Last year, HEXO Corporation (HEXO.TO) (HEXO) and Molson Coors Corporation (TAP) started to execute on a joint venture partnership that is focused on the cannabis beverage market. 

The cannabis beverage market is an attractive vertical of the industry and we are favorable on how HEXO is positioned to be a beneficiary of the increased consumer demand for the product category. 

The joint venture operates under the name Truss Beverage Co. and we consider the partnership to be a core growth pillar for HEXO’s entire business. Last year, Truss launched a portfolio of cannabis-infused beverages. Earlier this week, the brand added 6 new products to the portfolio and we find this to be a significant development.

Last month, leading cannabis market data firm Headset published a report which indicates that cannabis beverage sales continue to grow in North America. According to the report, the trend is expected to continue and the vertical is poised to capture additional market share of the entire cannabis industry.  

In the report, Headset stated that many cannabis industry analysts have been expecting to see large gains for the beverage sector. The firm attributes the increasing demand to advancements in tetrahydrocannabinol (THC) infusion technology as well as an increase in new brands that target specific consumers (i.e. the occasional, low-dose consumer). 

We believe the cannabis beverage market is in the early innings of a major growth cycle and consider HEXO to be an avenue to be levered to it. Over the next few months, the company’s new products will be rolling out to retailers and are expected to arrive before the summer. The timing of the launch is significant and we expect to see strong consumer demand for the new flavors. 

When Truss announced the launch of 6 additional products, the brand reported to have sold more than 2 million units since the initial launch. Truss reported to have become the largest cannabis beverage brand in early 2021 and we are favorable on how the partnership is positioned to capitalize on a burgeoning vertical of the cannabis industry. 

Truss’ internal proprietary market share tracker from February 1st through February 28th (representative of dollar share) showed that the brand had 43% of the market share in Canada in early 2021 and we find this to be significant. The management team said the vertical has shown no signs of slowing down and we are bullish on this trend. 

Canopy Growth Corporation (WEED.TO) (CGC) is considered to be a leading cannabis beverage brand and has benefited from having a strategic relationship with Constellation Brands (STZ). We believe that Canopy Growth is the closest competitor to HEXO and will monitor how the operators are able to continue to capture market share.