Truss CEO expecting summer of cannabis-infused beverages after category’s rocky debut

Hey there, time traveller!
This article was published 25/04/2022 (1624 days ago), so information in it may no longer be current.

TORONTO – When cannabis-infused drinks were legalized in Canada in 2020, pot producers expected the beverages to flow all summer as consumers flocked to the new category.

Those visions were dashed when the COVID-19 pandemic temporarily closed shops that March and the following year was spent contending with a mishmash of health regulations, but Dave Schlosser believes that long-awaited summer demand is on its way.

“We think this will be the summer of CIB — cannabis-infused beverages — as people want to get out, want to socialize, want to try new things,” said the newly named president and chief executive of Truss Beverage Co., a joint venture between brewing giant Molson Coors Canada and cannabis company Hexo Corp.

Schlosser’s optimism comes amid the lifting of mask mandates, capacity restrictions and other health measures that cut into gatherings where consumers might have kicked back with a cannabis-infused drink.

Those sentiments are also buoyed by policies under consideration by the federal government that would change how the cannabis content of drinks is calculated — making it easier for consumers to buy more pot-infused drinks in one purchase without exceeding public possession limits, something the industry has been calling for.

The consultation period on the changes ends Tuesday, around the same time Truss will start unveiling 15 new drinks available to purchase this spring and summer. The new products will join a roster of 18 Truss beverages already under the XMG, Little Victory, Mollo, House of Terpenes, Veryvell and Bedfellows Liquid Arts brands.

While data from cannabis market research firm Headsetshowed XMG was the leading pot drink brand between January 2020 and 2022 with $16 million in sales across Ontario, Alberta, British Columbia and Saskatchewan, the overall category has so far fallen short of predictions.

For years, pot drinks have been heralded as a way to draw in first-time or casual marijuana users, despite the challenge of masking cannabis’ bitter notes. Yet cannabis flower remains the top seller by a significant margin, netting about 49 per cent or more than $195 million in sales in Ontario between October and December 2021 alone. In the same period, beverages made up just two per cent or about $7.6 million in sales.

Pot drink sales are low in part because the beverages are still seen as a “novelty” by many and are not sold in spaces like bars or restaurants, said Lisa Campbell, chief executive at cannabis marketing company Mercari Agency.

“For pot drinks to really take off, there needs to be social settings for them to be consumed in,” she said.

Campbell has found the best-selling pot drinks often contain 10 milligrams of THC or are sodas, which are gaining popularity.

But for every hit drink, there is a disappointment. Many sugar-free drinks are struggling to gain traction because without sugar there is little to mask the cannabis flavour, she said.

“There’s a lot of weird niche cannabis beverages that taste disgusting,” Campbell said.

There are also several players retreating from the market. Labatt Breweries of Canada bowed out earlier this month, when it announced it will wind down Fluent Beverages, its non-alcoholic beverages company that made drinks containing some of the active ingredients found in cannabis. The company’s Everie teas trailed XMG with $7 million in sales in Ontario, Alberta, British Columbia and Saskatchewan over the last two years.

Actor Seth Rogen’s Houseplant brand, which was known for its grapefruit and lemon sparkling waters with 2.5 milligrams of THC, also departed the country in September, after ending its partnership with Canopy Growth Corp. The company has vowed to return to Canada, but is yet to relaunch in the country.

“Margins are so low in cannabis right now that you only really stay in the game if you’re dedicated to the game,” said Campbell.

She’s noticing more mergers, acquisitions and companies retooling operations as they develop more realistic expectations for products, especially edibles.

But the coming months will mark a shift, Schlosser believes.

“This summer will be the first feel we have for what the category can become because it’s finally going to be open up and it’s going to be the excitement of where we are going as a business,” he said.

To attract more of the expected growth in the pot drink market, Truss is launching XMG ALT grape and XMG ALT black cherry drinks, each packed with 10 milligrams of tetrahydrocannabinol (THC), pot’s psychoactive component. They have zero sugar and calories, a departure from 70 per cent of Ontario’s top 10 pot drinks, which contain at least 13 grams of sugar, Truss said.

“There are two big areas that consumers are asking us for. No. 1 is very strong, bold flavours and then No. 2 … a little less sugar,” said Schlosser.

“What we’ve learned through the first two years is the more complex the drink is, the harder it is for the consumers to know what they’re getting, so that’s why we wanted to keep it really simple.”

XMG Sodas in cola, cream soda, orange and root beer flavours will also appear by late spring, alongside XMG Blue Raspberry and XMG Iced Tea.

Their debut will be one of Schlosser’s first big moves after taking over Truss from CEO Scott Cooper. Cooper headed to Hexoafter the pot company’s co-founder and chief executive Sebastien St-Louis departed in October amid mounting losses. Auditors have since raised “substantial doubt about its ability to continue as a going concern.”

Schlosser, who served as Truss’ chief financial officer, doesn’t appear shaken by the nearby turmoil.

“Me jumping into the role wasn’t that much of a transition actually,” he said. “It was really smooth, it was easy, and for me, it’s just exciting. I get to get into a lot of the stuff I haven’t had to touch in a while like operations.”

This report by The Canadian Press was first published April 25, 2022.

Companies in this story: (TSX:HEXO)