight states, including California and Nevada, have legalized marijuana, already widely approved for medicinal use, for recreational use and some studies show consumers would buy the drug instead of alcohol if it was freely available.

A number of pharmaceutical companies have products that are cannabis derivatives and smaller investors have poured money into Canadian producers this year: the index of Canadian marijuana stocks calculated by research house Canaccord Genuity rose 36 per cent in the month to Oct. 11.

But major firms in other sectors have kept their distance, worried by the connotations of involvement with a banned substance.

“We’re obviously trying to get first-mover advantage,” Constellation CEO Rob Sands told the Wall Street Journal, adding that he expects cannabis to be legalized nationwide in the U.S. in coming years.

Threat

Eight Capital analyst Daniel Pearlstein said that the move validated the cannabis industry as both a threat and opportunity for larger established companies in industries including alcohol and tobacco.

“This move is a complete game changer, not only for Canopy, but also for the entire industry,” he said.

Vivien Azer, an analyst at brokerage Cowen, said that data showed 18-25 year olds — a key market for spirit makers — perceived alcohol as increasingly risky compared with cannabis, for which risk perceptions have halved in a decade.

Industry watchers also say cannabis consumers have reduced their alcohol intake in U.S. states following legalization.

“We were … able to show in our research in Colorado, Washington and Oregon that there has been a negative impact in alcohol consumption … post the legalization of adult-use cannabis,” Azer said.

Analysts said a more immediate option for Constellation could be to develop non-alcoholic cannabis-infused beverages for the Canadian cannabis market, which consultants estimate could be worth around $5 billion to $10 billion.

The deal also comes ahead of the widely anticipated move by Canada, to legalize cannabis for recreational use nationwide by July 2018. The following year, edible and drinkable products are expected to become legal.

Canopy Growth is the biggest licensed producer of medical marijuana in Canada and is publicly traded (TSX: WEED) a market capitalization of $2.2 billion.

Constellation said the deal also gives it the option to purchase an additional ownership interest in Canopy in the future.

The two companies said Monday they also plan to enter into an agreement to “exchange knowledge and expertise.”

— Reporting for Reuters by Siddharth Cavale and Gayathree Ganesan; additional reporting by Ankur Banerjee and Manas Mishra in Bangalore. Includes files from AGCanada.com Network staff.

The post Constellation hedges bets on pot boom with Canopy stake appeared first on Farmtario.