Canopy Growth & Southern Glazers: Setting the U.S. stage via CBD
“This agreement reinforces our consumer-focused approach to identifying emerging growth areas where we can add value for our customers,” said David Chaplin, Chief Growth Officer, Southern Glazer’s Wine & Spirits.
Shortly after Canopy Growth announced that their CBD line of Quatreau products would be available for purchase in the U.S., they have followed up with an announcement highlighting a distribution agreement with Southern Glazers. This deal will bring Quatreau CBD beverages, a cousin to their THC counterpart currently available in Canada, into a broad set of traditional retail outlets augmenting their current direct-to-consumer (DTC) efforts.
Southern Glazers is no stranger to cannabis, with their subsidiary Great North Distributors already active in the federally legal Canadian market. Recently, Great North announced a distribution agreement with Aurora, a Canopy Growth competitor in Canada, to be the sold distributor of Aurora products throughout all provinces. With this Canopy announcement, we see Southern Glazers make a big push into CBD Beverage and Quatreau looking to establish brand awareness in mainstream retail ahead of federal legalization.
Cannabis & Alcohol Connections
Close to 40% of Canopy Growth is owned by Constellation Brands, known for their beverage alcohol brand portfolio that includes the likes of Corona and Robert Mondavi. As of April 2021, Southern Glazers distributes 70% of Constellation products within the U.S, which makes the Canopy Growth distribution agreement with Southern Glazers seem inevitable. With consumption trends going beyond recreation (ie. wellness and medical) cannabis is not completely analogous to alcohol, but its connection make sense, as both cannabis and alcohol are distributed and sold in heavily regulated environments.
Beverage Alcohol’s Opportunity
Within cannabis product innovation, we are already seeing brands that mimic the social experience of alcohol. Brands like Cann, which recently inked a deal with MSO Green Thumb, have positioned themselves as similar to alcohol in the social consumption aspect and as an alternative to alcohol in the ‘no hangover, no calorie’ department.
As legal cannabis access continues to expand, consumers have more options when it comes to how they spend their money and may choose to opt into purchasing cannabis beverages over their alcohol counterparts. If it were it not for the current federal position in the U.S. there would be a lot more direct investment from alcohol businesses to address this.
But, this is all about to change as the federal government signals that within a year, the legal framework will be changed — something that more and more feels like an inevitability.
Quatreau and Cannabis 2.0
Quatreau is amongst a host of THC and CBD cannabis beverages only recently available in the legal Canada cannabis market. In the beginning of 2020, Canada expanded its product format line to include categories like Beverage and Vapor Pen to the market for the first time. In the first quarter of 2021, THC-based cannabis Beverages sales hit almost $8M across Alberta, British Columbia, Saskatchewan and Ontario (private retail), of which Quatreau represented about 5% of total Beverage sales in the market.
The drinks come in a handful of flavors, with the largest share of sales going to their Passionfruit + Guava flavor, with 20mg CBD and 1mg THC. What’s really notable is that within cannabis retail, their second best selling product for Q1 2021 contains zero THC, which bodes well for their CBD-only entry into the U.S. through their direct-to-consumer and Southern Glazers.
Another notable parallel between their THC-based 2.0 drinks in Canada, and their CBD beverage line in the U.S. is the price point, with both coming in at about $3.99 per can. While this price point is roughly in line for cannabis beverages, it is fairly steep when you compare it to other Southern Glazer Constellation distributed products, like Corona Hard Seltzer which comes in at under $1.50 per can. Perhaps the novelty of CBD can warrant the premium on mass retail store shelves.
CPG Value Creation
With this announcement Canopy Growth is leveraging the CPG value creation playbook in a few notable ways to support a longer term brand strategy, particularly:
- Built relationships with grocers and other mass retailers that provide advantaged access to consumers.
- Entered developing markets early and actively cultivated their categories as consumers became wealthier.
Relationships with grocers and mass retailers that provide advantaged access to consumers
This is the core of the Southern Glazers news, particular the portion about ‘mass retailers’. CBD has historically been limited to direct-to-consumer, or tincture-like products found in the corner of large pharmacies. CBD beverages in the U.S. certainly exist, but mass distribution has been lacking for the most part. With Southern Glazers distribution, this could provide broad access to a new consumer for Canopy.
Entered developing markets early and actively cultivated their categories as consumers became wealthier
The U.S. cannabis market is developing quickly, with new states legalizing and change on the horizon at the federal level. While a CBD line of products is not the same as a THC-based line of products, building up brand equity with consumers in mass market retailers and translating that success into cannabis retail when possible is an interesting strategy.
What to Watch For
While this is will help with a long-term brand play it will be interesting to see if it makes an impact on the bottom line. Looking at Canopy financials, for the three months ending 2020, they show almost $54M CAD in sales in their “Other” business units, which does include its U.S. CBD alongside other notable lines, like Stork & Bickel, makers of the Volcano vaporizing product. With the introduction of Quatreau to the U.S. in March 2021 and the Southern Glazers distribution agreement I anticipate seeing this number increase in the future.
Other items to watch for:
- Will we see similar from competitive Canadian LPs? Tilray owns Manitoba Harvest, maker of Hemp Milk which has distribution in the U.S. already but isn’t distributing a similar beverage yet
- This isn’t the only Canadian LP U.S. beverage strategy, Aphria purchased SweetWater Brewing in Atlanta, Georgia for $300M with future hopes of leveraging the brand for cannabis exposure within the U.S. — which one will prove better?
- With CBD-based products less regulated than THC-based products, it’s surprising to see a similar price point for both versions of the product (THC and CBD coming in at $3.99). Will the CBD price get pushed down in the near term for a mass-market consumer at mass-market retail?
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