This post will focus on the potential of THC and CBD-infused drinks and edibles, in addition to briefly highlighting the potential of the kombucha industry. I will veer away from the kombucha aspect of this “radler” for a few reasons, which I’ll mention below, and instead claim that the edible THC/CBD “radler” is the focus because its expansion horizon is much closer than that of kombucha. However, I do believe that both are great industries to invest in.
The Kombucha Market Today
Kombucha is a raw drink that contains live bacteria that is good for your gut. Believe it or not, kombucha is fermented tea. Nowadays, companies are cutting it with added “probiotics” and bottling it with aluminum cans, essentially killing off any of the actual live bacteria that gives the drink its health benefits. Then they slap a label on it calling it “live” or a health drink when it’s no different from vitamin water or soda. Try a kombucha in a can and then try one in a glass bottle, and you’ll notice a difference. Why? If you have a high sugar diet, actual kombucha will taste very tart and have strong notes of vinegar. This means that for the large portion of the population that tries the drink, it’s revolting. So, companies who desire to make a profit have to create a drink that was once brewed as kombucha, then add “healthy” additives to keep the healthy label attached, then sell you something your sweet tooth can actually tolerate.
Second, while I do see major potential from this industry moving forward, there still isn’t a major public entity that is making quality kombucha. This means that unless you want to brew your own kombucha and make a profit off of it or start your own business, there aren’t many ways for the normal individual to invest in this product. One example of quality kombucha is GT’s, but they are private.
However, I will say that besides the quality issue, no company is really pushing the alcoholic kombucha angle. I believe this has huge potential, and if done properly, this market is nearly untapped. The main challenge here is red tape, which is typically why you’ll see those public companies shying away from the actual raw or live aspect. Remember, it is a fermented “live” drink, which means there’s less control on exactly what is bottled and put on the shelf, consistently, every time. This is because kombucha isn’t a machine; it’s something that you put the ingredients into a container and brew, then it grows itself. Think of a flower: while they are the same species when you break it down on a molecular level, every one is slightly different. So, referring back to the red tape, when you print 50,000 labels that claim you have less than 0.05 ABV, but you just brewed a batch of kombucha that has 0.06 ABV because of those slight and difficult-to-control variations of a live drink, that entire batch is now considered waste. Therefore, it’s often easier to kill the “live” aspect of the drink to satisfy red tape.
Investing in Kombucha
It’s beyond my comprehension why companies aren’t embracing the live aspect of kombucha and creating a new “wine” market with its alcoholic component. Kombucha is much quicker to brew, far less labor-intensive to produce, and requires a fraction of the land that wine requires. With the potential health benefits of an alcoholic beverage that is healthy, an acquired taste, and allows for regional creativity, I believe it’s only a matter of time before this market awakens to its potential.
However, for these reasons, I think this industry needs to work out a few kinks before it reaches its full potential. While the industry I’m about to mention also needs a lot more regulatory work done before it reaches its potential, there is far greater capital investment and interest in the latter for its breakout to be around the corner or “investable”. Kombucha, being the former, needs more capital, quality, and attention before it’s realistically a good investment
Cannabis Drinks
In recent years, there has been a growing trend in the cannabis industry towards the production of CBD and THC-infused drinks and edibles. I believe this trend will continue and that these products will become the future of the cannabis industry.
One of the reasons for this is that CBD “cigarettes” or vape oils are likely to become very popular among the next generation. This is because they offer all the benefits of tobacco without the tar and other harmful components of cigarettes. However, it’s important to note that the following paragraph is misleading.
Smoking is terrible for your lungs, and as research continues to reveal, it causes cancer. While advocates for cannabis like to point out that it’s all-natural, smoke is smoke. It’s all technically bad for you, one is just the lesser of two evils. In addition, smoking cannabis smells, can be painful, and it’s harder to determine the effects depending on the amount inhaled. The heat from smoke (or oils) burns the inside of your lungs and can cause coughing and lung cancer.
Therefore, after the legalization of cannabis, I believe the industry will shift heavily into the edible and drinkable industry. This will expand its reach to all those who don’t like smoking. When we put a substance into our bodies, it’s best filtered when consumed in a way that our bodies are designed to digest it. The stomach is designed to slowly process and break down toxins in a multitude of ways that the lungs cannot. Consuming cannabis through our intestines not only filters out harmful components but also allows for the ability to measure exact quantities and effects.
Restaurants and bars will have more flexibility in their offerings, much like the vegan/vegetarian options of today that are growing in demand across the world. As a result, businesses that cater to the cannabis industry will have many more opportunities for growth and profitability. Furthermore, the side effects of consuming cannabis through edibles and drinks are much safer and calmer as compared to alcohol, and it’s less likely to cause rowdiness among customers.
It’s clear that the future of the cannabis industry lies in the production of edibles and drinks that are infused with CBD and THC. This shift towards the edible and drinkable industry will enable businesses to reach a wider audience, and offer more options for people who don’t like smoking. As a result, there will be many more opportunities for growth and profitability in the cannabis industry.
Investing in Cannabis
I personally like Tilray or TLRY in this industry for the following reasons:
- Little to no institutional adoption – While typically a bad sign, institutions are only staying away from companies like Tilray because of the risk factor of it not being legalized. If it were legal tomorrow, institutions would flood to companies like this because of the huge growth potential. Although most states are legalizing it in some way, it will undoubtedly become a desirable tax for the federal government sooner rather than later. Furthermore, places all around Europe, South America, and Australia are quickly moving on legislation, in addition to Canada’s situation.
- Growth Potential – TLRY’s earnings growth is forecast to be 58% over the next three years, and that doesn’t even include legalization potential.
- Merger with APHA – The reason this is mentioned is because Tilray’s merger with Aphria created the largest cannabis company in the world. The new leadership from Tilray, via the removal of Brendan Kennedy from CEO with the replacement of Irwin Simon, has huge ripple effects when you consider what Simon did for Aphria before the merger. In addition to acquiring a huge European footprint via Aphria that is edging ever closer to legalization (with the ability to purchase in clubs and certain cities all around Europe), this should rapidly turn this company into the green, no pun intended.
- Acquisition of SweetWater Brewing Company – Irwin has come out on a few different occasions as one of the main advocates of not only cannabis-infused drinks but edibles of all kinds, which gives me the confidence that he really understands where this industry is headed moving forward.
- Pharmaceutical – Listen to Episode 39 of Thoughts of a Random Citizen to understand why this is such a big deal. The benefits alone of having cannabis labeled as a medicinal drug will ensure security if all else fails.
- Global Footprint – In addition to Canada (where it is completely legal) and the US, Tilray operates in Portugal, Germany and stretches all the way to New Zealand and Australia, and has a major presence in Latin and South America.
The only serious negative at the moment from a long-term perspective is their shareholder dilution, but as earnings are rapidly increasing, I don’t foresee this continuing beyond next year.r.
Disclosure: The author, as of this writing, of the companies mentioned, only holds a long position in Tilray Brands (TLRY), with no intentions of initiating a position in any other company mentioned in this article within the next 72 hours. The article was written by himself, and it expresses his own opinions. He is not receiving compensation for it. He has no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Tim is not a financial advisor. Please always do further research and do your own due diligence before making any investments.
