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A taste of things to come: Beverage makers uncover realities of entering cannabis sector

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Wednesday, September 19, 2018 – Page B1

When Coca-Cola Co. called Ben Ward earlier this year, the chief executive of Canadian cannabis grower Maricann Group Inc. had some bad news for the Atlanta-based beverage giant: CBD tastes awful.

CBD, or cannabidiol, is one of the main active ingredients in cannabis. Coke said Monday it is watching the growth in the use of CBD in "wellness beverages." Last month, The Globe and Mail reported that Coke was one of several beverage firms that have been talking with cannabis growers to learn more about the plant. Burlington, Ont.-based Maricann says it's among those companies that have spoken with Coke.

"We had a conversation with Coca-Cola and it was very preliminary and it was in no way an investment or a merger or any of that type of discussion," Mr. Ward told The Globe this week by phone. "It was just that they were looking for information. Many companies are looking for information. There's a lot of tire kicking going on."

He added that Coke is one of 10 beverage companies Maricann has spoken with in the past six months. But Mr. Ward stressed these conversations don't mean that his company is going to partner with any of them. Coke declined to comment Tuesday on conversations with Maricann, which has production facilities in Langton, Ont., and a market value of $317-million.

Many soda and beer makers are seeing their sales decline amid changing consumer habits, making cannabis both a threat and an opportunity for their businesses. Rumours have been swirling over the past month that more global consumer companies are aiming to follow Constellation Brands Inc. into the cannabis space by taking a stake in a grower - as Constellation is doing with Canopy Growth Corp. by investing $5-billion. Investors have been speculating which cannabis grower will be next to earn an investment from a bigger, global player. That speculation has driven cannabis stocks higher.

Shares of Aurora Cannabis Inc. shot up 17 per cent on Monday after a report by BNN Bloomberg claimed "serious talks" had taken place between the Alberta cannabis grower and Coke. But it's not clear that a deal is close, or what the terms of any potential deal might be. There is no indication that an agreement would resemble a Constellation-like investment; joint ventures and experimental partnerships are possible as well. The Molson Coors Brewing Co., for example, is creating a joint venture to develop non-alcoholic drinks with Quebec-based producer Hexo Corp.

Aurora said Tuesday, in a statement at the request of the Investment Industry Regulatory Organization of Canada, that it "engages in exploratory discussions" with industry players. The company confirmed it has not signed a deal with a beverage company for marijuana-infused drinks.

"The company's policy is not to comment on speculative media reports," Aurora said on Tuesday in a news release that made no mention of Coca-Cola. "The company does confirm that it engages in exploratory discussions with industry participants from time to time. At this time the company confirms there is no agreement, understanding or arrangement with respect to any partnership with a beverage company."

The use of the word "exploratory" in the statement suggests that any discussions it is having with any beverage firm are at an early stage.

For big, U.S.-based beverage companies, there are hurdles to entering the marijuana sector. The drug is still illegal federally in the United States, creating legal complications.

And there are branding decisions to consider.

Additionally, Maricann's Mr. Ward says it's not as simple as sprinkling some CBD in your drink.

"It's really interesting when you get a call from Coca-Cola one morning and they ask about functional beverages and how they would work," he said last month at an industry conference in Europe. A video of his presentation has been posted on YouTube. (Functional drinks promote some type of health benefit related to their consumption.)

"And then, when you give them an honest answer that they're trying to develop a CBD beverage and that CBD tastes awful, and is unpleasing to the palate and there are no masking agents, they become disappointed."

Taste isn't the only difficulty to overcome. Cannabis oil doesn't blend well with water, altering the consistency of the drink.

Companies with their sights set on the cannabis food and drink market are also wrestling with the product's potential effect on users, Mr. Ward said.

Whereas alcohol is water soluble, cannabis has to bond to fat to be absorbed by the body.

That means it takes much longer to feel a buzz from ingesting marijuana than from consuming alcoholic beverages. Companies are looking for ways to speed up that process.

The legal landscape in the United States is murky. Marijuana is illegal under U.S. federal law, but is permitted in certain states. But fear of violating the federal law has kept major U.S.

companies from entering the cannabis space or investing in another company in the business.

Industrial hemp, however, is a variety in the cannabis family that doesn't generate a psychoactive effect. In addition to hemp being used for its seeds and fibre in a slew of applications, it also contains CBD.

Like marijuana, hemp is still illegal under U.S. federal law. But there is a bill in Congress to ease restrictions and legalize hemp in a wide-ranging piece of legislation known as the Farm Bill. The current version of the Farm Bill expires on Sept. 30.

Unlike THC, the chemical that gives users a high, CBD does not have psychoactive effects on consumers. Instead, CBD could have possible health benefits - although clinical evidence is still limited at this time.

"We have no interest in marijuana or cannabis," Coke said on Monday in a news release.

"Along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time."

The first line of Coke's statement did not appear in media reports on Monday.

Shares of Aurora closed up more than 10 per cent on Tuesday at $11.02.

Earlier this year, Maricann was informed by the Ontario Securities Commission that Mr. Ward was the subject of an investigation into his actions while he was CEO of another cannabis firm. Maricann said at the time that Mr. Ward was co-operating with the OSC and that the matter would not affect his ability to lead the company. It is unclear where that inquiry currently stands. Maricann declined to comment on Tuesday. The OSC could not be reached late Tuesday.

With a report from Marina Strauss.

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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