Interview with Terry Donnelly CEO of Hill Street Beverage Co.

Capital 10X sat down with Terry Donnelly, CEO of Hill Street Beverage Co. [stock_market_widget type="inline" template="generic" color="default" assets="BEER.V" markup="(TSXV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] to discuss their alcohol-free beverage company and how they plan to capitalize on the legalization of cannabis edibles.


Capital 10x: For the viewers who don’t really know much about Hill Street do you want to just give them a quick company overview in a few sentences?
Terry Donnelly: Hill Street is a publicly-traded company. We’re traded on the Toronto Venture exchange under the ticker symbol beer BEER. We’re a producer of alcohol-free and soon to be cannabis-infused beverages. We produce alcohol-free beer, wine, and cocktails. Rhose products are distributed right across Canada and via e-commerce into the U.S. We’re now in somewhere in the neighbourhood of you know depending on the number of stores between five and eight thousand stores.
Capital 10x: For people who might not be interested in alcohol-free beer, wine, what kind of sort of strategic advantage can this give you?
Terry Donnelly: The strategic advantage is that you got to know how to make a great tasting alcohol-free product as a wine or a beer before you can make a great tasting
cannabis-infused wine or beer. So because we are the world experts in making great tasting alcohol-free wine and beer we think we’ve got a strategic advantage when it comes to the cannabis-infused marketplace.
Capital 10x: That sort of leads to a perfect segue into a little bit about the technology
specifically that you’ll be using to actually infuse the cannabis into the beers itself? And I believe that’s with Lexaria Biosciences.
Terry Donnelly: We licensed technology from Lexaria. They are a leading biotech company based out of Nevada and Kelowna BC and they have about 50 patents pending and about 15 patents issued on their technology so there’s a nice ring fence around the technology, but the most important thing about it is it mimics the onset and duration of alcohol.
You feel it within 5 minutes. Tt’s in and out of your bloodstream in about three hours. It peaks if you take a shot like doing an entire glass. You get a full onset within 15 minutes although people don’t normally do that with wine and beer, unless you’re in college. They normally luxuriate over the beer and the wine over the course of an hour. So we kind of provide an intoxicating effect that mirrors that same intoxication level and time that you get from alcohol.
Capital 10x: With the deal with Lexaria, is that something that’s exclusive to Hill Street or how are they operating there?
Terry Donnelly: There’s probably 20 companies out there that have some kind of infusion technology, varying approaches and strategies. We’re one of a number of licensees of a Lexaria technology and we just sort of consider that table space to be in the beverage business.
So it’s not a major differentiator and it’s right now alcohol isn’t a differentiator in beverages. Everybody makes an alcoholic beverage has an alcoholic beverage. So it’s really taste, so we’ll be positioning our products on the taste.
Capital 10x:  Anyone who’s tried to follow along with regulations with the government probably just gets a headache or just gets very frustrated. Looking like October regulations will be released when do you expect to be able to start selling these cannabis-infused beverages?
Terry Donnelly: We’re probably projecting that the beverages will appear in the marketplace in Q1 of 2020. You know if you were fully ready to go on October 17, if you had some kind of insight as to what the regulations were gonna be. If you were able to be a 100% compliant with things that hadn’t been published yet but a miracle of whatever it was but if you’re ready on October 17th you’ve got to give Health Canada 60 days notice of a new product and then they’ve got to approve it. So probably q1 of 2020.
Capital 10x: So when the products hit the shelves and I mean I’m sure there’s gonna be a lot of interest even if it’s just initially but from consumers for these new types of products what do you expect I guess the return in terms of the sales of your beverages you know they did increase in the revenues that Hill Street sees?
Terry Donnelly: Well I look at it more from a capacity standpoint. The production lines that we’ve purchased — we have both a bottling line in a canning line that will be dedicated to cannabis-infused beverages — those lines combined can generate about $30 million of annual wholesale revenue at a very consumer friendly price point per shift so on an annualized basis if we were running two shifts we could generate 60
million in revenue.
If we ran 24/7 we could do about 90 million in revenue so we’re expecting that we’ll be able to generate enough demand for our production capabilities not just with our own brands but also producing brands we’ll license from other brands from other companies as well as private label and co-packing services that we’ll offer to the marketplace.
You know we’ll expect we’ll have a pretty good you know a significant percentage of our capacity utilized you know at least one shift in first year and growing to ultimately getting to two shifts where then you’ll have to expand the line and that’s where we’ll we’ll definitely look at increasing the facility, increasing the production capacity and purchasing more equipment to increase our capacity.
Capital 10x: One of the things I came across in the more recent financial statements that you’d be looking to do some form of capital raise in the coming months, year. Talk a little bit about what that might look like. Equity, debt, how much, is that a partnership with an LP or another beverage company?
Terry Donnelly: Right now we’re preparing for a private placement so we have a number of major transactions that we’re contemplating. They will require additional capital for us to
take advantage of them. So as soon as we have those locked down and announced and we can have a sense of the kind of business that we’ll be building using our public status as a currency to grow, grow through acquisitions.
So once we are able to put a little more clarity on that we’ll be able to to give the marketplace an idea of how much capital we’ll be raising and what the use proceeds will be,  but we think we’re extremely well positioned right now to take on the marketplace as it becomes legal and we think we’re heading into a great summer for our alcohol free product. The orders are coming in.
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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Evan Veryard
Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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