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Alkaline Water Company to test new waters with acquisition of Aquahydrate

20 Sep Alkaline Water Company to test new waters with acquisition of Aquahydrate

The Alkaline Water Company (NASDAQ:WTER) today announced the signing of a landmark deal with potential to transform its brand name and portfolio. The company is set to merge with AQUAhydrate®, Inc, a Los-Angeles based private manufacturer of premium bottled water. The deal brings with it, a great deal of synergistic capabilities, strategic and financial benefits and celebrity endorsement of the combined brands.

AQUAhydrate’s board consists of celebrities such as Mark Wahlberg, Sean ‘Diddy’ Combs and Jillian Michaels, who are not only investors in the company but also have an endorsement agreement to promote their products. According to a Company statement

“The combined social media reach of Alkaline, AQUAhydrate and the Investors is expected to be over 74 million followers across Facebook, Twitter and Instagram”

The Alkaline Water Company (NASDAQ:WTER)

Market Cap: $72.36M; Current Share Price: 1.75 USDChart
Data by YCharts

 As Aaron Keay, Chairman of The Alkaline Water Company states

This is an extremely exciting time for all The Alkaline Water Company stakeholders as we welcome a new shareholder base that includes significant celebrity investors, partners, brand ambassadors and board members, to create a leading national presence in the premium water category with two powerful brands: Alkaline88 and AQUAhydrate”.

Alkaline already has a robust pipeline consisting of flavored waters, CBD-based products and packaging options, the acquisition will further strengthen its offerings to each brand’s unique consumer target market. The company intends to create differentiated product lines within each brand post–acquisition to justify the expanded shelf space.

In addition, the deal will also bolster the already strong retail presence for Alkaline, with AQUAhydrate already having key retail supply agreements across North America with retailers such as Walmart (NYSE: WMT), Target (NYSE: TGT), Safeway, Rite Aid (NYSE: RAD), GNC Meijer, QT and Albertsons. Alkaline88’s current retail clients include Wal-Mart, CVS, Albertson/Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco and Sprouts to name a few.

Furthermore, the combined revenues for the new entity are estimated to be over $65 million dollars for the fiscal 2020 on a pro forma basis. The company’s will also enjoy retail, distribution, logistics and packaging synergies leading to economies of scale and cost savings.

Richard A. Wright, President and CEO of The Alkaline Water Company Inc, opines

“We believe that post-acquisition, we will attract a more diverse consumer base, offer product differentiation and innovative brand extensions to become a major independent force in the beverage sector. We have identified the business synergies associated with the merger that will immediately impact and reduce costs associated with operations. This allows us to accelerate our sales channels through cross-promotion of both brands based on our distinct consumer bases and distribution channels”

The company has also made foray into the Cannabidiol “CBD” products with the launch of CBD-shots, tinctures, capsules, and powder packs, under the aegis of its wholly-owned subsidiary, A88 Infused Beverage Division Inc. The range of products includes offerings such as Hemp-derived CBD Infused Beverage Shots, hemp-derived CBD tinctures, hemp-derived CBD capsules and powder packs. Alkaline has entered into a supply agreement with Centuria Foods Inc for exclusive supply of water-soluble phytocannabinoid-rich hemp oil and is planning to leverage the trust and brand value to further its advances into the CBD-based products market

Industry
The growing acceptance of Marijuana and CDB-based products has given birth to various niche industries. There are numerous companies that offer CDB–based products such as oils, topical lotions, bath salts, edibles, aromatherapy, you name it and chances are that there is already someone offering the product in the market. There is growing competition in the field and this has led to innovations and pushing the envelopes to capture and even create new markets for the product.

In 2017, The WHO expert committee on Drug Dependence (ECDD) concluded  that in its unadulterated form, CBD does not cause harm or have abuse potential. While further research is underway on the subject it has been proved that CBD is well tolerated in humans and is safe.

There is now a growing demand for product offerings such as Cannabis-infused beverages. There are two categories on offer, the first one is THC-infused drinks that are similar to alcoholic beverages and give a “high” on consumption, the second category is the CBD-infused beverages that are known for their therapeutic effects and are being touted as wellness products. These are often infused with existing beverages such as coffees, tea, beer etc. However, the market is still at a nascent stage as Marijuana has still not been completely legalized in the U.S.

The U.S, where the use of cannabis has only been legalized in 33 states for medical use and 11 states for recreational use, is one of the largest untapped markets for Cannabis, with an estimated value of over USD 11.9 billion in 2018, which is likely to grow at a CAGR of 24.1% from 2019 to 2025. There have been series of mergers and acquisitions in the Cannabis space, which have seen consolidation of major players such as Aurora Cannabis, Canopy Growth, Curaleaf etc, in the anticipation of legalization of marijuana in the U.S by the end of 2019.

Currently 33 states in the U.S along with Washington, D.C. have legalized medical marijuana while 10 states (plus D.C.) permit recreational cannabis. 2018 was a great year for CDB industry, not only was the Farm Bill passed that allowed for the sale of hemp and hemp-based cannabidiol products, but the FDA also approved its very first cannabis-derived drug Epidiolex for treatment of seizures.

The Global legal marijuana market is likely to reach over USD 66.3 billion by the end of 2025, as per a report by Grand View Research, Inc, growing at a CAGR of 23.9%. There is a growing acceptance of the curative effects of cannabis, with some countries such as Canada and certain states of U.S legalizing the use of Marijuana for medical and recreational use. Research has time and again shown that cannabinoids (CBD), extracted from the cannabis plant, have varied medical uses with minimal side effects, making it a sought after alternative to traditional pharmaceutical options.

Image Source: Unsplash

A report by Zenith Global and Beverage Digest estimates that the U.S Cannabis-based drinks market which was approximately US$86 million in 2018 will reach US$1.4bn in the US in 2023, owing to a growing popularity and acceptance. We take a look at some of the early movers in this field, who are set to make a splash in the market with their expertise in production, capacity and distribution channels.

Company
The company that manufactures Alkaline88® Himalayan mineral-enhanced alkaline water intends to launch a range of natural hemp-extract based waters containing cannabidiol. In November 2018, A88 infused beverage division, Inc, it’s wholly owned subsidiary, entered into an agreement with Infusion Biosciences, Inc to use its proprietary Aqueous Phytorecovery Process (“APP”) technology to introduce the first water-soluble, full-spectrum range of bioactive natural hemp extract molecules to U.S. consumers according to a company statement.

Image Source: Company

The technology allows the company to remain loyal to its commitment of offering “clean beverages”, as it allows it to infuse water-soluble cannabinoids, without resorting to the use of any additives or chemicals. The technology also facilitates rapid absorption of the CBD through the stomach and intestine. Aqueous Phytorecovery Process (“APP”) technology allows use of proprietary reagents to combine novel ingredients, which are ready-to-consume along with the full-spectrum features of bioactive cannabinoids and terpenes from hemp.

Alkaline Water Company has a very strong retail presence with a network of over 50,000 retailers in all 50 states, including national retailers such as Safeway/Albertsons, Wal-Mart, Kroger, CVS, and other top regional and local supermarket chains. The company’s plan is to come up with natural, refreshing flavors that can enhance the natural taste of its proprietary alkaline water, and provide relaxation from use of hemp-extracts minus THC, thereby eliminating the “high”.

Risk Assessment

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