Our New Portfolio Addition: Althea Group Holdings (ASX: AGH)

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 17,710,000 AGH shares at the time of publishing this article. The Company has been engaged by AGH to share our commentary on the progress of our Investment in AGH over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

We just added Althea Group Holdings (ASX:AGH) to our Portfolio.

AGH is targeting one of the fastest growing consumer industries in the USA...

THC-infused drinks as a replacement for alcohol.

THC (tetrahydrocannabinol) is the main psychoactive compound found in the cannabis plant...

In other words it's the substance in marijuana that gets you high.

Consumer behaviours are changing. People are drinking less alcohol and are becoming much more health conscious...

But still want to sip a relaxing drink.

(We tried THC-infused drinks on our recent trip to the USA and highly rate them, especially for those of us that don’t drink alcohol)

$23M capped AGH contract manufactures THC drinks for ANY drinks brand wanting to offer them to consumers.

(its the sell “picks and shovels in a gold rush” model)

AGH’s intellectual property is making the patent pending, tasteless, “THC infusion” liquid that can be added to ANY drink.

AGH then partners with existing drink makers who want to make a THC drink.

AGH can manufacture THC in any kind of drink - from beer, cider, cocktails, iced tea, to soft drink, to THC-infused spirits...

For ANY drink company that wants to offer a THC version of their drink to its consumers.

The partner drink company handles marketing, promotion and distribution.

(hence the “picks and shovels in a gold rush” analogy)

AGH is already in partnership with $3.34BN Boston Beer Co.

In Canada, AGH makes a non-alcoholic, THC-infused version of Boston Beer Co’s “Twisted Tea”.

(Twisted Tea is the best selling alcoholic tea in the US selling 33M cans in 2024 equalling 80% of market share)

So is there a boom in THC drinks beginning in the USA?

It looks like it - after a US federal law change back in 2018 allowed THC drinks derived from hemp to be placed in USA supermarkets, bars and liquor stores. (Source)

THC drinks have been rapidly gaining in popularity since, especially in the last couple of years.

These headlines are all from just the last 8 weeks:

(Sources)

So how is AGH best placed to “ride” this emerging wave of interest in THC drinks?

AGH already has the #1 THC drink manufacturing business in Canada.

(where THC drinks are legal and sold in regulated dispensaries)

AGH produces ~70% of all THC drink brands in the country - their Canada facility has produced over 13,000,000 cans in the last 6 years.

AGH reported $8.2M in revenue from June to December last year and looks like it is just about to become profitable.

(profitability is not a guarantee yet, this is a small cap stock and things can and do go wrong.)

AGH has a market cap of ~$23M at the last traded price of ~2.8c.

So with 70% of the THC drink brands in Canada working with AGH - it has proven it's "picks and shovels" business model in one jurisdiction...

AGH has recently opened up a new manufacturing facility in Florida to target the US market where THC drinks are taking off. (Source)

The USA is a 15x bigger market (~$30BN by 2028) than Canada ($1.8BN by 2028).

AND THC drinks can be sold on the shelves at regular shops, bars and liquor stores in the USA (unlike the more restricted Canada).

Which is triggering rapid growth in popularity in the USA...

(Source)

So, is this the start of the THC drinks rush in the USA?

Where a “picks and shovels in a gold rush” type business like AGH’s could thrive...

This is why we like the AGH model.

Rapid US growth is what we are hoping will be the near term inflection point for AGH.

As of the end of the March quarter, AGH had produced and sold ~550,000 units in the US already. (Source)

We want to see more updates on USA growth and partnerships in the coming months.

We’ve all seen when a particular drink has a wave of popularity...

(remember how everyone drank cider instead of beer for a couple of years? Or swap cider for matcha tea, craft beers, bubble tea, kombucha, seltzer)

If THC-infused drinks continue to catch a wave of popularity in the US then AGH will benefit...

70% of all brands in Canada already use AGH’s services to make and package its product.

And AGH's can infuse THC into any kind of drink.

If it is able to secure the same market penetration in the US as it has in Canada then it could become a major player in the space selling the THC-infusion “picks and shovels” to a rapidly emerging THC drinks market.

Not to be left behind like Blockbuster Video or Kodak, “Big Alcohol” has been sniffing around THC drinks.

Back in 2018, Heineken launched its own THC infused drink and the owners of Corona Beer invested US $4BN in Canopy Growth to enter the THC space.

(yes you read that right, in 2018 a big alcohol company invested US $4BN into a cannabis company)

Both companies were too early in 2018 with the real demand for THC drinks not kicking in until the last ~18 months.

