“Cannabis 2.0” is in full swing and Canadian companies in this space are already joining forces to combine their expertiseand deliver products that take advantage of this exciting new piece of the market.
Cannabis edibles can be legally bought and sold across Canada, and Hill Street Beverage Company Inc. (TSX: V.BEER, OTCQB: HSEEF, Forum) plans to infuse cannabis into its portfolio of award-winning non-alcoholic beverages. The infused beverage producer just made news when it struck a production deal with Peak Processing Solutions to produce cannabis infused beverages at its facility.
Peak Processing is a cannabis co-packing and white label product manufacturing firm that is currently completing its purpose-built, world-class beverage and consumer products production facility. Under the deal, Peak will manufacture products in specific formats, which will be attractive to Hill Street's cannabis edibles consumers.
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Hill Street has won numerous medals and accolades around the world for its line of products, which include Hill Street Craft Brewed Lager, Vin(Zero) wines, and Vintense wines.
With the introduction of "Cannabis 2.0" products into the Canadian market, Peak's production capabilities will address Hill Street's consumer demand for its growing portfolio of cannabis product introductions on a scalable basis.
Stockhouse Editorial caught up with Hill Street Chairman & CEO Terry Donnelly (pictured at left) to find out more about this new upcoming line of products and what consumers can expect.
Thanks for taking the time to speak with us. Before we delve into your recent partnership with Peak Processing Solutions, can you give us some background on how your business became involved in cannabis?
TD: Thank you! It’s great to be here to share with you and Stockhouse’s subscribers this exciting and significant milestone in Hill Street’s history. As many of your subscribers know, THC and CBD are commodities extracted from cannabis. It’s like in alcoholic beverages, ethanol is a commodity, regardless of whether you’re drinking beer, wine, or spirits. Brands are what differentiate commodities, so that’s why we have “King of Beers”, “The Silver Bullet”, and “Live like the Captain.” What we saw in Cannabis 1.0 was a rush for companies to sell a new commodity. Now they’re trying to build brands. At Hill Street, we had brands and wanted to expand our portfolio. With legal cannabis beverages launching in 2020, we jumped on the opportunity to use Canada as a testing ground to leverage our existing portfolio of branded products to develop and market a new portfolio of cannabis-infused beverage brands.
You said, “Canada as a testing ground”. What do you mean by that? Do you have a bigger vision?
TD: We’ve always been open with Hill Street’s roadmap to bring cannabis-infused beverages to the Canadian market, since Canada is at the forefront of cannabis beverage health and safety regulations, and will be extremely influential in creating regulations for the global market due to the trade agreements that exist regarding food and beverage safety. The Canadian alcohol sector is over $40bn at retail, and over $25Bn in wholesale dollars. This is a huge market for us to disrupt just in Canada, and we believe cannabis beverages will take significant share from alcoholic beverages. We believe we can leverage initial success in Canada to build scale and certainty in cash flows to take on the global market as it opens up. Our vision is to launch and prove the demand for our products in Canada, and then we can expand internationally with a portfolio of proven brands with an authentic origin story, supported by a profitable business.
To the U.S., right?
TD: Likely to Europe first, since they are further advanced in terms of establishing their own health and safety than the U.S. is at a national level. We are already seeing conversations at a national level in the EU to legalize recreational cannabis, and once one EU member state legalizes it, the rest are legally obliged to follow.
I suppose that Peak Processing is a part of Hill Street’s vision to develop and sell your cannabis-infused products in Canada?
TD: Correct. We own our recipes, and we own the license to a unique infusion technology platform. These are the key ingredients you need to produce a winning product. If you look at brands like White Claw in the USA, this a brand new billion dollar brand that is produced at multiple copackers. There is no chance they could have responded to the market demand for their product if they didn’t have a network of copackers ready to manufacture to meet that huge demand.
What was it about Peak Processing that stood out to you, compared to others in this space?
TD: First of all, Peak’s team are experts in the industry. They were part of the original team that built Aphria, and are part of a large enterprise in the sector in Australia, so they have both the experience, knowledge and resources to build a solid business. Plus they share our passion for producing world class products, and their equipment is state of the art. Its an excellent fit for us, and any other company like us who would want to outsource their production to them.
