Executive Summary / Key Takeaways

• Strategic Transformation Underway: Jones Soda Co. (JSDA) is executing a deliberate pivot from its craft soda roots to a diversified beverage company, focusing on high-growth modern soda and adult beverage segments, underpinned by a recent strategic divestiture.
• Sharpened Focus and Operational Discipline: The sale of its marijuana-derived THC business for $3 million in proceeds allows JSDA to concentrate resources on its core offerings and the rapidly expanding hemp-derived Delta-9 THC (HD9) market, coupled with aggressive cost management and a new, larger credit facility.
• Early Traction in New Segments: Despite a Q2 2025 revenue dip due to non-recurring prior-year pipeline fills, JSDA reported a net income of $2.6 million, largely driven by the divestiture gain and significant reductions in operating expenses. New products like Pop Jones and Mary Jones HD9 are showing promising early sales and distribution expansion.
• Differentiated Brand and Flavor Innovation: JSDA leverages its unique consumer-submitted photo labels and a proven reputation for flavor expertise as a competitive moat, enabling it to stand out against larger rivals and capture niche market share in evolving categories.
• Outlook for H2 2025: Management anticipates increasing net revenues in Q3 and Q4 2025, fueled by continued expansion of HD9, Spiked Jones, Pop Jones, and strategic partnerships, though core soda sales are expected to be slightly down year-over-year.

A Craft Legacy's Bold Reinvention

Jones Soda Co. (JSDA) has long been a distinctive player in the beverage industry, tracing its origins back to 1986 as a Canadian entity before establishing itself as a Washington corporation in 2000. Renowned for its premium craft sodas, real cane sugar, vibrant flavors, and particularly its iconic fan-submitted photo labels—a unique consumer engagement model that has garnered over one million submissions—Jones Soda cultivated a loyal following. This foundational brand identity, deeply rooted in consumer connection and flavor innovation, now serves as the springboard for a significant strategic overhaul.

The beverage industry is a fiercely competitive arena, dominated by giants like Coca-Cola (KO) and PepsiCo (PEP), yet it simultaneously offers fertile ground for agile players in niche, health-conscious, and alternative adult beverage segments. Recognizing this dynamic, JSDA embarked on an ambitious transformation around 2024, aiming to evolve from a singular craft soda brand into a diversified beverage company. This strategic shift has been punctuated by new leadership, with Scott Harvey appointed CEO and Brian Meadows as CFO in early 2025, bringing a renewed focus on operational discipline and ROI-driven investments.

JSDA's competitive standing reflects its unique positioning. While it operates on a significantly smaller scale than its mass-market rivals, it excels in agility and personalization. Its strategy is not to directly challenge the giants on volume but to carve out strong footholds in emerging, high-growth categories where its brand equity and innovative approach to product development can create a distinct advantage. This involves leveraging its established brand trust to enter new segments, a critical differentiator in a crowded market.

Technological Edge and Consumer Connection: The Jones Moat

In the beverage sector, "technology" often extends beyond traditional hardware to encompass proprietary processes, unique brand engagement platforms, and advanced product formulation. For Jones Soda, its core differentiated technology lies in two key areas: its consumer-driven branding platform and its flavor innovation expertise.

The fan-submitted photo labels, a hallmark of Jones Soda for decades, represent a scalable, proprietary platform for user-generated content and brand co-creation. This unique interaction fosters unparalleled customer loyalty and a sense of community, translating into tangible benefits such as enhanced brand stickiness and potentially superior pricing power in niche markets. This "technology" provides a distinct competitive moat, allowing JSDA to stand apart from the standardized, mass-produced offerings of competitors like PepsiCo, who struggle to replicate such personalized engagement.

Furthermore, JSDA's reputation as "flavor experts and innovators" is a critical technological differentiator. The company's rigorous product development process, exemplified by Pop Jones consistently outperforming comparable products in blind taste tests, underscores its ability to craft superior taste profiles. This expertise is crucial for its expansion into health-focused and adult beverage categories. For instance, Pop Jones is formulated with just 30 calories, 4 grams of sugar (only 2 grams added), and includes fiber and immune support from apple cider vinegar, agave inulin, and 20% of the daily recommended zinc intake. This formulation offers a significant advantage, containing half the added sugar of other modern soda brands and 1/20th of a standard soda. Similarly, the upcoming HD9 Zeros are promised to deliver "the same great taste with no compromise on flavor." These innovations contribute directly to JSDA's competitive moat, enabling it to capture market share by meeting evolving consumer demands for healthier and more sophisticated beverage options, thereby enhancing its market positioning and potential for higher margins.

Strategic Pillars for Growth: Modernizing the Portfolio

JSDA's strategic roadmap is clearly defined by three core pillars: Core Soda, Modern Soda, and Adult Beverages. Each pillar is designed to capitalize on market opportunities and leverage the company's unique strengths.