(too early like many of us that were investing in the cannabis space ~7 years back, including us)

The point is that big alcohol companies could be returning to THC now that a real wave of demand has started.

(Source, Source, Source)

Speaking of Big Alcohol companies...

As mentioned earlier, AGH already has a partnership with a big alcohol company - the $3.34BN Boston Beer Company.

Boston Beer company has over US$2.1BN revenue and is best known for

• Samuel Adams (craft beer)
• Truly Hard Seltzer
• Twisted Tea (alcoholic tea)
• Angry Orchard (hard cider)
• Dogfish Head (craft beer)
• Hard Mountain Dew (in partnership)

Twisted Tea is an alcoholic tea that sold 33 million cans in 2024 - its the best selling “hard tea” with more than 80% market share in the USA. (Source)

AGH partners with Boston Beer Co to make a non alcohol, THC-infused version of Twisted Tea for sale in Canada (branded as Teapot).

So far, Boston Beer Company hasn't launched a THC drink in the US...

The big kicker with AGH’s Boston Beer Company partnership is AGH’s right of first refusal on contract manufacturing for them in the US.

(Source)

So IF Boston Beer Company decides to launch any THC drink into the US... it could be a game changer for AGH.

And remember AGH’s THC-infusion can be applied to ANY drink, so any big alcohol company can use AGH to make a non alcoholic, THC-infused version of any of their popular drink brands.

Big alcohol will likely use AGH because it’s already managed to prove itself in the Canadian market with a high quality, pharma grade THC-infusion product.

(AGH produces for ~70% of the brands operating in the Canadian market).

So in summary, AGH has:

• Established Canadian THC beverage business producing drinks for ~70% of brands operating in Canada. AGH is the #1 THC drink manufacturer in Canada.
• Existing sales in Canada with $8.23M in revenue for the first half of FY25 (up 58% on the previous half year)
• A giant facility in Canada that can produce up to 12 million units (only running at ~22% capacity)
• Partnerships with large beverage companies including Boston Beer Company.
• Just entered the US market with a processing facility in Florida. (looking to replicate the success of its Canadian business, in the much bigger US market).
• Opportunity to create new brands and go after more market share in the US

Next we want to see AGH:

• Expand in the US through partnerships with big drink companies wanting to launch THC versions of their drinks.
• Expand into the US by growing sales in its own brands.
• Increase revenue and capacity utilisation at its Canadian facility.
• Achieve profitability

Ultimately we are Invested in AGH to deliver the following Big Bet:

Our AGH Big Bet:

“AGH re-rates to a $200M+ market cap on the back of strong THC Beverage sales growth in North America”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is no guarantee that our Big Bet will ever come true. There is a lot of work to be done, many risks involved, including financing risk, regulatory risk, and market adoption risk - just some of which we list in our AGH Investment Memo.

Success will require a significant amount of luck and good management. Past performance is not an indicator of future performance.

Today we will publish our AGH Investment Memo which details:

• What does AGH do?
• The macro theme for AGH
• What we want to see AGH achieve
• Why we are Invested in AGH
• The key risks to our Investment Thesis
• Our Investment Plan

Before we get to our memo, here are the 11 reasons why we Invested in AGH:

11 Reasons why we Invested in AGH:

1. Consumer drinking habits are changing, THC drinks to replace alcohol?

Consumer drinking habits are changing. People are more health conscious than ever before and alcohol is becoming an ‘old person’ drink.

THC drinks are healthier and less toxic than alcohol, and the addressable market is growing.

The US cannabis beverage market is expected to grow to A$30BN and in Canada to A$1.8BN by 2028.

(Source - Bloomberg)

2. AGH is the biggest manufacturer of THC beverages in Canada

AGH has proven its business in North America already.

AGH is the biggest manufacturer of THC beverages in Canada with around ~40% market share.

Revenues from AGH’s Canadian facility were >$8M for H1-FY25 - up over 58% on the previous half year.

(Source)

3. Canadian business has capacity to grow even further

AGH’s Canadian business is currently operating at ~21.96% of its total capacity.

We think AGH’s financials could improve exponentially if capacity utilisation increases.

(Source)

4. AGH has just entered the US market - the fastest growing market for THC Beverages

AGH is now moving into the USA where the addressable market is a lot bigger than Canada.

THC drinks can be sold in liquor stores and online across most of the US - thanks to a quirk in the regulatory environment where THC drinks are considered hemp based products.