Peak’s team of experts boasts deep experience working with the biggest names in cannabis and consumer packaged goods manufacturing, what do you see their side of this partnership delivering to the end product?
TD: The most important aspect of running a copacking business is first, complying with all of the health and safety regulations, and second, knowing how to produce a quality product. Peak’s team has a terrific track record on both counts.
Hill Street already comes into the game with market experience, what have you learned so far that will help ensure the success of this line of infused products?
TD: It’s about finding the best people. This is new territory, so you have to have people that not only have the courage and intelligence to make new things work, you also have to have people with the right temperament to deal with what is still a nascent industry. For example, Health Canada regulatory changes have caused very fundamental and massive changes in strategy for every company in the industry, not just us. Fortunately, we’re blessed with patience, creativity, and a skilled and experienced team. We take all of these challenges in stride, and work to find solutions to these kinds of challenges. Experience is key, such as Peak’s team as well as the people at Lexaria, whose technology infuses THC and CBD into beverages without the negative impact of cannabis tastes and smells, and allows us to create shelf stable products. Our partners are key and so are the technologies we use. Hill Street is great at developing products and branding. Peak excels at manufacturing to scale. We’ll let them do what they do best so we can focus on our best talents.
As your first key cannabis production partner, Peak will have the entire process you need to produce, fill and package your cannabis-infused beverages, it sounds like it will be “plug and play”, once Peak secures its Health Canada approval?
TD: That’s a great way to put it. However, there are a lot of processes that need to be bolted on so that the plug and play runs smoothly. We have to have storage facilities, separation from traditional beverages, security, implementation of new equipment for the Lexaria process to convert THC and CBD oils into soluble powders. There’s a lot more too, but I’m absolutely confident Peak will get it right so by the time we hit the market in early to mid 2020, these new plug-and-play processes will be routine.
The aim will be to distribute through both government and privately-owned retailers, this seems like a lot of potential for big returns, do you have any expectations for how much revenue you think this will bring in?
TD: We don’t provide guidance about our cannabis-infused products. What I can say is that once operational, Peak’s canning line can produce about 100 cans per minute. We expect to have other co-packing partners as well, who will produce different formats, such as bottles of different sizes, or drink mixes, or effervescent tablets and capsules. We’ll let investors create their own models and sensitivity tables to this output.
Completion of the license is expected by early 2020, what is the timeline following this, if all goes to plan?
TD: We are still sticking to our plan that we have disclosed of having products in the market for early to mid 2020. Hopefully you and your readers will be drinking our infused rose all summer long.
Leveraging Peak's facility and expertise with Hill Street’s brand development history, once this partnership takes off in the hot part of the cannabis sector, what’s next?
TD: Our team is skilled at launching global brands, and creating innovative and award winning products. We want to make our cannabis-infused beverages into global brands. As I stated before, Europe would be likely the next market to go into, and we can see ourselves expanding into the U.S. as well, given the proximity for distribution of both locally made and imported brands. We want to stick with what we’re great at and what we’ve had success with in the past.
Can you speak to the scalable potential of this partnership?
TD: Peak is building a world class facility, and has committed to continue to invest and improve their facilities as the market requires. They have room to grow there as well, and its common for packers to upgrade the speed of their production lines within their building. It takes basically the same amount of square footage to run a line that does 100 cans a minute as it does a line that runs a 1000 cans a minute. If we have a couple of winning products that they are producing for us, then we will work together to maximize the potential of those brands.
Anything else you wish to add for our readers?
TD: It’s great to see the market maturing and evolving into proven business models that have worked in the consumer goods industry for decades. No one expects the farmer to be expert in making beer, soap, bread, soup, and grocery stores. But all of those products contain grain products. Yet this seems to be how the stock market thinks the cannabis business should work, with cultivators growing, processing, making beverages, medicines, cereal, cosmetics, and who knows what else. I think investors who are looking at this market the same way they should view the alcohol or consumer goods industry will be rewarded by investing in winning brands. Hill Street has demonstrated success in launching and building award winning brands, and we expect to do this in the cannabis sector.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.