Canadian cannabis distributor Humble & Fume is fresh off of the announcement that they have joined forces with alcohol distributors Johnson Brothers to begin operations in the United States.
The company’s announcement signals a number of things: firstly, that operators still find opportunity in California’s crowded and challenging market. Secondly, that Canadian cannabis companies continue to find footholds in the United States ahead of interstate commerce or federal legality. And, thirdly, it confirms what many have been predicting for years: that alcohol companies are looking to get into the cannabis game. Partnering with Canadian companies may just be their ticket, as alcohol companies are able to leverage prior market know-how versus their own distribution network expertise.
The deal featured some interesting bells and whistles, owing to the fact that Johnson Brothers is a licensed spirits company and therefore currently legally requires distance from its cannabis assets.
It materialized as an $8 million private placement from Green Acre Capital Distribution Corp. for 18,795,471 common shares at a price of C$0.53 per share. The deal will create a joint venture that will launch Humble & Fume’s distribution efforts in California. In addition, an LOI indicates Green Acre will also invest an additional $2 million to form a joint venture with Humble. The LOI also indicates Green Acre will provide a further $10 million of additional capital on a non-dilutive basis to bring Green Acre’s interest in the joint venture to 50%. Green Acre received funding for the private placement thanks to an $8 million option agreement with Johnson Brothers.
Pursuant to the terms of the option, Johnson Brothers has the right to acquire the joint venture once cannabis has been sufficiently federally legalized in the United States so that an equity investment by Johnson Brothers in Humble will not adversely impact United States federal and state beverage alcohol licenses held by Johnson Brothers nor any of its subsidiaries or affiliates.
Shortly after its announcement that it would be entering the United States via California, Humble & Fume appointed a new Chairman of the Board, Jakob Ripshtein, who is also the CEO of Perennial Brands, formerly served as president of Aprhia (now Tilray) and Diageo Canada.
“So, I don’t know if it’s a race,” Ripshtein said when asked if there’s a healthy competition between alcohol and tobacco companies to gain footing in the legal cannabis industry.
“I think there was some race, and some big money coming in, but I also think there’s a bit of cold feet now,” Ripshtein said. “I can tell you both are very suitable for different reasons.”
“Tobacco is logical because, if you think of the consumer and how they do it, what you do with cannabis, tobacco is a very easy segue. Think of a pre-roll, for instance. But part of the prerequisites, you know, for tobacco company is, ‘Where does my next customer come from?’” he explained. “So, for tobacco companies, it’s very logical to come in with a partner, especially with vapes, taking into concern the vape regulatory challenges and all that.”
“Now, alcohol companies generally know and understand branding. So, for an alcohol company to come in and create brands in the cannabis industry is a very logical next step. You know, it’s, it’s not tobacco. It’s not cigarettes, which would appeal more in, say, China. It’s very different,” he said of the upper hand alcohol brands have with cannabis marketing in the United States.
He also said there’s a functional marriage of cannabis and alcohol, too, in that booze brands already understand distribution in the face of challenging regulations. But there is also a third player: the pharmaceutical industry, which seeks to take advantage of the health aspects of cannabis while also leveraging its expertise in peddling controlled substances.
“The future is coming, and it’s not necessarily smoking,” he says of the realizations made by tobacco companies regarding cigarettes, though Ripshtein believes cannabis flower is still the king product and is “here to stay.”
“And I think, from an occasion perspective, there are occasions where alcohol and cannabis can either fill up a gap or complement each other,” he said.
“If you think of pharma companies the same, if you look at Europe, it would look a bit of a different. Some countries, like Canada and the US, there’s a lot of wellness conversation. The CBD industry numbers support that. So, if wellness is something you believe in, if you believe that, at one point in time, we’re going to have cannabis over the counter, you know, like Tylenol with CBD or whatever the case — there is no doubt in my mind that pharma will be a big part of what this industry can and will be,” Ripshtein said, adding that cannabis is an ingredient, meaning that it can technically be integrated into anything. That’s distinctive from merely being a singular product. It makes the options for cannabis applications nearly limitless. That is a huge opportunity for marketers and operators.
“This product and ingredient has been around for thousands of years,” Ripshtein said. “The legal world is fairly new, especially when, say, considering spirits, drinks, sugar or pharma. So while humanity has experienced this product ingredient for a long time now, legality is fairly new, and there’s no doubt in my mind, more change will come in a good way, in a good way. So we just found an early stage entry and will build it up properly, from product and distribution in market and all that, and therefore we will last longer and be successful.”