Total investments in marijuana:
Constellation Brands' stake in Canopy Growth, the largest investment in the marijuana market to date, could fan the flames of a cannabis arms race between U.S. alcohol manufacturers.
When Constellation Brands invested $3.9 billion in Canopy Growth this summer, it not only made the largest investment in the marijuana market to date, but broke an industry taboo that had kept many beverage players on the sidelines.
The cash infusion increased the beer giant’s stake in the Canadian cannabis supplier to 38%, and Constellation will nominate four directors to the company’s seven-member board as part of the deal. The partnership has legitimized a trend that beer makers and analysts have been buzzing about for years: cannabis is set to become a cash cow for the alcohol industry.
“I cannot imagine a more disruptive development within the alcohol industry in the last couple of millennia, to be honest,” Spiros Malandrakis, head of alcoholic drinks at Euromonitor International, told Food Dive of the rise of cannabis in the beer space.
But while many bemoaned the marijuana industry’s impending threat to alcohol sales, Constellation identified cannabis as a potential growth driver in the sluggish U.S. beer space.
"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 CEO Rob Sands said in a company release following the August investment. "We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space."
Constellation isn't a first-mover in this budding segment, however. Craft brewers were the first to begin dabbling with marijuana-infused product. Heineken-owned Lagunitas Brewing rolled out a non-psychoactive, cannabis-flavored IPA brewed with marijuana terpenes in 2017. This year, it debuted a THC-based sparkling water, complete with the marijuana high.
But Constellation’s formidable advantage in the Canopy partnership can’t be ignored. The cannabis supplier, valued at $5.4 billion, will use the American beer titan’s financial backing to enter emerging recreational cannabis markets, as well as achieve global scale in the nearly 30 nations working toward federal medical cannabis programs. Though the company doesn't plan to sell marijuana-based beverages domestically before the U.S. fully legalizes the substance, this market reach — combined with Canada's legalization of recreational marijuana use in October — has driven rival beer brands to enter the space.
"Once Constellation broke the taboo, people started discussing [cannabis innovation] much more openly, and the other thing we have to remember is that not many cannabis companies in Canada are right now available for M&A."
Head of alcoholic drinks, Euromonitor International
"In a way it's a game of musical chairs. There aren't many chairs left. So even for the biggest players in the alcohol space, they're not going to have the luxury of an infinite amount of time to choose their chair before the music actually stops."
Less than a year after Constellation's initial investment in Canopy Growth, Molson Coors announced that its Canadian business had formed a joint venture with Hydropothecary Corp. to make nonalcoholic, cannabis-infused drinks to sell in Canada. As part of the deal, Molson Coors Canada gained a 57.5% controlling interest in the firm.
But the most striking result of the M&A domino effect that began with the Constellation-Canopy partnership came from beyond the alcohol segment entirely. In September, Coca-Cola announced it was in talks with Canadian marijuana supplier Aurora Cannabis about developing marijuana-infused drinks. The soda behemoth's stock climbed 0.72% to $46.32 on the news, and boosted the stock of other cannabis companies as well.
"We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world," Coke spokesman Kent Landers told Bloomberg News. "The space is evolving quickly. No decisions have been made at this time."
On a conference call in October, Coca-Cola CEO James Quincey said the company "doesn't have any plans at this stage" to enter the CBD market.
As interest in the medicinal properties of cannabinoids grows and stigma around marijuana use relaxes, alcohol manufacturers face a new path to growth. Whether or not these players can unseat Constellation's lead, however, is an open question.
"You’re looking at an arms race which, in my mind, is already in full swing," Malandrakis said. "There’s no doubt in my mind that the 'green tide' is inevitable at this stage, and it's just going to gain more momentum moving forward."