Article by: Tim Marting
This post will focus on the potential of infused THC and CBD drinks and edibles in addition to briefly highlighting the potential of the kombucha industry. I’m going to veer away from the kombucha aspect of this new aged “radler” for a few reasons that I'll mention below, and instead claim that today's "radler" is instead edible THC/CBD only because the expansion horizon is much closer than that of kombucha. However, I do think both are great industries to invest in. If you'd like to figure out why I'm comparing kombucha and cannabis to "radler's" check out Toarc's first-ever podcast episode for a deeper dive into groupthink and getting an international perspective.
First off, kombucha, at its core, is a raw drink that has live bacteria that is good for your gut, and believe it or not, kombucha is fermented tea. However, today companies are cutting it with added “probiotics” and bottling it with aluminum cans, essentially killing off any of the actual live bacteria that makes the drink what it is. Then they slap a label on it calling it “live” or a health drink when it’s no different than vitamin water or a soda. Try a kombucha in a can and then try one in a glass bottle, you'll notice a difference. Why? If you have a high sugar diet, actual kombucha will taste very tart and have strong notes of vinegar. This means for the large portion of the population that tries the drink, it's revolting. So, companies who desire to make a profit, have to create a drink that was once brewed as kombucha, then add "healthy" additives to keep the healthy label attached, then sell you something your sweet tooth can actually tolerate.
Second, while I do see major potential from this industry moving forward, there still isn’t a major PUBLIC entity that is making quality kombucha. This means, that unless you want to brew your own kombucha and make a profit off of it or start your own business, there aren't many ways for the normal individual to invest in this product. One example of quality kombucha is GT’s, but they are private.
However, I will say that besides the quality issue, no company is really pushing the alcoholic kombucha angle. This I believe has HUGE potential and if you can do it properly, this market is nearly untapped. The main challenge here is red tape, which is typically why you’ll see those public companies shying away from the actual raw or live aspect. Remember, it is a fermented "live" drink, which means there’s less control on exactly what is bottled and put on the shelf, consistently, every time. This is because kombucha isn't a machine, it's something that you put the ingredients into a container and brew it, then it grows itself. Think of a flower, while they are the same species when you break it down on a molecular level, every one is slightly different. So, referring back to the red tape, when you print 50,000 labels that claim you have less than .05 ABV but you just brewed a batch of kombucha that has .06 ABV because of those slight and difficult-to-control variations of a live drink, that entire batch is now considered waste. Therefore, it's often easier to kill the "live" aspect of it the drink to satisfy red tape.
Why companies aren't embracing the live aspect and creating a new aged "wine" market with kombucha's alcoholic component is beyond my comprehension. Kombucha is much quicker to brew, far less labor-intensive to produce and requires a fraction of the land that wine requires. With the potential health benefits included in drinking an alcoholic beverage that is healthy, the fact that it requires an acquired taste, and no doubt allows for regional creativity, I believe it's only a matter of time before this market awakens to its potential.
Having said that, for these reasons, I think this industry needs to work out a few kinks before it reaches its full potential. While the industry I’m about to mention also needs a lot, lot, lot, more “work done” before it reaches its potential, mostly regulatorily, there is far greater capital investment and interest in the latter for its breakout to be around the corner or "investable". Kombucha, being the former, needs more capital, quality, and attention before it’s realistically a good investment. So, on to the latter.
CBD and THC infused drinks and edibles are definitely the future of the cannabis industry. Not only that but I think CBD “cigarettes” or vape oils will be the thing the next generation grows up smoking considering it has all the benefits of tobacco without the tar and everything else bad for you in cigarettes. I'll come back in a moment to why this paragraph is a bit misleading.
I strongly believe that CBD and THC will shift heavily into the edible and drinkable industry after the entirety of this massive industry is legalized. I believe this because it expands industry reach to all those people who don’t like smoking. As we realized with cigarettes, smoking is terrible for your lungs, something I think research will only continue to reveal as time goes on.
Already circling back, the previously mentioned paragraph is misleading because the new generation believes that tobacco and it's additives were the issue with smoking. While the additives were and still are a cause of cancer, if you discuss with any doctor, they will say, time and time again, that smoking is smoking. When they ask "do you smoke?" they aren't asking do you smoke tobacco, they're asking, do you inhale smoke into your lungs.