Within Core Soda, JSDA continues to expand its traditional glass bottle and can business, increasing its distribution network to 81 partners across 37 states, including major retailers like Kroger (KR) and Albertsons (ACI). Innovation in this segment includes the successful launch of 7.5-ounce mini cans in 732 Walmart (WMT) stores, which demonstrated a remarkable 35x lift in sales in test markets. The introduction of Jones Zero Cola across over 10,000 stores has exceeded expectations, with Zero Root Beer and Zero Doctor Jones planned for future release. Strategic brand partnerships, such as the Crayola custom pack (which sold out in hours) and the Bethesda Fallout franchise (Nuka Quantum, Nuka Grape, Sun Sarsaparilla, generating $930,000 in Q2 2024 sales), are driving significant consumer buzz and direct-to-consumer growth. The fountain business also saw its revenue more than double in Q2 2024, indicating growing interest from quick-service restaurants.

The Modern Soda segment is a "big bet" for Jones, targeting the exploding demand for functional beverages. Pop Jones, an all-natural prebiotic soda, is gaining traction, currently ranking #11 in the modern soda category with sales of approximately $2.09 per SKU per store per week. Management anticipates moving Pop Jones into the top 5 brands following planned marketing efforts in September. Its distribution is expanding into national and regional chains like Safeway, Albertsons, and HyVee, with a crucial meeting scheduled with Walmart in August 2025 to present new flavors and in-market data. Complementing this is Fiesta Jones, a line of Latin-inspired, lower-calorie fruit-flavored beverages in resealable aluminum bottles, now available in over 2,000 convenience stores through partners like Circle K (ATD.TO).

The Adult Beverages segment is a key growth engine, encompassing Mary Jones HD9 THC products, Spiked Jones, and Jones Premium Craft Mixers. Crucially, on June 19, 2025, JSDA completed the divestiture of its marijuana-derived THC cannabis beverage business for $3 million in promissory notes and an ongoing annual licensing fee. This strategic exit allows JSDA to sharpen its focus on its retained Mary Jones HD9 THC line, which is chemically identical to marijuana-derived Delta 9 but derived from hemp, enabling cross-state distribution. HD9 revenue grew to $0.8 million in Q2 2025 (up from $0.6 million in Q2 2024) and $1.8 million for the six months ended June 30, 2025 (up from $0.9 million in 6M 2024). Mary Jones HD9 soda ranks within the top 30 in independent liquor stores, with a goal to reach the top 10% with the Q3 2025 launch of HD9 Zeros and the deployment of 850 branded coolers. Spiked Jones, the alcohol-infused hard craft soda, achieved a top 10 brand ranking in its Northwest test market and is expanding nationally with a new production partner in Michigan and 15+ new distributors expected in Q3 2025, alongside the launch of 100-calorie flavors in Q4. The company is also entering the $19 billion craft mixer category with Jones Premium Craft Mixers.

Financial Re-engineering: From Red Ink to Green Shoots

JSDA's financial performance in recent periods reflects a company in transition, marked by both significant challenges and promising improvements. For the second quarter ended June 30, 2025, net revenue decreased by 26.4% to $4.9 million, down from $6.7 million in Q2 2024. This decline was primarily attributed to a $2.1 million year-over-year decrease in core soda sales and a $0.3 million dip in direct-to-consumer business, largely due to a non-recurring large pipeline fill order in Q2 2024 that did not repeat. However, this was partially offset by a $0.7 million increase from growth in mini cans, food service, convenience stores, and HD9 products.

Despite the revenue contraction, JSDA reported a net income of $2.6 million for Q2 2025, a substantial improvement from a net loss of $1.6 million in Q2 2024. This positive swing was predominantly driven by a $3.663 million gain on the divestiture of the cannabis business and aggressive cost reduction efforts. Selling and marketing expenses decreased by 39% to $1.0 million, and general and administrative expenses saw a $0.9 million reduction to $1.3 million. Adjusted EBITDA also improved by 48% to negative $571,000. For the six months ended June 30, 2025, net income was $1.8 million, a significant turnaround from a $2.7 million net loss in the prior-year period.

The company's gross profit margin remained relatively stable at 33.3% in Q2 2025, despite lower sales, a testament to ongoing cost reduction efforts. Management is actively pursuing further opportunities to decrease the cost of goods sold through co-manufacturers and by optimizing warehousing and freight. While initial product costs for new offerings slightly impacted the six-month gross margin (33.1% vs. 34.5% in 6M 2024), higher sales volumes are expected to drive these costs down.

However, JSDA has faced recurring losses and negative cash flows from operations, which raise "substantial doubt" about its ability to continue as a going concern. As of June 30, 2025, cash stood at $0.7 million, with working capital at $1.6 million. To mitigate these liquidity concerns, the new leadership has implemented a strategy focused on expense reduction and higher-margin products. A new $5 million revolving credit facility, secured in February 2025 with Two Shores Capital Corp. (bearing 13.75% interest and an expanded borrowing base), significantly enhances liquidity. Additionally, a $0.45 million promissory note from the Chairman of the Board provides short-term funding. Management believes these measures, combined with projected product sales, are sufficient to fund operations for at least 12 months, though success is not assured.