The US market for THC drinks is set to grow by almost 20x from where it was in 2024 to 2028.

(Source)

5. AGH is adopting a Coca-Cola style distribution model in the US

AGH is looking to replicate the Coca-Cola distribution model.

AGH can create an emulsified THC product in its central hub in Florida, and then distribute it through the US to satellite facilities (or its own facilities) for bottling and labeling.

It is the exact same distribution model that has been applied successfully by Coca-Cola because it allows the company to better manage all of the IP and R&D from one central location.

The first facility has opened in Florida and AGH has already sold 550,000 units.

(Source)

6. AGH already has deals with major companies like Boston Beer Co.

AGH already has deals signed with big players in the alcoholic beverages industry.

AGH is Boston Beer Company’s manufacturing partner for THC drinks in Canada.

AND AGH has a right of first refusal on manufacturing for Boston Beer Co in the USA.

(Source)

Boston Beer Company is capped at ~$3.34BN and did over US$2.1BN in sales last year.

They are also yet to launch a THC beverage in the USA...

Boston Beer Co is most famous for the Samuel Adams beer and for its Twisted Tea product which is the best selling “hard tea” with over 85% market share in that segment:

7. AGH also has its own brands... one could go “viral”

Trends come and go, and there is always room for a new, innovative brand to capture the imagination of consumers.

In the past few years, the trend has moved towards “healthy alternatives” to drinking alcohol.

White Claw (a seltzer brand), was introduced in 2016, and has done $9 billion in cumulative sales since launch. (Source)

More recently Liquid Death (canned soda water), was introduced in 2022 and has done more than $333M in sales last year. (Source)

These beverage brands can and do go viral... but there needs to be some innovation behind them.

In the THC beverage market Pamos - a ‘cannabis spirit’ “says it expects 2024 sales of $20 million to $30 million, up from essentially nothing in 2023” (Source).

The bet for AGH is that it is in the right market for the next drinking trend, and that it has a brand which matches.

8. AGH has just gone through a restructure

AGH just spent the last 12 months restructuring the business and selling off non-core assets.

The most recent asset sale will net them over $1M in cash and take a lot of costs out of the business.

We like that we are coming into AGH as Investors when it’s focused on one segment - where it has the biggest competitive advantage.

AND at a time where a lot of costs have been stripped out of the business.

Ultimately, we like that AGH is now focused and all-in on the high-growth part of its business.

9. Big Alcohol has invested in THC drinks - will they do it again?

Big Alcohol has made investments in the THC sector before.

Constellation Brands (owner of Corona) invested over US$4BN into Canopy Growth and Heineken launched its first THC drink back in 2018.

Here is a news piece from 2018:

(Source)

Since then the majors took a step back from the industry and left it to smaller companies.

In February this year, US based New Realm Brewing released a line of THC infused seltzers.

We think it's only a matter of time before the bigger players in the industry come back into the space and launch THC drinks.

(Source)

10. AGH can make, design and produce THC versions of ANY existing and popular drink

AGH’s proprietary emulsion tech means the company can produce a tasteless THC product that can go into any existing drink formula.

Imagine THC vodka, THC tequila, THC beer, THC cocktails, THC cider etc...

AGH can partner with any major drink brand to make a THC infused version of their existing drinks.

Imagine a THC infused Red Bull or a THC infused Fanta...

(Source)

11. THC drinks could have a “popularity” wave

As mentioned in reason #9 - the big alcohol players have entered this space before.

We think 2018 was the first period of “hype” for the cannabis sector in general - this big initial hype is typical for all new investment themes to go through.

The initial hype phase occurs when a shiny new “game changing” idea captures the market's imagination and share prices rise to reflect everyone’s excitement.

Then reality sets in and it takes years longer than imagined for the world to embrace that thematic.

We think there always comes a time when an investment thematic matures and finds its natural place in a market again.

If 2018 (when Heineken and the owners of Corona entered the cannabis space) was the initial peak, we think the sector is just starting to come out of the bottom of the disillusionment phase.

AND enter the “slope of enlightenment" phase here:

Investment Memo: Althea Group Holdings (ASX:AGH)

Shares Held: 17,710,000

Options Held: 0

Date Opened: 11 July 2025

What does AGH Do?

AGH manufactures and sells THC based drinks in North America.

The company has adopted a “picks and shovels” business model, partnering with North American beverage companies to bring THC drinks to customers.

AGH has deals with major companies like $3.34B capped Boston Beer Co and manufactures THC drinks for 70% of the brands operating in Canada.

