Guest commentary: Let CBD to be marketed in dietary supplements and as food, beverage additives

Molson Coors will unwind the U.S. portion of its joint venture with Hexo at the end of this year, the beer giant announced. By shutting down Truss USA, Molson Coors will exit the CBD beverage business in the U.S., as of December 31. They follow numerous companies in the hemp and CBD space to either pivot or exit entirely in recent times.

The decision cited the continued inaction of federal lawmakers to reform cannabis laws in the U.S. In the company’s estimation, there remains no near-term pathway to federal legalization, which in turn has created an atmosphere of uncertainty and fear in which retailers and distributors hesitate to take on CBD brands, complicating distribution, and the path to profitability.

In July the House Agriculture Committee held hearings on Hemp derived CBD and regulatory issues.  Ranking Member Rep. Jim Baird (R-IN) stated, “I’d like to add is that the FDA hasn’t really had any kind of regulatory framework for hemp-derived CBD”. Ranking Member Glenn Thompson (R-PA) additionally bemoaned that the “FDA is missing in action”.  While great members recognized it, it is clear Congress’s inability to take action and to hold the FDA accountable has created an untenable situation for the hemp CBD industry to be successful.

“Not every project or innovation will meet our ambitions,” said Pete Marino, president of emerging growth at Molson Coors. “What’s important is that we learn from each and build capabilities that will serve us well into the future. The key for us is to go big behind what’s working and smartly pivot out of what isn’t working from a scale standpoint, like CBD beverages.”

Molson Coors and Hexo launched Truss in 2018 to develop cannabis drinks for the Canadian market. In 2020 it debuted its full lineup of brands which includes Veryvell, House of Terpenes, Little Victory, Mollo, Bedfellows Liquid Arts, and MXG. The company has continued to expand its portfolio, capitalizing on trends like the seltzer craze when Little Victory, for instance, extended with three sparkling fruit-flavored seltzers in June.

Truss USA was formed in 2020 to pursue CBD opportunities stateside. After launching its Veryvell CBD line of sparkling waters in Colorado in early 2021, it expanded distribution to a further 17 states in October of last year.

In 2021, Hexo’s U.S. subsidiary acquired a production facility in Fort Collins, Colorado, to create CBD drinks for the U.S. Truss joint venture. Hexo said Truss products were “now present across select grocery markets within Colorado” and 25 other states. Hexo said it stopped trying to sell the Fort Collins facility during its fourth quarter.

Smoke Wallin, who co-founded and led Vertical Wellness from 2019-2021 commented, “I understand Molson Coors decision completely.  We launched Vertical in 2019 with high hopes for ingestible products and had a wide range of beverages lined up for distribution but eventually concluded the FDA and Congress was unwilling to do what was necessary to enable the industry to thrive in mainstream retail in a realistic timeframe.   This caused virtually everyone who invested in the hemp and CBD business over the past few years to lose their investments and in many cases go out of business. 

 This is an indicative headline from the US Food & Drug Administration’s website: “FDA warns 15 companies for illegally selling various products containing cannabidiol as agency details safety concerns Violations include marketing unapproved new human and animal drugs, selling CBD products as dietary supplements, and adding CBD to human, animal foods”

Wallin continued, “The idea that Molson Coors decided to exit at this time, with their deep pockets and strong distribution footprint demonstrates how devastating the US FDA regulatory environment has been to the hemp industry.  It’s really counter to the ideas behind the 2018 Farm law, but consistent with the wishes of big pharma industry.  I made the case for regulatory relief publicly, throughout 2020-2021, in multiple publications and media shows. (see NASDAQ,  DENVER POST)”

Should the regulatory landscape in the U.S. change, the company said it would be prepared to re-enter the space. Currently, however, the ability to scale in the category remains difficult, Marino says. “The key for us is to go big behind what’s working and smartly pivot out of what isn’t working from a scale standpoint, like CBD Beverages.”

“Long-term hemp-based and full cannabis-based beverages will be major sectors in the industry.  They just can’t do it in mainstream retail under today’s regulatory environment.  Even so, there are a continuous stream of entrepreneurs willing to risk everything to pursue this,” Wallin said, “It’s like a game of ‘frogger’ for anyone navigating the industry today. You must leap between lily pads and survive the FDA alligator and the rushing river of cash to make it to the other side someday.  I have no doubt there will be successes, but it’s hard times for now.”

