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Denver-based Dixie Brands, a longtime manufacturer of cannabis-infused products, has reached a licensing deal with Arizona Beverage Co., the firm behind Arizona Iced Tea.

Arizona Beverage Co., based in Woodbury, New York, is entering the cannabis-infused beverage and edibles market in the United States and Canada in an effort to make up for lost ground in the traditional drinks sector.

Under the licensing agreement:

  • Dixie will manufacture marijuana-infused products and distribute them through state-legal cannabis retailers.
  • Arizona Iced Tea can purchase an ownership stake in Dixie for up to $10 million.
  • Dixie’s board must sign off on the arrangement.

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.

“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.”

While Arizona remains the leading U.S. ice-tea brand by sales volume, its market share has fallen steadily, from 23.4% in 2013 to 16.2% last year, according to Euromonitor International. It also lost its top spot in retail sales dollars of ready-to-drink tea, unseated last year by Pure Leaf.

Arizona’s tea sales are growing this year, as is overall revenue, Mr. Vultaggio said, adding that the company will complete construction next year on a new manufacturing plant. “Right now, we’re not producing enough to meet demand,” he said.