Constellation Brands hops into marijuana beverage market with $191M deal
Correction: A previous version of this article stated that 82% of adults would stop drinking beer if marijuana was legally available in their state.
- Constellation Brands announced Monday it will acquire a 9.9% minority stake in Canopy Growth Corporation, a Canadian marijuana company, according to a company release. The $191 million deal will allow the alcoholic beverage giant and Canopy to develop cannabis-infused beverages and "stay ahead of evolving consumer trends."
- Canopy Growth is the world's biggest publicly traded cannabis company, with a market value of about $2.4 billion Canadian dollars. Constellation CEO Rob Sands told The Wall Street Journal the investment will ensure a "first-mover advantage" in an industry the company expects will soon be legalized nationwide. “Canopy Growth has a seasoned leadership team that understands the legal, regulatory and economic landscape for an emerging market that is predicted to become a significant consumer category in the future,” Sands added in a press release. “Our company’s success is the result of our focus on identifying early stage consumer trends, and this is another step in that direction.”
- Sands told The Wall Street Journal that Constellation doesn't plan to sell marijuana-based drinks in the U.S. before the substance is legalized nationwide, but that it could sell in Canada — where edible and drinkable cannabis-based products are predicted to be legalized by 2019 — and other nations that allow recreational marijuana use.
Constellation is well-known for its aggressive acquisition strategy, a tactic that has brought the company virtually unparalleled success in the beer, wine and spirits space. By snapping up small emerging players, the behemoth has been able to stay on the cusp of consumer trends, despite its massive size. This latest move is perhaps an even bigger step toward industry domination, vaulting the beverage giant into relatively uncharted territory with significant growth potential.
Canopy CEO Bruce Linton told The Wall Street Journal he hopes the deal will be a turning point for the growing marijuana market, and a sign to investors that “a cannabis company that fully complies within legal jurisdictions would be the right place to invest." The marijuana market in the U.S. next year is expected to be $10.2 billion, the paper said, citing data from research firm Euromonitor International.
Constellation said it plans to develop cannabis-based beverages that don't contain alcohol, joining the ranks of marijuana-infused soda, coffee and fruit drinks that are sold in U.S. states where the substance is legal.
Constellation isn't the only alcoholic beverage player to dip its toe in this market. In September, Lagunitas Brewing launched an IPA made with marijuana terpenes, the aromatic compounds of fragrant oils from the cannabis plant. But this beer, which is only available for a limited time in California, doesn't contain tetrahydrocannabinol (THC), the active ingredient responsible for causing physical changes in a person and altering the individual's perception of reality.
If Constellation's products can deliver the buzz that consumers are looking for, it could take market share from both brewers and the marijuana market. Cannabis appears to be a real threat to the beer industry. In a joint survey between IRI and CannaBiz Consumer Group, 5% of adults said they would stop drinking beer if marijuana was legally available in their state. Beer's dollar share fell 0.3% to 49.2% last year, and the survey found that recreational marijuana could take 7.1% of the beer industry's revenue. IRI analysts predict that if marijuana is legalized across the U.S., the beer industry could lose upward of $2 billion.
Constellation is by no means immune from this threat, but its latest deal with Canopy is one way to potentially minimize its risk going forward.
Sands told The Wall Street Journal that he doesn't consider marijuana a serious threat to the alcohol space, but that Constellation isn't "going to stand around twiddling [its] thumbs" as the market grows. Instead of competing with weed, Constellation is teaming up with it — a strategy reminiscent of its many takeovers of disruptive craft players.
In the near future, a marijuana-infused beverage is likely to be viewed more as a novelty product, and it's unclear if the average consumer will like the concept enough to give up more familiar beverages such as beer, despite purported interest.
The deal is expected to close by early November. As part of the transaction, Constellation has the opportunity to raise its stake to nearly 20%. It's possible that while this partnership will spur smaller players to invest in their own marijuana-based beverages, Constellation's early entrance into the space is bad news for would-be competitors. Once the beverage giant creates its weed-based products, it can test and perfect them in foreign markets until the substance is fully legalized in the U.S.
- Constellation Brands Constellation Brands to Acquire Minority Stake in Canopy Growth Corporation
- The Wall Street Journal Big Brewer Makes a Play for Marijuana Beverages
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