Cannabis stocks get high as Diageo pursues deal
- Diageo has been in talks with at least three Canadian cannabis producers about a deal for a pot-infused drink, according to BNN Bloomberg.
- After news broke that Diageo was a potential investor, cannabis stocks got high, according to The Street. Shares of medical marijuana producer Tilray were up 11% Friday, and were trading more than 20% higher on Monday morning. Canopy Growth Corp., the largest publicly traded cannabis company, saw its Friday stock prices increase by more than 10%, and was up more than 5% Monday morning. Cannabis company Cronos Group saw its shares rise 16.6% on Friday, and zoomed up more than 25% on Monday morning.
- The potential deal comes as recreational marijuana will be legal in Canada on October 17. One cannabis executive who met with Diageo told BNN Bloomberg that the company will take its time to evaluate and decide on a partner in the marijuana space after legalization.
For alcoholic beverage companies, pursuing cannabis producers is the latest trend — and Diageo is looking to join in. Although it isn't official yet, Diageo executives have met with enough cannabis producers to be serious about making a deal.
Although Diageo has been a global spirits powerhouse, global economic issues are beginning to take the wind out of its sails. According to its 2018 earnings results, Diageo reported a 1% decline in volume growth compared to the year before — though global sales were up 0.9% and operating profits increased 3.7%.
Diageo is far from the first alcoholic beverage company to seek green with cannabis producers. The biggest investment came earlier this month, when Constellation Brands invested $3.9 billion more into Canopy Growth, boosting its stake in the company from 9.9% to 38%.
Smaller partnerships have also been formed. Molson Coors was in discussions with a number of Canadian cannabis firms about possible deals, and announced this month that it was forming a joint venture with Hydropothecary Corp. Earlier this year, the former founder of Blue Moon Brewing Company launched CERIA Beverages, a new company with a line of cannabis-infused nonalcoholic craft drinks.
Like Constellation Brands, Diageo is a major player in all kinds of alcoholic beverages around the world. Instead of just infusing cannabis into malt beverages, Diageo could tweak popular spirits and mixed drinks to incorporate cannabis, potentially giving Diageo an advantage.
The ties between the cannabis and alcohol industries have continued to expand. Cannabis is expected to generate $75 billion in international sales by 2030, and has decreased binge drinking in states where it’s legal in the United States, according to a new report by New York investment firm Cowen and Company LLC. But in the U.S., only nine states and the District of Columbia have legalized it. While Canada could see a boost in its cannabis economy when the substance becomes legal in October, growth opportunities for the industry in the U.S. could be far into the future.
The Canadian market could give companies time to perfect their products as legalization expands to more of the United States. Despite the excitement in the space, there is still a lot of uncertainty about what the market and the products will going to look like as legal recreational use of marijuana is hashed out.
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