While the advocates for cannabis enjoy pointing out that it's all-natural, time will soon declare, with doctors leading the way, that smoke is smoke. It's all technically bad for you, one is just the lesser of two evils. In addition, smoking cannabis smells, sometimes it hurts, and it's harder to determine the effects depending on the amount you inhale. The heat of the smoke (or oils) burns the inside of your lungs; all of which can cause people to cough and lead to things such as lung cancer. I do think the way cannabis is used will flip towards the end of my lifetime (I'm almost 30) from smoking to eating/drinking. This timeline could be pushed forward, especially if we start seeing more widely adopted uses for the CBD portion of the plant. When we put a substance into our bodies, it's best filtered when consumed in a way that our body is designed to digest it. The stomach is designed to slowly process and break down toxins in a multitude of ways the lungs cannot.
This is, however, why the “radler” of today is edible food, drinks, oils and everything else under the "stomach" sun. The benefits of consuming through our intestines are clear when compared to smoking, for all of the reasons mentioned above.
In addition, when consuming via food or drink, the ability to measure exact quantities and effects increases. Think -- pancakes, health juices, burgers, hot sauces, pizzas, cocktails, teas, sodas, candies, and literally anything else you can think of eating or drinking, there’s a way to combine it with cannabis in a measured way that rolling it up into a joint doesn't allow. So, not just restaurants but bars in the future will have a lot more flexibility in their offerings, like the vegan/vegetarian options of today that are growing in demand across the world. An opportunity I hope the cannabis “clubs” of today aren't overlooking.
Not to mention its side effects are much safer and calmer when considering how they cause you to interact with others compared to alcohol (albeit maybe not socially or anxiously for a lot of us). The point is you most likely won’t have to hire security guards at a cannabis bar because of rowdy customers.
Now, looking at the investible aspect of this..
I personally like Tilray or TLRY in this industry for the following reasons:
Little to no institutional adoption – While this is typically a bad sign, institutions are only staying away from companies like Tilray because of the risk factor of it not being legalized. If it were legal tomorrow, institutions would flood to companies like this because of the huge growth potential. While most states are legalizing it in some way, it will undoubtedly be a desirable tax for the federal government sooner rather than later. Beyond this, when you look outside of the United States, places all around Europe, South America, and Australia, are quickly moving on legislation. This goes without mentioning Canada's situation.
Growth Potential – TLRY’s earnings growth is forecast to be 58% over the next 3 years and that isn’t including legalization potential.
Merger with APHA – The reason this is mentioned is that besides the fact that Tilray merging with Aphria created the largest cannabis company in the world, the new leadership from Tilray, via the removal of Brendan Kennedy from CEO with the replacement of Irwin Simon, has huge ripple effects when you consider what Simon did for Aphria before the merger. In addition to acquiring a huge European footprint via Aphria that is edging ever closer to legalization (with the ability to already purchase in clubs and certain cities all around Europe) this should rapidly turn this company into the green, no pun intended.
Acquisition of SweetWater Brewing Company – Irwin has come out on a few different occasions as one of the main advocates of not only cannabis-infused drinks but edibles of all kinds, which gives me the confidence that he really understands where this industry is headed moving forward.
Pharmaceutical – Please listen to Episode 39 of Thoughts of a Random Citizen to understand why this is such a big deal, but the benefits alone of having cannabis be labeled a medicinal drug will ensure security if all else fails.
Global Footprint – Outside of Canada (where it is completely legal) and the US, Portugal, and Germany in Europe. TLRY even stretches all the way to New Zealand, and Australia and has a major presence in Latin and South America.
The only serious negative at the moment from a long-term perspective is their shareholder dilution, but as earnings are rapidly increasing, I don’t foresee this continuing beyond next year.
Disclosure: The author, as of this writing, of the companies mentioned, only holds a long position in Tilray Brands (TLRY), with no intentions of initiating a position in any other company mentioned in this article within the next 72 hours. The article was written by himself, and it expresses his own opinions. He is not receiving compensation for it. He has no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Robert is not a financial advisor. Please always do further research and do your own due diligence before making any investments.