Cannabiniers on Verge of Next Brewery Acquisition

Lighthouse Strategies — the company behind Cannabiniers and the Two Roots line of CBD- and THC-infused non-alcoholic craft beers – is closing in on its next brewery acquisition.

Speaking to Brewbound, CEO and chairman Michael Hayford said the company could finalize the purchase of a craft beer company in the Great Lakes region of the U.S. before the end of June.

According to Hayford, who discussed his company’s strategy and outlook on the cannabis space at BevNET’s Cannabis Forum last week in New York City, the forthcoming acquisition will aid Lighthouse’s expansion into the Canadian cannabis market when drinkable products are permitted for sale later this year.

Though he declined to name the company, or discuss financial terms of the potential deal, Hayford said the brewing facility is capable of producing between 60,000 and 100,000 barrels of beer annually.

To date, Lighthouse has acquired two smaller craft breweries. It bought Helm’s Brewing Company in San Diego in 2018, and purchased Dad & Dudes Breweria in Colorado earlier this year.

“We’ve had a number of acquisitions in the cannabis and craft beer markets,” Hayford said. “In most cases, it has been a stock transaction. In a couple of cases, it has included cash.”

In February, the company told Brewbound that it had letters of intent to acquire four craft breweries, including a “top 20 privately held brewery based in California.”

At least one of those deals fell through, and the other is “on hold,” according to Hayford, who added that his company has been approached by four of the top 10 independent U.S. craft breweries.

Four of the top 10 global beer producers have also contacted Lighthouse, he said, and all of the large and small beer companies have expressed “different levels of interest” in working together.

“Big and small alike are all interested in how to evolve in this new market,” he told Brewbound.

During last week’s Cannabis Forum, Hayford said the company recently began discussions with a top 10 U.S. craft brewery that it “didn’t see coming.”

“Depending on how that turns out, we may add more breweries, or we may not need to,” he said during the conference.

As it works to refine its strategy, Hayford believes that Lighthouse will settle on a “hybrid” approach consisting of brewery acquisitions, joint ventures and partnerships with larger companies in markets where it wishes to distribute its products.

“As it stands today, we are continuing forward slower on our regional plan as we allow some of these larger strategic opportunities to gestate,” he said. “There’s no shortage of opportunities to acquire brewery assets, so it made sense to slow down our pace, pick up our strategic positions and allow those opportunities to develop.”

In the meantime, Hayford confirmed that Lighthouse has been working with San Diego’s Green Flash Brewing Company for contract beer production. Under the terms of that arrangement, Cannabiniers has access to 50,000 barrels of production capacity annually.

Asked if that relationship could evolve into an acquisition, Hayford said, “anything is possible.”

“It’s a tough question,” he said. “We would like it to be more intimate, and long term we will see what the future holds.”

Recall that Lighthouse hired former Green Flash brewmaster Kevin Barnes to lead brewing operations for Cannabiniers in late 2017.

Other potentially “more reasonable” deals could cost the company less as it works to stitch together a brewing network capable of producing 500,000 barrels annually.

To help the company refine its strategy, and build its presence in the budding cannabis industry, Lighthouse has brought on numerous beverage industry executives to help advise and lead the Cannabiniers business. Most recently, the company added former Constellation Brands executive Marty Birkel to its board of directors.

Cannabiniers also recently added former PepsiCo-East president Michael Lorelli to its board, and hired spirits industry veteran Victor Jerez as its president and COO.

In the coming weeks, Cannabiniers plans to announce that alcoholic and non-alcoholic versions of its Two Roots beers that do not contain any cannabis will be sold at a “large California retailer,” Hayford told Brewbound.

“With non-alcoholic beer growing at 8.5 percent CAGR, it is an opportunity to build our brand in parallel markets,” he said.

According to cannabis data provider Headset, which has a strategic partnership with Nielsen, Two Roots is one of the top-selling cannabis-infused drinks brands at Nevada dispensaries. The brand’s Enough Said Lager, Tropical Infamy Wheat Ale, Road Scholar IPA – each infused with 5 mg of THC – are the three best-selling products in the state over the last 30 days. Two Roots Sonder Blonde Ale and RCG “Rich and Creamy” Stout are also the eighth and ninth best-selling products, respectively.

Two Roots products are currently sold in California and Nevada, but according to Hayford, the brand will soon be available in Arizona, Massachusetts, and Michigan. Lighthouse is also actively working toward establishing joint venture agreements with multi-state operators across the country and hopes to have a presence in 20 states.

According to BDS Analytics, U.S. sales of cannabis are expected to grow to $23.4 billion by 2022. A smaller but growing portion of those sales will be beverages, and Hayford believes that fast-acting, low-dosage products with fewer calories, such as Two Roots, provide a “bridge” to cannabis for consumers that wish to abstain or moderate their alcohol consumption.

Many alcohol industry executives are concerned about losing market share to cannabis, as more states legalize recreational sales. However, according to John Kagia, the chief knowledge officer at New Frontier Data, a company that provides analysis and reporting about the cannabis industry worldwide, frequent drinkers are more likely to consume cannabis.

In a 2018 survey conducted by the firm, New Frontier found that 35.5 percent of respondents who used cannabis a few times per week, also used alcohol a few times per week. Similarly, respondents who used cannabis once per week, also used alcohol a few times per week.

A growing number of beer manufacturers have already invested in the cannabis space. Canada’s oldest and largest independent brewery, Moosehead Breweries Limited, recently formed a joint venture with Sproutly Canada that is aimed at developing and marketing cannabis-infused beverages.

Meanwhile, large beer companies such as Anheuser-Busch InBev (Tilray), Constellation Brands (Canopy Growth) and Molson Coors (Hexo) have each struck partnerships with other Canadian cannabis companies. And Hamilton, Ontario-based Collective Arts Brewing has established a sister company called Collective Project Limited to develop and sell cannabis-infused beverages.

Stateside, several beer manufacturers — including Flying Dog and Heineken-owned Lagunitas — have experimented or explored the possibility of THC- and CBD-infused beverages.

Former Blue Moon creator Keith Villa has also formed a cannabis company in Colorado called Ceria. The company launched its first THC-infused, dealcoholized beer last December.

Correction: An earlier version of this story stated that Brian Goldberg — a CPG executive who has invested in brands such as High Brew Coffee and Deep Eddy Vodka, and held numerous executive and board roles with Sweet Leaf Tea, Amplify Snacks, Kettle & Fire Bone Broth and Waterloo Sparkling Water — was added to the Cannabiniers board. The company was in discussions with Goldberg earlier this year, but the two parties didn’t come to terms.

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