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Arizona Iced Tea Maker Turns to Weed

The company behind Arizona Iced Tea is getting into the market for marijuana-infused gummies and drinks in the U.S. and Canada, seeking new avenues for growth after losing ground in its core tea business.

Arizona Beverage Co. has reached a licensing deal with Dixie Brands Inc., a Denver-based cannabis company that makes and sells weed vaporizers, candies, drinks, tinctures and topical creams in five U.S. states. Under the agreement, Dixie will manufacture the products and sell them through licensed dispensaries. The deal, which is subject to approval by Dixie’s board, also gives Arizona the right to buy a stake of up to $10 million in the cannabis company.

Plans for the Arizona line are in the early stages. It is likely to start with vape pens and gummies, followed by a variety of beverages that could include tea, lemonade, soda, coffee or seltzer, officials said. Dixie intends to launch the line in the U.S., then expand it to Canada and Latin America.

Arizona, a privately held company, is hoping to get a head start in the U.S. cannabis market over big, publicly traded beverage makers that are taking a more cautious approach. Companies including Corona brewer Constellation Brands Inc. and Coors Light brewer Molson Coors Brewing Co. are developing marijuana drinks in Canada but waiting for cannabis to be federally legal before bringing them to the U.S.

“You’ve got to be willing to try things,” said Don Vultaggio, Arizona’s chairman and CEO, who runs the company with his two sons. “The upside is we’re one of the first ones in an emerging space.”

Arizona is one of the first big American brands to plunge into the U.S. marijuana market. Heineken NV’s Lagunitas brewery worked with a California cannabis company to launch a weed-infused sparkling water last year. The drink, called Hi-Fi Hops, is available only in California.

But it is still a risky move—one that a publicly traded company couldn’t make, Mr. Vultaggio said. In the U.S., 11 states have legalized recreational marijuana and medical marijuana is legal in more than 30. But cannabis is still prohibited by federal law. That means it can’t be transported across state lines, many banks won’t take money derived from cannabis sales and companies that sell marijuana in the U.S. can’t list on major U.S. stock exchanges.

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