Corona parent firm’s $245M deal with Canopy Growth a winner, expert says

Drink

A major U.S. alcohol manufacturer’s decision to buy a stake in Smith Falls-based marijuana producer Canopy Growth will help the cannabis industry move even further into the mainstream once pot is legalized for recreational use, an Ottawa marketing expert says.

Constellation Brands, the New York-based maker of Corona beer, Kim Crawford wines and a host of other alcohol products, announced Oct. 30 it has purchased a 10 per cent stake in Canopy Growth for $245 million. The two companies intend to work together to develop and market new products, marking the first such partnership between a cannabis producer and an alcoholic beverages firm.

Under the deal, Constellation will buy up to 18.9 million shares in Canopy, which was launched three years ago in a former Hershey chocolate factory and now has a market capitalization of $2 billion.

Michael Mulvey, an assistant marketing professor at the University of Ottawa’s Telfer School of Management, said it was only a matter of time before such a cross-industry collaboration occurred and Canopy, the country’s largest licensed producer of medical marijuana, was the most logical dance partner for an alcohol conglomerate like Constellation.

“Even though (Canopy) was saying we’d love to get into beverage, that’s not where their expertise really lies,” he said. “So it makes sense to partner, and I think Constellation Brands, the brands says it all. That’s what they’re excellent at. They know how to market extremely well.”

News of the marriage between the alcohol and cannabis giants sent Canopy’s share price soaring more than 20 per cent to the $16 range. Some estimates have pegged the market for marijuana-infused beverages at $10 billion a year should the products become legal in the United States, and Mr. Mulvey sees last month’s deal as a “pre-emptive strike” by Constellation to align itself with a major player in the cannabis industry ahead of its competitors.

Shedding stigma

The agreement is a way to shed pot’s “stoner stigma” and give the industry more credibility among investors and some segments of the public, he added.

“They could be opening up a level of demand that was sort of restricted because people look at this and say, ‘I don’t want to be a smoker,’” Mr. Mulvey said.

“In a way, you could look at a beverage as just a delivery vehicle to get that active ingredient into you. This is already less stigmatized because we look at alcohol and say alcohol consumption is reasonable for the most part. It makes it a little bit more palatable.”

Although eight U.S. states have legalized pot for recreational use and 22 more have legalized it for medicinal reasons, it’s still a federal crime to consume marijuana-based products. Canopy and Constellation have said they have no intention of selling any cannabis products in the U.S. until they are legal.

Canada is set to legalize marijuana for recreational use under certain circumstances next summer, but will develop more regulations for other pot products such as edibles later on.

Canopy Growth CEO Bruce Linton said Canada will likely be the company’s first market for cannabis-infused beverages.

“They’ve been fairly clear that in 2019 they expect to enhance and expand that offering,” he told the Canadian Press. “Will that include vaporizable products, edible products or liquid drinkable products? Could be any or all of them. So we’re talking now about a year and a half away, potentially.”

Whenever it happens, Mr. Mulvey predicted Canopy and Constellation will be ready.

“A company like Constellation, it wouldn’t surprise me if they had three or four different versions (of drinks) that are for totally different subgroups and submarkets,” he said.

“I think Corona’s a brilliant brand (as an example) because they own the beach. If you think about being on a beach and having a beer, Corona’s like the perfect match. They’re very clever.”