Jones Soda Sets Stage to Enter Cannabis Market

Over two years after cannabis industry investment firm SOL Global took a minority stake in Jones Soda, the Seattle-based craft soda maker is finally preparing to launch infused edibles and beverages.

Yesterday, Jones issued a $2 million unsecured convertible debenture to SOL Global and entered a non-binding term sheet with Canadian reporting issuer Pinestar Gold Inc., according to a press release. Under the term sheet, Jones intends to acquire all outstanding common shares of Pinestar in exchange for 4 million shares of Jones stock and 1.6 million warrants exercisable into Jones shares. Pinestar also intends to complete an offering of subscription receipts expected to be picked up by SOL and Pinestar shareholders including Canadian entrepreneur Marc Lustig for a minimum gross proceeds of $8 million.

Lustig is currently the executive chairman of Israel-based IMCannabis, a medical and recreational cannabis producer with operations in Israel, Germany and Canada. He is also the founder and CEO of marijuana distributor and producer CannaRoyalty Corp., which does business as Origin House with operations in California.

According to a Bloomberg profile, Pinestar Gold Inc. is a Vancouver-based mineral exploration company with a focus on gold production in Chile. In December, the company announced the exit of several directors and named board member Michael Lerner as CEO, president and CFO. According to his LinkedIn profile, Lerner also serves as CEO for a number of mineral and metals companies including Canada Iron Inc., Debut Diamonds Inc., and Redpine Petroleum Ltd.

Jones’ cannabis business will be operated as a subsidiary separate from the core soda company. In the release, Jones president and CEO Mark Murray said the company will develop cannabis-infused beverages and edibles, but did not specify further. It is unclear whether or not the products will go to market under the Jones brand or whether the products will contain THC, CBD or both.

“We believe that Cannabis-infused beverages and edibles are a perfect fit for the iconic personality of the Jones brand, and that the proposed transactions will lay the groundwork for a strategic transformation of the Company to an additional business line that we feel builds on our current business model,” Murray said in the press release. ”We are also confident that SOL, along with certain large shareholders of Pinestar will provide Jones with the knowledge, expertise and resources necessary to help us deliver on our growth plans within the cannabis sector.”

Reached by BevNET, Murray declined to comment on plans for the cannabis business, noting that the company only has a letter of intent at this stage.

Discussions of Jones entering the cannabis category, particularly with an eye towards CBD-infused products, began in April 2019 after SOL Global purchased a 9.8% stake in the publicly-traded beverage company. In July 2019, CBD portfolio company HeavenlyRx Ltd., a subsidiary of SOL, purchased a 25% stake in Jones, gaining two seats on the board of directors. At the time, former Jones CEO Jennifer Cue said the company was exploring CBD-infused beverages.

Jones was hit hard by the pandemic recession. In April, Cue exited the company, nine employees were laid off and four others were furloughed — including almost all of its sales team.

In November, however, the company appointed Murray, a former JGC Foods president, as CEO. He had initially joined the company as a consultant last spring. That month, Jones posted its strongest revenue growth in 18 months, following a long period of declining sales. In December, Murray told BevNET that the company is now executing a three-year rebuilding plan, that includes expanding its sales team and investing in marketing campaigns to restore brand equity.

According to the company’s Q1 earnings report in May, Jones total revenue grew 2% in the quarter to $2.9 million, up from $2.8 million in Q1 2020 (notably pre-COVID). Gross profit as a percentage of revenue increased to 26.9%, up from 20.8% year-over-year.

If Jones does intend to enter the THC beverage market, it could be entering the category at a time where growth is slowly beginning to tick upward, emphasis on ‘slowly.’ According to market research firm Headset, while predictions of rapid growth for cannabis beverages “haven’t really panned out,” basket penetration has gradually increased over time: up from 1.6% in January 2018 to 2.8% in February 2021. The percentage of cannabis consumers who have purchased at least one beverage is also rising, growing 10% between 2019 and 2020.

While beverages have consistently remained only 1% of the overall cannabis market in the U.S., drinks did grow their share in Canada over the last year from under 0.5% in January 2020 to more than 1.5% in February 2021, Headset reported.

This week, U.S. Senate Majority Leader Chuck Schumer introduced draft legislation to federally legalize marijuana. The proposed law would remove marijuana from the Controlled Substances Act and impose a federal tax on cannabis products.