Beverage maker reaches licensing deal with U.S. cannabis company for new line of gummies, vape pens and drinks
The company behind Arizona Iced Tea is getting into the market for marijuana-infused gummies and drinks in the U.S. and Canada, seeking new avenues for growth after losing ground in its core tea business.
Arizona Beverage Co. has reached a licensing deal with Dixie Brands Inc., a Denver-based cannabis company that makes and sells weed vaporizers, candies, drinks, tinctures and topical creams in five U.S. states. Under the agreement, Dixie will manufacture the products and sell them through licensed dispensaries. The deal, which is subject to approval by Dixie’s board, also gives Arizona the right to buy a stake of up to $10 million in the cannabis company.
Plans for the Arizona line are in the early stages. It is likely to start with vape pens and gummies, followed by a variety of beverages that could include tea, lemonade, soda, coffee or seltzer, officials said. Dixie intends to launch the line in the U.S., then expand it to Canada and Latin America.
Arizona, a privately held company, is hoping to get a head start in the U.S. cannabis market over big, publicly traded beverage makers that are taking a more cautious approach. Companies including Corona brewer Constellation Brands Inc. and Coors Light brewer Molson Coors Brewing Co. are developing marijuana drinks in Canada but waiting for cannabis to be federally legal before bringing them to the U.S.
“You’ve got to be willing to try things,” said Don Vultaggio, Arizona’s chairman and CEO, who runs the company with his two sons. “The upside is we’re one of the first ones in an emerging space.”
Arizona is one of the first big American brands to plunge into the U.S. marijuana market. Heineken NV’s Lagunitas brewery worked with a California cannabis company to launch a weed-infused sparkling water last year. The drink, called Hi-Fi Hops, is available only in California.
But it is still a risky move—one that a publicly traded company couldn’t make, Mr. Vultaggio said. In the U.S., 11 states have legalized recreational marijuana and medical marijuana is legal in more than 30. But cannabis is still prohibited by federal law. That means it can’t be transported across state lines, many banks won’t take money derived from cannabis sales and companies that sell marijuana in the U.S. can’t list on major U.S. stock exchanges.
Under the deal, Dixie will manufacture the goods in each state they are sold in and Arizona won’t be involved in production.
Mr. Vultaggio in 2015 settled a yearslong legal battle with his former business partner over control of the company they co-founded. Since then, he has tried to kick-start its ready-to-drink tea business and expand into other categories.
While Arizona remains the leading U.S. ice-tea brand by sales volume, its market share has fallen steadily, from 23.4% in 2013 to 16.2% last year, according to Euromonitor International. It also lost its top spot in retail sales dollars of ready-to-drink tea, unseated last year by Pure Leaf, a joint venture by Unilever PLC and PepsiCo Inc.
Arizona’s tea sales are growing this year, as is overall revenue, Mr. Vultaggio said, adding that the company will complete construction next year on a new manufacturing plant. “Right now, we’re not producing enough to meet demand,” he said.
The Woodbury, N.Y., company over the past two years has introduced beef jerky and fruit snacks, and this month plans to launch a line of seltzers flavored with a splash of fruit juice.