August 16, 2018

Global alcohol giant, Constellation Brands, the $42 billion name behind Corona and Modelo beers, made a game-changing announcement, stating that it is investing a further $4 billion in publicly traded Canadian marijuana grower Canopy Growth.  

Founded in 2013 and traded in Toronto under the ticker WEED, Canopy is the largest publicly traded cannabis company in the world. Since the beginning, the company has built a strong IP portfolio, launched targeted R&D programs for both human and animal health, driven innovation in the legal marijuana space, and has accelerated its market leadership position.  This drive has seen the company and its subsidiaries Tweed and Spectrum Cannabis, establish a respected presence in 11 global markets.

Constellation made its first foray into the legal marijuana sector in October 2017, when the group acquired a 10 percent stake in Canopy Growth for $191 million with the goal of developing non-alcoholic, cannabis-infused beverages as part of the company’s “long term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics…” This subjectively huge deal (at the time) marked the first time an alcohol company had decided to enter the legal marijuana space. 

Based in Victor, New York, Constellation made the investment with no plans to sell legal marijuana in the United States until it is legal “at all government levels,” both federal and state.

Under the terms of this deal, Constellation is investing C$5.08 billion (US$3.88 billion) to increase its ownership of Canopy from 10 percent to 38 percent, and will have the option in the future to buy up to 139.7 million in new shares over the next three years, which if exercised, could earn Constellation a majority stake in the company.

“Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” Constellation Brands CEO Rob Sands said in a statement.

South of the Border?

An investment of this scale in the marijuana industry is bound to re-shape how investors view the asset class, which Sands described as “potentially the most significant global growth opportunity for the next decade.”

“We think the premium paid as well as the size of [Constellation’s] investment reflects the long-term attractiveness of the global cannabis opportunity,” said Cowen analysts, reports CNBC.

It also positions both Constellation and Canopy as the undisputed front-runners once federal legalization occurs in the U.S. while serving as a hedge bet for Constellation. Food Dive reports that cannabis poses a real threat to the beer industry – a statement reflected in the fact that 82 percent of adults stated that they would stop drinking beer if marijuana was legalized in their state, according to a survey conducted by IRI and CannaBiz Consumer Group, which also concluded that the legalization of recreational marijuana has the potential to snatch 7.1 percent of beer industry revenue.

Rivals, however, are not sitting idly on the sidelines. Earlier this summer Lagunitas Brewing launched Hi-Fi Hops, its own line of cannabis-infused water which was scheduled to reach the market through California dispensary stores by the end of July.

Meanwhile, at the beginning of August,  Molson-Coors Canada announced a joint venture with The Hydropothecary Corporation, also focusing on non-alcoholic cannabis-infused beverages.

“The new company will combine the proven beverage experience of Canada’s leading brewer with a recognized innovator in the fast-growing cannabis sector to explore the highly anticipated consumable cannabis market, which is expected to be legally permissible in Canada in 2019,” said the companies in a joint statement.

Amid this market rush, Constellation’s significant backing will allow Canopy to make moves that will place it ahead of the competition.  

“Our business can now make the strategic investments required to accelerate our market position globally,” said Bruce Linton, Chairman and Co-CEO, Canopy Growth.  “Constellation’s concentration of global cannabis activities exclusively through Canopy, coupled with the investment and its expert capabilities in brand-building, marketing, consumer insights and M&A will be a huge benefit as we look to expand our portfolio in Canada, the United States and emerging cannabis markets around the globe.”

-Lynda Kiernan