Hill Street Beverage Company Inc (CVE:BEER) to Produce Cannabis Beverages in 2019

Hill Street Beverage Company Inc (CVE:BEER) (OTCMKTS:HSEEF) CEO Terry Donnelly visits the Midas Letter set to praise the company’s line of award-winning non-alcoholic beer and wine. Hill Street generated $1 million in revenue last year and Donnelly expects that number to climb this fiscal year as new retailers and distributors come on board. Significantly, the company’s products are available in 7000 stores across Canada including large grocery retailers like Loblaws and Sobeys. In addition to their great taste, Hill Street’s beverages are low calorie and Weight Watchers approved. While Hill Street’s products are non-alcoholic, the company has completed an LOI with Lexaria Bioscience Corp (CNSX:LXX) (OTCMKTS:LXRP) to use Lexaria patents to produce rapid onset cannabis (both THC and CBD) beer and wine beverages. Donnelly anticipates the company receiving its Health Canada license to produce cannabis beverages in Q1 2019.

Transcript:

Ed Milewski:  Hello everyone. Welcome to Midas Letter Live, and today we have – my name is Ed Milewski, I’m your host today. We have Terry Donnelly. He’s the CEO and chairman of Hill Street Beverage Company, ticker BEER. Beer. There you go; couldn’t be better. Terry –

Terry Donnelly:    Thanks for having me.

Ed Milewski:  Nice to have you.

Terry Donnelly:    Yeah, pleasure to be here.

Ed Milewski:  Yeah, so you know what, we’ve got some products here, and just to let the viewers know, less than 0.5 percent alcohol and I’m very impressed with all the words on this can of craft-brewed lager, and you’ve been involved with this for quite a while, now?

Terry Donnelly:    Well, I joined the company about 18 months ago. And the company has been around about 10 years, so I actually joined a company that was a bit of a turnaround situation. They had been producing a private label set of brands for Mothers Against Drunk Driving.

Ed Milewski:  Right.

Terry Donnelly:    So they created wine and the beer that you see here, but we have about 18 styles of wine that we have in our catalogue.

Ed Milewski:  What’s the biggest – is it more wine or is it more beer or is it 50/50?

Terry Donnelly:    We’re probably about 70/30 wine to beer, but beer is obviously the fastest-growing for us.

Ed Milewski:  Yeah .

Terry Donnelly:    But wine is really what started the business. Our Chardonnay is actually the best-selling product we’ve got, followed by our Merlot and then our sparkling Brut, which is a champagne-like product. But the product, you know, had a good start. When I joined, we were in about 1,200 stores, but the product was called MADD Virgin Drinks, and it was a private label built for Mothers Against Drunk Driving on the belief that –

Ed Milewski:  MADD as in M-A-D-D.

Terry Donnelly:    M-A-D-D.

Ed Milewski:  Right.

Terry Donnelly:    And it was on the belief that the designated driver had nothing to drink that looked or tasted like wine and beer like everybody else at the party.

Ed Milewski:  I’m going to just pop this here, because you know what? I’m a bit of a beer drinker.

Terry Donnelly:    Great.

Ed Milewski:  And here we go.

Terry Donnelly:    Yeah. This is award-winning craft beer.

Ed Milewski:  No cannabis, no alcohol – just saying to everybody.

Terry Donnelly:    Exactly. So they had produced a really great-tasting set of beverages, and I thought, you know, with the right branding and the right approach, this is the perfect platform to –

Ed Milewski:  Wow, you know what? That’s, that’s good beer.

Terry Donnelly:    It is a great beer.

Ed Milewski:  And gives credence to 1, 2, 3, 4, 5, 6, 7.

Terry Donnelly:    Yeah. We’ve won, actually, three world championships with that product.

Ed Milewski:  Really?

Terry Donnelly:    Yeah. Up against literally thousands of other competitors in the category.

Ed Milewski:  Have you got some mad scientist in the back somewhere that’s got this thing figured out, is that -?

Terry Donnelly:    We really have a great, great team. The team that we’ve assembled –

Ed Milewski:  How many people in your team?

Terry Donnelly:    there’s about a dozen people on the team, but we have about 100 years of beverage industry experience across those people. So, so people that really, really understand and are super passionate about making great tasting product.

Ed Milewski:  That’s excellent. That’s an excellent, excellent drink. I will buy that and I will drink that.

Terry Donnelly:    Yeah, and this is a different product; this is our Pilsner, so it’s a much lighter – I call this the perfect drink for the drive into work. So it’s a light-tasting Pilsner, you know, it’s perfect for the boat or sitting in the dock, but we’re in, you know, we’ve expanded –

Ed Milewski:  Sitting on the dock of the bay.

Terry Donnelly:    Exactly. We’ve expanded to about 7,000 stores across Canada; so we’re in every Loblaws, we’re in every Sobeys, every Shoppers Drug Mart, right nationally across the country.