The company is now looking to enter the US market for THC beverages which is set to grow to A$30B by 2028.

What is the macro theme behind AGH?

Consumer drinking habits are changing.

Less young people are drinking alcohol and are becoming more and more health conscious.

THC drinks could be a much healthier alternative to alcoholic drinks.

By 2028 the THC beverage market is set to grow to ~A$30BN in the USA and A$1.8BN in Canada.

The 11 reasons we invested in AGH

1. Consumer drinking habits are changing, THC drinks to replace alcohol?
2. AGH is the biggest manufacturer of THC beverages in Canada - $8m+ revenues in 6 months
3. The Canadian business has capacity to grow even further - currently operating at ~22% of its total capacity
4. AGH has just entered the US market, the much bigger, faster growing market for THC beverages
5. AGH’s business model is based on a Coca-Cola style distribution model
6. AGH already has deals with major companies like A$3.34BN Boston Beer Co
7. AGH has its own drink brands... one could go “viral”
8. AGH has just restructured its business, cutting costs and selling non-core assets.
9. Big Alcohol has come into the THC drinks space in the past... will they do it again?
10. AGH can design, develop and produce a THC version of ANY existing, popular drink
11. THC drinks could go through a big “popularity” wave

What are the objectives that we want to see?

Objective #1: Grow the US business

AGH just launched into the US market, replicating its Canadian business model in what is a much bigger market.

We want to see AGH sign manufacturing partnerships with drinks manufacturers looking to launch THC drinks.

At the same time we want to see AGH grow sales for its own drinks in the US.

Ultimately we want to see the US business capture similar market share in the US, to what AGH has managed in Canada.

Milestones:

🔲 Sales updates (AGH owned brands)

🔲 Sales /partnerships with drinks companies

Objective #2: Grow Sales Revenue in Canada

We want to see AGH increase capacity utilisation at its Canadian facility and maintain its market leading position.

Milestones:

🔲 Sales Updates

🔲 New customer deal 1

🔲 New customer deal 2

Objective #3: New big customer in the US and/or Canada

The big game changer for AGH will be if the company can sign a deal with one of the big alcoholic beverage manufacturers.

This would be with a household name, launching a THC version of a drink like a Heineken or Corona...

Milestones:

🔲 Big customer deal #1

🔲 Big customer deal #2

What are the risks?

Regulatory Risk

Canada: The THC beverage market is tightly regulated. Any change in Canada’s regulatory environment could disrupt AGH’s ability to produce, sell, or distribute products.

United States: The market operates in a legal grey area under the 2018 Farm Bill, which permits hemp-derived THC (under 0.3% Delta-9 THC). However:

• Several states are cracking down (e.g., Texas is attempting bans).
• Regulatory uncertainty may limit national expansion, with state-by-state laws varying.
• A potential federal reclassification of cannabinoids could change market dynamics overnight.

US sales and execution risk

AGH is still early in its US rollout. It must:

• Secure reliable satellite bottling/distribution partners in each state.
• Manage quality control across a fragmented network.
• Successfully build brand awareness in a highly competitive and fast-moving consumer market.

Failure to gain traction with house brands (like “Melo”) may result in missed revenue targets or brand write-offs.

If adoption plateaus, AGH may struggle to scale or attract retail customers.

Market Adoption & Competition Risk

Although consumer trends point toward THC beverages, it’s still a nascent category and there is a risk that the market doesn’t materialise.

There is also growing competition from existing cannabis players entering the beverage space and traditional beverage companies launching CBD/THC verticals.

Debt Risk

AGH had some debts outstanding as of its most recent quarterly.

There is a risk with a business like AGH’s where delays in sales deals or facilities operating well below full capacity can put pressure on the company's finances.

Having debt may make it harder for AGH to raise fresh capital and/or risk forcing the company into a restructure.

There is always a risk here that the company’s debt load has a negative impact on the ability of the company to continue operating.

There were also some outstanding debts from its legacy business that had closed in voluntary administration. There is a risk that creditors from this legacy business may chase up AGH directly.

Financing Risk

AGH is still in early commercialization in the US and may need additional capital to expand into new states or marketing spend to build its brands.

In the absence of profitability, AGH may dilute shareholders through capital raises or struggle to fund growth internally.

What is our Investment Plan?

We plan to hold a position in AGH for the next 2-3 years (and beyond) as it grows into the US market.

We eventually may look to take some profits by selling up to ~10% of our holding (in line with our holding policy and escrow conditions) if the share price materially re-rates on the company successfully delivering on the key objectives listed above.