Arizona Iced Tea is pushing into legal cannabis. Here’s how its partnership for pot-infused gummies and drinks came about.

Arizona Iced Tea is pushing into THC-infused beverages.
It’s partnering with the Denver-based Dixie Brands, and will start with vape pens and gummies for the Colorado and California markets before moving into beverages.
As part of the agreement, Dixie will develop the THC-containing products and Arizona will provide the branding, "isolating" Arizona from THC, which is federally illegal.
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The maker of Arizona Iced Tea just became latest consumer giant to push into the cannabis industry.

Arizona Beverage Company said on Wednesday said it was partnering with Denver-based cannabis company Dixie Brands to produce THC-infused vape pens, gummies, and drinks in states where the substance is legal for adult use, and eventually in Canada and Latin America.

Dixie will produce the THC-infused products and sell them to dispensaries under the Arizona brand. The partnership also gives Arizona the option to buy a $10 million stake in Dixie.

The iced tea maker follows Constellation Brands, which sells Corona beer and Svedka vodka, as well as Molson Coors, and Heineken, in gambling on the legalization of pot. Arizona, however, will be the first non-alcoholic consumer brand to specifically create THC products for the US market.

Dixie Brands CEO Chuck Smith told Business Insider in a Wednesday morning interview that the licensing partnership came about gradually. As Arizona was looking around the cannabis space, the company "kept stumbling into us," Smith said.

Around five months ago, Smith, along with senior members of Dixie’s team, visited Arizona’s office in Woodbury, New York, after an adviser to Arizona recommended the sit-down. That initial meeting, Smith said, kicked off a four-month diligence process where Arizona’s team looked at all facets of Dixie’s strategy and did their own research on the cannabis space by visiting dispensaries.

After a few more meetings, Arizona’s team spent a day at Dixie’s Denver office in June, where they signed the partnership.

Shayanne Gal/Business Insider

"I couldn’t be more proud of that — frankly humbled — with the fact that Don and his family are entrusting their brand to us to enter into this market," Smith said, referring to Arizona CEO Don Vultaggio. "I don’t take that lightly. And I know they didn’t take this decision lightly."

THC, the chief psychoactive component of the cannabis plant, is legal in 11 states for adult use but is still federally illegal, and can’t be transported across state lines. That creates all sorts of regulatory complications — especially as many banks still won’t serve cannabis clients — for established consumer companies that are looking to enter the space.

The structure of the partnership is what will allow Arizona to take on the new market, Smith said. Arizona will provide the branding, and access to its supply chain, while Dixie will work with the cannabis plant itself.

"We are certainly isolating them from any access to the THC side of this," Smith said. On top of that, Arizona is a privately-held company, meaning it can take bigger risks than companies that are bound by the strict rules of major US stock exchanges.

"The cannabis market is an important emerging category, and we’ve maintained our independence as a private business to be positioned to lead and seize generation-defining opportunities exactly like this one," Arizona CEO Vultaggio said in a statement announcing the partnership.

Neither the NASDAQ or the NYSE allow listed companies to invest in, sell, or distribute THC-containing products in the US.

While the product line is still in its early stages, Smith said it’s likely they’ll start with gummies and vape pens, before moving into beverages. They’ll first focus on the Colorado and California markets, where Dixie has a presence, before expanding to other states.

"I think this is a watershed moment for the industry," Smith said of the partnership.

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