Cannabiniers/Two Roots Making Deals with Top Craft Brewers

Dear Client:

As we reported a few weeks ago during our Beer Summit conference, Cascadia Capital managing director and dealmaker Townsend Ziebold told our audience to expect a cannabis company to acquire a craft brewer imminently.

“I actually believe in the next month you’re going to see a cannabis company acquire a traditional craft brewer to gain access to their brewing capacity, dealcoholize the beer, ship it legally across state lines to their licensed facility and make cannabis-infused beer,” said Townsend, during an M&A panel.

The company he was talking about was Cannabiniers’ Two Roots Brewing Company, which had a few members in our very audience. That seemed pretty well known by the end of the conference.
For the unfamiliar, Two Roots claims to be first to the U.S. market with “de-alcoholized” THC and CBD-infused beer.

Michael Hayford is the chief of Lighthouse Strategies, the finance company that operates Cannabiniers/Two Roots. He shared more with BBD on the imminent deal.

But there are actually a lot of moving parts to it. A few big pieces of news:

“We do have three breweries between California and New England that maintain a combined 240,000 barrels of annual capacity and cellar expansion capacity to reach 400,000 barrels annually, under LOI [letter of intent],” he told BBD.
Beyond that, “we are looking for an additional two breweries that will bring us up to 500,000 – 600,000 barrels of total U.S. production capacity; northwest and southeast.”
And: “We are looking to close on a top 50 independent craft brewer in the next 10 or less days, maybe even early next week.”

In separate news, they are acquiring Dads and Dudes Breweria, a Colorado outfit that makes CBD beer. They have a small brewery with a tasting room.

It’s not a huge operation. Indeed: “Dads and Dudes was and is a strategic acquisition, in that they maintain a TTB Formulation approval for CBD in craft beer, General Washington’s Secret Stash,” Michael said. They’ve got a pending patent for that as well. (“In parallel, we have submitted a provisional patent in respect to our non-alcoholic cannabis-infused craft beer,” Michael said.)

ONE CONTRACT WITH TOP 5 SAN DIEGO BREWER? Kevin Love, Cannabiniers’ director of product development, had actually given us some detail on partnerships back in December. We’d spoken with him back then regarding their cannabis speakeasy, Dana’s Place, at Las Vegas ReLeaf. (It’s the first of its kind, seeking to remove the stigma that currently surrounds dispensaries; the goal is to make this concept more like the brewery tasting room experience. We understand they’re looking to open many such tasting rooms.)

During that conversation Kevin had mentioned they’d recently signed a very strategic contract with one of the “top five largest breweries here in San Diego,” to produce 50,000 barrels a year for them.

“The 50,000 barrels a year that they’re going to be producing for us equate to 19 million units of product, which equates to a market value of roughly $140 million of product,” said Kevin. They weren’t ready then to share any specifics.

Stay tuned.

BIGGEST GROWTH IN LOW/NO ALC WILL COME FROM RTD’S SAYS IWSR

Last week, the IWSR released its “Global Opportunities in Low- and No-Alcohol” report, examining this space for the global market.
Main findings include that “the low- and no-alcohol sector is poorly served, with few clear category leaders.” That’s globally; it’s even more dire for the United States.

“In the UK low/no alcohol brands represent only 1.3% of the country’s total beverage alcohol market,” per report. In the U.S., the number is less than half that, at 0.5%.

SIGNIFICANT RUN ROOM FOR NON-ALCS STATESIDE?. Slightly more than half of U.S. consumers surveyed in the IWSR study said they were trying to cut back on alcohol. And yet, “over 70% of people say they have not yet considered drinking low- or no-alcohol beverages.”

RTD’s EXPECTED TO HAVE MOST GAGR TO 2022. “The largest category gainer in the low/no sector in the U.S. will be ready-to-drink products (at +38.8% CAGR [Compounded Annual Growth Rate] 2018 to 2022),” IWSR predicts.

That’s followed by wine at +17.7%, and spirits at +7.1%. And low/no alcohol beer? It’s already the biggest base for no/low alc sales in the U.S., and is predicted to grow the least: 5.6%.

Until tomorrow,

Harry, Jenn, and Jordan

“The future will be better tomorrow.
– Dan Quayle

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