Sources: Molson Coors Press Release, Beverage Industry News Sources, Impact Newsletter, MJBiz, FDA website, Congressional Public Records, Interviews.

Smoke Wallin is a Partner and Managing Director of STS Capital Partners, a leading global M&A firm.

Smoke’s Cannabis Industry Check-in 420 2022 

Smoke’s Cannabis Industry Check-in 420 2022 

Over the past four months I’ve had the opportunity to travel the world, attend conferences, visit operations, and I’ve spent one on one time with multiple thought leaders in and around the cannabis industry on multiple fronts. Since December I’ve attended or presented at:

Cantor Fitzgerald Cannabis Summit 2022
  • YPO Summit 420 – Cannabis & Psychedelics / Plant Medicine – Miami, FL
  • Arcadian Capital annual meeting, Los Angeles, CA
  • South by Southwest SXSW – Austin, TX
  • YPO Health & Wellness Converge Miami – Miami, FL
  • Roth Capital Conference – Laguna Beach, CA
  • Cantor Fitzgerald 2nd Annual Cannabis Summit – Virtual
  • Cannabis M&A Event – hosted by STS Capital, Greenspoon Marder & CannaCPAMasters  – Los Angeles, CA
  • Beer & Spirits Industry Summit, Del Coronado, San Diego, CA
  • Visits to cannabis and beverage operations in Asia, Europe, Canada, Multiple US states

A summary of my observations is as follows:

Despite certain challenges state by state, and the lack of Federal leadership in the US, there remains a vibrant industry continuing to attract entrepreneurs and capital.  While there has been a huge separation in access to and cost of capital between the larger Multi-State-Operators (MSOs) and the smaller businesses, the industry continues to progress.  M&A is heating up at all levels.  We see increased activity into Q3 and Q4 with larger players looking to fill out their geographic coverage (state by state) and smaller players looking to gain scale by combining.  As we lurch toward potential Federal reform in at least the banking front, we expect deal making to heat up even more.  

I remain more convinced than ever that brands matter and will be the key drivers of value into the future.  That said, solid operations, making positive cash flow and not getting ahead of one’s skis are the most important characteristics in today’s market.  Long term, brands will win, but to get there, companies must have the staying power to build brands.  That is being done across the industry in individual businesses and markets but is still the exception.  

Europe is interesting as markets start to open.  Germany is the big bell weather that appears to be marching towards legalization.  Many players throughout the EU are positioning for entry there. Uncertainty with the war in Ukraine is perhaps slowing things a bit, but there is momentum in these markets building.

Asia has great promise with Thailand looking to lead the way recently in order to open up their tourism to the region. 

Smoke Wallin @ SXSW 2022

A key trend we are seeing across multiple sectors is convergence.  This is particularly evident in the beverage world from which I come.  One only needs to look at deals announced this year to see it clearly.  Examples include Coca-Cola entering alcohol with Fresca (partnered with Constellation) and Hard Topa Tia (partnered with Molson Coors), Pepsi with Hard Mountain Dew (Boston Beer), Monster Energy buying craft brewer CanArchy ($300m), Tilray buying Sweet Water brewing and Breckenridge Distillery.  We expect to see more cross category investment and when safe banking gets enacted, the floodgates will open up across the sector in cannabis and hemp.  

Regardless of the banking situation, we see MSOs and other new players looking to add successful growth businesses to their growing footprint in the 2nd half of 2022. Smaller player such as Vecanna (CSE: VENI) (OTCQB: TPPRF), where I set on the board are doing cash positive acquisitions and new market expansion as well (SEE TODAYS MERGER ANNOUNCEMENT for NV and NJ). I see more of these types of deals going forward.

Smoke is a partner and Managing Director at STS Capital Partners, Chairman of Taliera, Chairman of Vertical Wellness, a board member of Vecanna (Top Strike Holdings) and a serial entrepreneur.  He is focused on helping solve homelessness through innovative transitional housing NFP Dignity Moves

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