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Editor’s Note: We’re pleased to offer you this article from Cannabis Professional, The Globe and Mail’s premium industry subscription service. Get articles like this sent each weekday by subscribing here:

Toronto craft brewer Ace Hill has partnered with Kelowna-based cannabis grower The Flowr Corp. to market a line of pre-rolled joints in Ontario and British Columbia, in a kind of brand licensing deal that appears to be the first of its kind in the Canadian cannabis industry.

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Ace Hill, a millennial-focused beer and alcoholic drinks company, won’t actually touch the product. But two cannabis strains grown, packaged and shipped by Flowr will be branded and marketed by Ace Hill’s newly-minted sister company Ace Valley. Under Health Canada’s packaging regime, companies can include one brand element on their products.

"We don't really think about it as cross-branding or cross-promotion,” said Mike Wagman co-founder and CEO of Ace Hill and Ace Valley. “It's from the same team, but we set up a new company, we developed a new brand identity ... and all the marketing and brand building will be fully compliant [with Health Canada regulations]."

The conversation around cannabis and alcohol companies has tended to focus on blockbuster deals like Constellation Brands Inc.’s $5-billion investment in Canopy Growth Corp., or Molson Coors Brewing Company’s joint venture with HEXO Corp. At a more modest and regional level, however, there are conversations happening between smaller LPs looking for brand traction and craft brewers eager to tap new revenue streams.

In the case of Ace Hill, the focus isn’t even on creating a line of cannabis-infused beverages, at least at first.

"Lots of these small independent beer companies are looking [at the cannabis industry],” said Ranjeev Dhillon, a partner at the law firm Bennett Jones LLP, who worked on the Ace Valley partnership. And it’s not only beer companies that want to partner with LPs, he said. "We're working on a couple of these things right now, including with a coffee company."

For LPs trying to launch brands in a highly restrictive environment – with plain packaging rules, limited advertising opportunities and a prohibition on “lifestyle” marketing and endorsements – teaming up with existing brands makes sense, according to Rebecca Brown, CEO of Crowns Creative, a Toronto branding agency focused on cannabis.

“Let the cannabis brand borrow equity from the non-cannabis brand to get ahead in a marketplace that will be noisy and where they are very limited in their ability to communicate their story,” Ms. Brown said.

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Partnerships like Ace Valley, however, aren’t easy to form, requiring that companies navigate a restrictive legal framework put in place to prevent cannabis advertising going the way of beer advertising.

“If you try to intermingle brands, a non-cannabis brand with a cannabis company, that non-cannabis brand for marketing purposes becomes essentially a cannabis company,” Mr. Dhillon explained.

“So if you're Molson and you try and team up with a cannabis company and start trying to call it Molson Cannabis Beer or whatever, they would now treat all Molson products essentially under the cannabis regulations.”

To get around these restrictions, Ace Hill created a separate corporate entity, with a different name and ostensibly different logos and brand elements. In a clever bit of shapeshifting that maintains a level of familiarity while avoiding cross-promotion, the Ace Hill ‘A’, displayed prominently on its beer cans, has been flipped upside down into a ‘V’ for Ace Valley, keeping the same font but changing the colour scheme.

“It's a bit of a balancing act, because you definitely want to leverage your existing brand into the new one," said Mr. Dhillon.

For Flowr, an early-stage LP that went public on the TSX Venture Exchange last week, the partnership is about more than tapping an existing brand identity, said Steve Klein, Flowr’s chairman and chief strategist. It’s also about having a team that’s used to rapid growth – Ace Hill only began two years ago, and it's already one of the top-selling craft beers in Toronto liquor stores – and marketing to millennials and other boutique, quality-focused consumers.

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Given the restrictive advertising environment, marketing cannabis may well require the same skill set as marketing craft beer, where quality, word of mouth and product curation drive sales.

“People can’t do splashy commercials no matter how much money they have in the bank,” said Mr. Klein. “We think it’s going to come down to people trying different things and word of mouth, and we think we’re going to come out very well in that contest."

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