Navigating the Competitive Currents

Jones Soda operates in a highly competitive beverage landscape, where its market positioning is characterized by a niche focus on premium, customizable, and innovative products. Compared to industry behemoths like Coca-Cola, PepsiCo, Keurig Dr Pepper (KDP), and Monster Beverage (MNST), JSDA is a significantly smaller player, excelling in agility and personalization but facing inherent challenges in scale, broad distribution, and financial resources.

A direct comparison of financial performance highlights this disparity. JSDA's TTM Gross Profit Margin of 17.99% pales in comparison to KO (61%), PEP (55%), KDP (52%), and MNST (54%). Similarly, its negative TTM Operating Profit Margin (-52.14%) and Net Profit Margin (-32.82%) starkly contrast with the positive profitability of its larger rivals. This underscores JSDA's ongoing struggle with achieving the cost efficiencies and economies of scale enjoyed by its competitors.

In terms of market reach, KO and PEP boast vast global distribution networks, while KDP maintains a strong presence in North America. JSDA, with its 81 distribution partners across 37 states, is expanding but remains limited in comparison. However, JSDA's strength lies in its ability to penetrate specific niche segments. Its core soda single bottles rank third in the U.S. craft soda category, behind only Doritos and Mexican Coke, demonstrating strong performance within its segment. Pop Jones, despite its nascent stage, ranks #11 in the modern soda category, with management targeting a top 5 position. Mary Jones HD9 soda holds a top 30 ranking among independent liquor store operators, with aspirations for the top 10% following new product launches. Spiked Jones also achieved a top 10 brand position in its Northwest test market for ready-to-drink beverages.

JSDA's competitive advantages are rooted in its unique brand equity and flavor innovation. The fan-submitted photo labels create a deep consumer connection that larger, more standardized brands struggle to replicate. This "built-in advantage" is particularly potent for Mary Jones HD9, where brand trust allows for entry into an emerging category with a loyal consumer base. Furthermore, the operational flexibility of HD9 THC, allowing it to cross state lines, provides a strategic edge over state-specific cannabis products. In the fountain business, JSDA's national brand awareness and customer-centric approach differentiate it from other craft soda competitors.

However, JSDA faces vulnerabilities due to its smaller scale, which can lead to higher operating costs and impact profitability. Its supply chain dependencies, highlighted by a temporary HD9 THC supply issue in Q2 2025, pose risks. Customer concentration is also a factor, with two independent customers accounting for 24% of outstanding accounts receivable as of June 30, 2025. The evolving regulatory landscape for HD9 products also presents an ongoing challenge, requiring proactive engagement with regulatory bodies to maintain compliance. JSDA's strategic response is to focus on these high-growth niche segments, leveraging its unique brand and product differentiation, while implementing rigorous operational discipline to improve margins and efficiency, rather than attempting to compete head-on with the giants.

Outlook and the Path Ahead

Management's outlook for Jones Soda is one of cautious optimism, underpinned by a clear strategic vision and a commitment to operational excellence. The company anticipates "increasing net revenues in both the third and fourth quarter of 2025 compared to Q1 and Q2," signaling a projected acceleration in top-line growth. This forecast is supported by several key initiatives.

Growth is expected to be driven by continued expansion in Core Soda, particularly with the rollout of new Zero variants and strategic partnerships. The HD9 THC segment, including the launch of Mary Jones HD9 Zeros in Q3 2025 and a cooler rollout program, is projected to be a significant contributor. Spiked Jones is set for national expansion, with 15+ new distributors expected in Q3 and the introduction of 100-calorie flavors in Q4. Modern soda formats, Pop Jones and Fiesta Jones, are also slated for increased distribution in club, foodservice, and convenience store channels. While Core Soda sales for 2025 are expected to end the year "down slightly" over the prior year, the growth in new, higher-margin segments is intended to offset this.

A critical assumption underlying this positive outlook is the expectation of improved gross margins. Management anticipates that higher sales volumes of new products will lead to lower product costs as they negotiate more favorable co-manufacturing fees and raw material pricing. Additional marketing dollars are planned for Q3 and Q4 to drive trial and awareness for brands like Pop Jones, reflecting a sharpened focus on ROI-driven spending. Management's confidence is further bolstered by "strong validation from both customers and suppliers," indicating market acceptance of their new product portfolio.

Conclusion

Jones Soda Co. stands at a pivotal juncture, actively transforming its legacy as a craft soda pioneer into a diversified beverage contender. The strategic divestiture of its marijuana-derived THC business, coupled with a renewed emphasis on operational discipline and focused innovation, marks a clear commitment to profitable growth. By leveraging its unique brand equity, consumer connection, and flavor expertise, JSDA is carving out a distinct competitive niche in the rapidly expanding modern soda and adult beverage categories.

While the company faces persistent challenges, including liquidity concerns and intense competition from industry giants, the new leadership's proactive measures—such as securing a robust credit facility and implementing stringent cost controls—are designed to stabilize its financial foundation. The anticipated revenue acceleration in the latter half of 2025, driven by promising new product lines and expanding distribution, suggests a potential inflection point. For investors, Jones Soda represents a compelling story of reinvention, where a storied brand is strategically repositioning itself for long-term value creation through targeted innovation and disciplined execution in dynamic market segments.