One segment of the booming legal cannabis industry that has investors across the globe thirsty for growth is the infused-beverages category. One company already cementing their place in Canada’s up-and-coming legal marijuana market is Hill Street Beverage Co. (TSX:BEER), one of the country’s leading alcohol-free beer and wine providers. With over 100 years of beverage industry experience, Hill Street is already well-known as a purveyor of award-winning drinks and ready to hit the ground running when Canada begins the sale of cannabis-edibles in 2019.
CFN Media sat down with Hill Street Chairman and CEO Terry Donnelly at the recent Grow Up Conference in Niagara Falls, Ontario, and he provided us with some insight on the company’s long tradition of offering amazing alcohol-free beverages and what they have in store for the future.
CFN: What is the history of Hill Street?
Terry Donnelly: The company began originally making beverages for the designated driver, addressing the desire of people to fit in with the party by drinking a wine or beer but also be socially responsible. Through a partnership with Mothers Against Drunk Driving, the company produced the world’s first alcohol-free craft beer and subsequently produced the world’s most award-winning alcohol-free craft beer and wines.
When I joined the company in March of 2017, we renamed the company Hill Street and rebranded our products. Today, sales are really starting to see the impact of that strategic change, and we’re looking at very significant growth in the sales of the company as a result.
We realized the big opportunity that exists with cannabis-infused products: if you’re going to have an infused product, it can’t contain alcohol. We made the decision that our alcohol-free wine and beer products were the perfect host to create a new social stimulant with cannabis-infused wine and beer.
CFN: What inspired you to explore the cannabis market further?
TD: When you look at alcohol as a category, globally it’s stagnant or shrinking. So, the global beer industry has been shrinking somewhere about half a percent every year. AB InBev just released numbers in the States stating mid-priced macro beer, which is their Budweiser and Bud Light brands, lost 12.5% market share over the last five years.
At the same time, 44% of the population is on a prescription drug regimen that’s contraindicated to alcohol. Consumers are looking for an alternative to the typical social lubricant.
Enter cannabis into the beverage world. It’s not contraindicated with any known medications, and in fact, is a therapy for dozens of different conditions. We think we can have a huge impact by providing that alternative, by giving people something that has fewer calories, a better health profile, a lot of functional benefits, none of the toxicity or ill effects that come with alcohol, and still gives you the same experience – that same social, fun, celebratory, relaxing, stress-relieving experience that we can create with the formats that we’re targeting.
We also talk to people a lot about medicinal beverages as a delivery format that’s far better and better for the consumer than what’s currently available. If you’re taking medical cannabis right now, after smoking, the number one format is suppositories. Would you rather have a suppository or a glass of rosé?
CFN: Tell us about your partnership with Lexaria BioSciences (CSE:LXX; OTCQX:LXRP)?
TD: We started looking at infusion technology almost a year ago and we identified about a half a dozen different companies that we were interested in exploring. The most critical factor for us was the impact that any technology we decided to pursue would have on our beverages, as beer and especially wine have very nuanced, complex flavor structures. We needed to find something that mimicked the onset and duration of alcohol and most importantly had zero impact on the taste and aroma. Lexaria’s patented DehydraTECH™ system immediately stood out.
When we signed a non-binding letter of intent to work together, we were required to issue a press release to that effect, as was Lexaria. And after that happened, 15 or so companies expressed interest in working with us. We did a full process to review the marketplace – we looked at everyone. We did a deep dive on probably a dozen different technologies, and ended up deciding to sign a binding agreement with Lexaria because we confirmed they were the best partner to meet our needs.
CFN: Where will you be sourcing your cannabis from?
TD: There’s a number of conversations happening on that front. Obviously being in the position that we’re in, many licensed producers who don’t have any beverage capability have been interested in speaking with us. There’s about 65 companies that own cannabis licenses in Canada, but only five of them have actually announced a beverage strategy; the others really don’t have any capability to produce beverages.
At our core, Hill Street is a co-packer. We have the ability to produce beverages for anybody who comes along and would like to have their own line of beverages. There’s a lot of conversations that are going on around that, but most of the LPs are really tied up with the beginning of adult-use flower sales on October 17th. We think once that date has cleared and they’ve all been able to get their retail recreational business in hand, that there’ll be even more interest in turning to the next major milestone, which is the beverage and edible marketplace, and sorting out what’s going to happen on that front.
CFN: Why should potential investors consider Hill Street?
TD: First off, we’re already a strong craft competitor with high-quality, premium brands in the space. Alcohol-free beverages are actually the fastest-growing beverage category in the world. AB InBev, Constellation, Diageo, Molson Coors, Heineken, Carlsberg, all of them have actually declared that alcohol-free products will be up to 20% of their revenue by 2025. Even without cannabis, we’ve got a fantastic business.
We are also planning to play a leading role in working with the Canadian government, and regulatory authorities within all the provinces, to be able to help define and create the structure for the regulatory framework by cannabis-infused beverages will be made available. This category doesn’t yet exist and we want to be there to help ensure distribution channels are developed smoothly.
CFN: What are your projections for growth over the next year?
TD: The first catalyst for growth for us is going to be the proof of concept beverages, so getting our facility up and running with the infusion technology and actually infusing wine and beer produced in our own facilities. We expect that will be in place sometime within the next two months, and we see that as a major milestone in the marketplace.
We also expect to have strong holiday numbers this year with our current retail partners; we’re currently in about 4,000 grocery stores with our non-alcoholic product. We expect those numbers to significantly increase as we broaden and deepen our distribution, especially into Quebec, Eastern Canada, and into the West. Right now, our real distribution is strongly focused on Ontario, so there’s a significant opportunity for us to address the rest of the country.
Beyond that, our expansion plans are very aggressive. We’re going to be making big and bold moves over the course of the next 12 months, and we hope investors are excited about our future as we are.