Ed Milewski:  Now, your year ended June 30^th.

Terry Donnelly:    June 30^th, yeah.

Ed Milewski:  And for that period, what was your revenue for that period?

Terry Donnelly:    So that year was the transition year for us, so that was kind of converting everything from the MADD Virgin Drinks brand to the Hill Street –

Ed Milewski:  And you’d been there about a year at that point?

Terry Donnelly:    Yeah. So we were just kind of getting going and converting all the brands, convincing the retailers to come along with the program, and so we did about $1.6 million last year in our fiscal year. We had to change distributors, and so –

Ed Milewski:  Sure. And what did you do the year before that?

Terry Donnelly:    The year before we did about $900,000. So we even grew the business in the transition year.

Ed Milewski:  So it’s almost a double, in a transition year.

Terry Donnelly:    Exactly, right? And so now, this fiscal year, we now have new retailers coming on board, we’re getting full national distribution with Loblaws and Sobeys. We’ve got our new distributor, a new sales team that’s under the leadership of our head of sales, who is the kick-ass guy Doug Taylor; he used to be the head of sales at Microsoft and worked at Coke and Unilever, so a real strong sales executive.

Ed Milewski:  Really? Wow.

Terry Donnelly:    And our new marketing exec, who started in April, used to be at Google; before that was at Starbucks and Coca-Cola, so a guy who really understands the beverage space and digital marketing, as well.

Ed Milewski:  So you got some beer products and you got some wine products. I understand you won some fairly prestigious awards in California?

Terry Donnelly:    Yeah. So our Cabernet Sauvignon actually won a double gold medal at the San Francisco International Wine Show.

Ed Milewski:  Your Cabernet Sauvignon?

Terry Donnelly:    Our Cabernet Sauvignon.

Ed Milewski:  Alcohol-free?

Terry Donnelly:    Alcohol free, zero percent alcohol in all of our wines. That’s the first time ever that a non-alcoholic wine has won a double gold medal in the San Francisco competition, which is the equivalent of the World Championship of Wine. It’s the biggest wine competition in the world. There’s almost 5,000 wineries that compete from all over the globe.

Ed Milewski:  That’s impressive, that’s impressive.

Terry Donnelly:    Yeah. And a double gold, just so you understand – I mean, the wine tasters taste these products in blind taste testing, and if the majority of them pick your product, you get a gold medal. But if they unanimously choose your product in blind testing – so they have no idea whose wine they’re drinking, what label it is – we won a double gold for the Cab Sauv. So a unanimous selection against literally what would be probably hundreds of competitors from around the world.

Ed Milewski:  Yeah. And what would a bottle of that wine sell for?

Terry Donnelly:    I think we sell it for $16 a bottle. Most of our products at retail sell for somewhere between $10 to $12 a bottle; we have a good selection on our website. You know, we’re moving into the $15, $16 price range as well.

Ed Milewski:  And these are your products that are going to be infused with cannabis and available to the – and when? Now, this won’t happen till –

Terry Donnelly:    October of next year.

Ed Milewski:  Then you can start, okay. And obviously you’re experimenting with that, now.

Terry Donnelly:    Yeah. Well, we’ve licensed the patent portfolio from Lexaria. So their technology allows us to take cannabis, make it an odourless and tasteless powder which is water-soluble, and then it’s really fast-acting, so you feel it almost instantly, and you get the full onset within about 15 minutes. So you don’t get that two-hour delay that you get from edibles.

Ed Milewski:  And will you have a beer that has some THC and then one with a CBD?

Terry Donnelly:    Absolutely. So we actually see there’s three big buckets that are an opportunity for beverages. So obviously beer and wine is for that adult social occasion, right?

Ed Milewski:  Sure, sure.

Terry Donnelly:    It’s for enhancing your life. You come home from work, you have a beer; makes your arrival home a little better. Then you have some wine with dinner and it enhances your meal. So we call it that enhancement moment, right?

Then there’s the therapeutic, bucket, right, which is, I’m looking for pain relief, I’m looking for sport recovery. I’m looking to enhance my –

Ed Milewski:  I’m looking for psychological relief.

Terry Donnelly:    Exactly. Stress reduction. So, that what we call a functional beverage – it’s a beverage you drink that has a purpose attached to it.

And then the final bucket, which we think holds a lot of promise, and it’s completely unexplored right now, is actually medicinal products. So we actually think there’s an opportunity with Lexaria’s technology to actually create prescription beverages that are a much easier way to get a medicinal dose than smoking or a suppository or some kind of horrible-tasting oil or hard-to-swallow gel cap or pill.

Ed Milewski:  Sure.

Terry Donnelly:    And I always say to people, you know, what would you rather have? A lovely rose, or a suppository? I think the choice is pretty clear.

