Alkaline Water Expands CBD-Infused Product Line, Secures Supply
September 11th, 2019
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Cannabidiol (CBD) is the main active ingredient in cannabis that doesn’t get you high. Due to a wide range of potential health benefits, CBD-infused products have become quite the rage over the last few years. With the United States’ federal government delisting hemp, and hemp-derived CBD, in last fall’s 2018 Farm Bill, individual states across the nation have been formulating rules and regulations around CBD products. The new regulatory environment has spurred both public interest in the products and corporate interest in developing and distributing CBD.
As with any gold-rush-style industry boom, there are young upstarts, more established companies with industry expertise, and entrenched companies looking to buy their way into a hot market. Over the last couple of years, the wider cannabis industry has seen some of these dynamics in play with established producers buying niche brands, and multinational beverage companies investing in cannabis drink initiatives.
The Alkaline Water Company Inc. (NASDAQ: WTER) (TSXV: WTER) lies squarely in the middle of these dynamics. Alkaline Water’s flagship bottled water product, Alkaline 88®, has been driving impressive revenue growth for the company over the past few years as it cemented an extensive nationwide distribution footprint. With enhanced beverages (flavored, functional, etc.) becoming more and more popular, the company hatched a wholly-owned subsidiary called the A88 Infused Beverage Division. Recent developments show the company’s commitment to fast-tracking CBD-infused product introductions as soon as regulations allow.
CBD Supply Deal and New Products
Alkaline Water recently announced a CBD oil supply agreement with Centuria Foods. Centuria has been producing high quality, hemp derived CBD oil since 2014, a long time ago in this industry. Importantly, the oil provided to Alkaline Water has the advantage of being water soluble. Without getting too much into the science, CBD oil is generally not soluble in water but only soluble in lipids, or fats. This leads to all sorts of issues regarding bioavailability of the active CBD ingredient when ingested, as the human liver filters out much of the oil before letting it enter the bloodstream. The bloodstream is, of course, a water-based environment. So making the CBD oil water soluble ensures the delivery of a much higher concentration of the active ingredient, which is the point of buying CBD beverages in the first place.
Ensuring such a supply has spurred Alkaline Water to ramp up its CBD-infused product offerings. The company had already developed a line of CBD water under the brand name Soothe, and is now developing an array of CBD infused beverage shots alongside CBD tinctures, capsules, and powder packs.
The company has moved aggressively over the past year or so into the convenience store distribution channel, distinguished from its extensive box store and grocery chain channels. Alkaline Water views convenience stores as a natural fit for its new CBD products. “We are excited to announce the continued expansion of our CBD product portfolio. According to BDS Analytics, U.S. CBD sales are expected to surpass $20 billion by 2024.We expect to capitalize on this growth through leveraging our CBD product portfolio to accelerate our entrance into the convenience store market which has been an early adopter of ingestible CBD infused products,” stated Richard A. Wright, President and CEO of The Alkaline Water Company, Inc.
The Investment Environment
The mixing of the beverage/food and cannabis worlds has been pronounced over the last year or so. With Canada set to legalize cannabis-derived products (like beverages, topical creams, extract-based formulations) later this year, there have been deals and negotiations surrounding the space. Constellation Brands, maker of alcohol brands like Corona, Negro Modelo, and Black Velvet Canadian Whisky, famously poured C$5 billion into Canopy Growth back in November, 2018. Diageo, maker of brands like Guiness and Smirnoff, has been rumored to be in talks with cannabis companies and its CEO recently stated the company is looking at the sector. Coca-Cola had been rumored to be in talks about an investment or partnership but has since stated it currently has no intention of entering the market. PepsiCo’s CFO stated the company considers cannabis to be on the table on the same day the company said it is not entering the market.
Those potential deals are all of the partnership or investment kind. In a different vein, Mondelez International announced the company is considering CBD-infused versions of snack staples like Chips Ahoy, Nilla Wafers, and Cadbury chocolate. It may have to wait a bit longer.
In the United States, the Food & Drug Administration released an update on its approach to cannabinoids, including CBD, in food products. In part, “The U.S. Food and Drug Administration (FDA) recognizes the significant public interest in cannabis and cannabis-derived compounds, particularly CBD. However, there are many unanswered questions about the science, safety, and quality of products containing CBD. The Agency is working on answering these questions through ongoing efforts including feedback from a recent FDA hearing and information and data gathering through a public docket.”
The update indicates the body is actively working toward a regulatory framework but cautions specifically about making claims of medical benefit from CBD. So, though the Farm Bill removed hemp from the list of dangerous drugs and many states have since passed regulations allowing for the production of hemp, there is still a bit of wait-and-see going on in the US market.
Alkaline Water is laying the groundwork for immediate nationwide market entry now, developing a full line of products that can be easily introduced through its existing distribution network once the products gain approval. Considering Alkaline Water’s strong revenue and sales growth over the past several years, such a move could be a major boon for the company considering all of the market dynamics discussed here.
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