Constellation Brands, the owner of Corona beer, is acquiring a 9.9 percent stake in Canopy Growth Corporation, the world’s biggest cannabis producer.
Canopy Growth confirmed in a press release Monday that the two companies will collaborate to “develop and market cannabis-based beverages”, which they hope will be able to be sold as adult-use products in markets where those products are federally legal.
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Constellation Brands will be paying $245 million to buy a minority stake in Canopy Growth. The deal, which is expected to close early November, will also give Constellation the option to purchase additional shares of Canopy in the future.
“We made contact with them through someone more than six months ago,” Canopy Growth CEO Bruce Linton told VICE Money. “They are really entrepreneurial. They don’t have three board meetings with 12 people to get things done. They are nimble, aggressive, agile.” Linton said.
The alcohol giant, which owns and markets over 100 brands of beer, wines and spirits will also provide Canopy Growth support in areas related to consumer analytics and marketing. This is crucial, especially in a political climate where the Canadian federal government is attempting to restrict the branding and advertising of weed, in line with their mantra of legalizing weed to “protect Canada’s youth.”
“In the near term, Canopy can leverage Constellation’s experience in distribution and packaging, and more importantly, their relationships with provincial liquor control boards that are being tasked with the oversight on legal recreational cannabis distribution and retail across Canada,” said Daniel Pearlstein and Anthony Sutton of Eight Capital in a note.
In an interview with the Wall Street Journal, Constellation Brands’ CEO Rob Sands confirmed that the company is getting into the marijuana space in anticipation of the federal legalization of recreational cannabis in the the U.S. in the “coming years “.
“We’re obviously trying to get the first-mover advantage,” Sands told the Journal.
“We view this international investment as a game-changer for the sector, one that validates our thesis that Big Alcohol, Big Pharma and Big Tobacco are going to look to acquire leading companies in the sector,” said Beacon Securities analyst Vahan Ajamian in a note.
There are a plethora of business opportunities that are poised to come out of the trend towards marijuana legalization – items like vape pens, skin care products, edibles, creams, lotions and gels already flood both the legal and illegal marijuana space.
According to the Wall Street Journal, Heineken USA CEO, Ronald den Elzen was quoted at a beer conference earlier this month, calling on the alcohol and cannabis industries to work together. “Wine and spirits are not sitting still, and marijuana is being legalized in many states.”
While both Canopy and Constellation confirm they will be working together to make “cannabis-based beverages”, Linton confirmed that they will not be working together to make alcoholic beverages. “Why would I want to do that? The consumers are seeking something healthy, something not driven by sugars, not driven by alcohol.”
There are currently both alcohol and non-alcoholic weed-infused drinks on the market in states where recreational weed is legal.
Dad and Dudes Breweria of Aurora, Colorado, for example, received approval from the Alcohol and Tobacco Tax and Trade Bureau just recently to sell an IPA brew which contains cannabinoids — but not THC — in all 50 states. Sprig, is one of the California’s most popular weed-infused sodas — it is infused with THC extract.
Cannabis-infused edibles, which includes coffee, soda, and other kinds of drinks, will not be legal in Canada come July 2018, but the government is expected to legalize edibles in mid-2019, a year after recreational weed becomes legal.
Big Weed has been lobbying the Canadian government to legalize edibles as soon as possible, arguing that its illegality will almost fuel the sustenance of the black market, negating the government’s whole raison d’être of legalization to begin with.
Canopy Growth’s CEO Bruce Linton believes that Big Weed might actually become a direct competitor to Big Alcohol as more and more consumers start prioritizing health and fitness.
But Sands begs to differ. He told the Wall Street Journal that he does not see weed as any kind of threat to alcohol sales. “If a consumer is going to choose a can of beer, a glass of wine, a shot of liquor of a weed-laced elixir, I want to be able to offer all four.”
Shares of Canopy Growth surged almost 14 percent in early trading, while Constellation Brands saw its stock climb by slightly under half a percent.