Ed Milewski:  Maybe not for everybody. [laughter]

Terry Donnelly:    Exactly.

Ed Milewski:  So I notice – I can’t help but notice, because you know, when you drink a lot of beer, you’re thinking of, you know, bloating feeling –

Terry Donnelly:    Of course, absolutely.

Ed Milewski:  And you know, we’re trying to be going into –

Terry Donnelly:    Health conscious, you want to watch your weight.

Ed Milewski:  Baby Boomers watch calorie intake. And I’m looking here, and I just see this, Weight Watchers approved!

Terry Donnelly:    Yes. All of our products –

Ed Milewski:  Holy smokes.

Terry Donnelly:    All of our products are endorsed by Weight Watchers. If you’re in the Weight Watchers program –

Ed Milewski:  70 calories, here.

Terry Donnelly:    It’s about a third of the calories of a normal lager.

Ed Milewski:  Of a big one. That’s a tallboy, right?

Terry Donnelly:    Yeah, these are about the same: 70 calories a serving. The wine is actually about an 80 percent reduction. The average calorie count for a serving of wine is 28 calories with us, relative to, you know, 150 to 180 for a typical glass of wine.

Ed Milewski:  Yeah. So you’ve got about 85 million shares, so I do some quick math: you’re capped at about $12 million, $13 million, $14 million?

Terry Donnelly:    Yeah, well, I think market cap right now is about $15 million.

Ed Milewski:  Okay, $15 million. You’ve got $2 million in the bank.

Terry Donnelly:    Yeah.

Ed Milewski:  You did $1.6 million.

Terry Donnelly:    Yeah.

Ed Milewski:  Maybe you can’t talk about what you think you’re going to do this year –

Terry Donnelly:    No.

Ed Milewski:  Okay.

Terry Donnelly:    But we’re very happy with the results.

Ed Milewski:  You’re going, you got a great tasting product, you’re going in the right direction, and you got –

Terry Donnelly:    We applied for our license.

Ed Milewski:  I just want to ask you, you’re coming out with your June 30^th, your first quarter, which is going to be out when?

Terry Donnelly:    This week.

Ed Milewski:  Okay, oh yeah. Okay. So we’re going to pay attention, but go ahead.

Terry Donnelly:    We’ve applied for our cannabis license with Health Canada; you know, we hope to get that some time end of first quarter, early second quarter of 2019. We hope that’ll give us lots of time to be able to formulate, make sure we’ve got the right dosage levels, make sure we’ve got the right mix of products, and we’re kind of in the final stages of sorting out distribution and being able to ensure that we can address if licensed retailers like an Alcanna or an LCBO, if they will handle beverages, or if beverages will be in liquor stores or beer stores, or if they’ll be in dispensaries.

So we’ve got to have a number of options, a number of scenarios that we’re planning for, to make sure that we can address the cannabis marketplace properly.

Ed Milewski:  How many different countries are selling these products right now? Is it all Canadian?

Terry Donnelly:    We are just in Canada right now.

Ed Milewski:  Just in Canada.

Terry Donnelly:    We’re just in Canada.

Ed Milewski:  And any plans to get into the US?

Terry Donnelly:    We’d have to have a much bigger base of business to work from. So we believe the right strategy is to go after the cannabis marketplace. Canada will, we think it’s going to be federally legal and distributed across Canada with enough of a base before the American marketplace becomes Federally legal, which is the precursor to us entering that marketplace. We’re listed on the Toronto Venture Exchange, so we can’t have operations in the US until it’s federally legal in the States, but we think that’s an opportunity for us to build scale and to actually really get the team humming and firing on all cylinders before we get into the US market.

I think it took Molson 185 years before they entered the American marketplace, so, we’ll do it much faster than that. [laughter]

Ed Milewski:  Terry, is there anything you want to add?

Terry Donnelly:    Well, I just hope, you know, it’s the perfect season right now for people that are hosting parties to consider having non-alcoholic products as an alternative, especially with people that, you know, now that cannabis is legal, you don’t want to be mixing alcohol and cannabis because that kind of sends people off in a direction they may not want to go.

Ed Milewski:  It’s a great tasting beer.

Terry Donnelly:    Great tasting beer, great tasting wine, make sure you stock up with a lot of it this Christmas.

Ed Milewski:  Yeah, okay. Well, there you go, folks. The ticker is BEER.

Terry Donnelly:    Beer. It’s the perfect ticker symbol.

Ed Milewski:  No kidding. Anyway, great product, great to have you on the show.

Terry Donnelly:    Ed, thanks very much.

Ed Milewski:  Okay.

Terry Donnelly:    Pleasure.

Ed Milewski:  Thank you.

Original article: Hill Street Beverage Company Inc (CVE:BEER) to Produce Cannabis Beverages in 2019

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