Consumer Products

How Can It Cost $100 Million to Research Putting Marijuana in a Beverage?

Beer maker Anheuser-Busch InBev N.V. (NYSE: BUD) and marijuana producer Tilray Inc. (NASDAQ: TLRY) announced Thursday morning that each is contributing up to $50 million to a partnership to research non-alcoholic beverages containing THC (tetrahydrocannabinol), the psychoactive ingredient in marijuana and CBD (non-psychoactive cannabidiol).

The partnership’s work will take place in Canada between AB InBev’s Labatt Breweries and Tilray’s High Park subsidiary that develops and sells recreational cannabis products in Canada.

AB InBev follows brewing competitors Constellation Brands Inc. (NYSE: STZ) and Molson Coors Brewing Co. (NYSE: TAP) that have already struck deals with Canadian firms. Constellation has paid some $4 billion for a 38% stake in Canopy Growth Corp. (NYSE: CGC), and Molson Coors launched a startup named Truss in conjunction with Canada’s Hydropothecary (aka, Hexo) for an undisclosed sum. Molson Coors owns 57.5% of the venture.

Kyle Norrington, head of Labatt Breweries, said in this morning’s announcement:

As consumers in Canada explore THC and CBD-infused products, our innovative drive is matched only by our commitment to the highest standards of product quality and responsible marketing. We intend to develop a deeper understanding of non-alcohol beverages containing THC and CBD that will guide future decisions about potential commercial opportunities.

It just doesn’t seem reasonable that it could cost up to $100 million to figure this out. For the brewing companies, beer sales are down and they need to do something to get them back up again. For the cannabis companies, their interest is expanding their product lines, along with the cachet that comes from having a giant partner with seemingly bottomless pockets.

The press release also notes that the two companies “believe that the legal market for THC and CBD beverages will only thrive if the industry embraces appropriate regulation of adult-use cannabis, including responsible production, marketing, sale, and consumption.” Here’s what may be the key to a $100 million research project.

Whether a THC-laced beverage is legally allowed also to contain alcohol could be an issue. How to control sales of non-alcoholic beverages containing THC to keep the drink out of the hands of minors is another legal issue that will need to be addressed, and there are likely dozens of others, so perhaps a significant portion of that $100 million will be spent on lobbying the Ottawa government. There are different issues related to CBD-infused beverages that might affect how and to whom these products are marketed. Getting what the industry wants from legislators is key and will certainly not be free.

Tilray shares were up nearly 10% at $78.00 about half an hour after the opening bell Thursday. The stock’s 52-week range is $20.10 to $300.00, and the consensus 12-month price target is $140.00.

AB InBev traded down about 0.3%, at $68.56 in a 52-week range of $67.95 to $117.06. The price target on the stock is $89.41.