Constellation Brands Enters Marijuana Business
In a move beverage industry competitors watched closely, Constellation Brands — seller of Corona beer — purchased a minority stake in a Canadian marijuana company. Last month’s deal with Canopy Growth Corp. marks the first time an alcoholic beverage supplier has so actively invested in the marijuana industry.
Constellation paid approximately $191 million for a 9.9 percent stake. Canopy Growth Corp. trades on the Toronto Stock Exchange under the ticker WEED. You can’t make this stuff up!
Canopy Growth Corp. sells medicinal marijuana products and note that marijuana use for medicinal purposes is legal in Canada. It is widely expected the country will legalize recreational use in 2018, and if this prediction comes to fruition, Constellation is positioned well to take advantage of this change in market forces.
All other alcohol beverage suppliers appear to be one step behind Constellation at this point. But, positive outcomes for Constellation could spur its competitors into action.
Diversifying Their Portfolios
Perhaps the biggest reason the alcohol beverage industry pays attention to the marijuana industry is studies have shown that the more people recreationally use marijuana, the less they drink alcohol. In short, cannabis is often a substitute for alcohol especially in the beer category.
Rather than losing these slight profit margins to the marijuana industry, Constellation Brands took the leap other alcohol beverage suppliers appear to be just eyeing. Constellation’s diversification of its product base positions the industry giant to gain from the marijuana sales that may otherwise cut into their beer sales.
Should Constellation prove successful in Canada, other alcohol beverage suppliers may feel more secure in striking their own deals with other Canadian marijuana producers such as MedReleaf Corp., Aurora Cannabis, Aphria Inc. and Tilray.
Drinkable marijuana hasn’t hit the popularity marks like smoking and consuming edibles; however, brewers might be able to put their beverage making know-how and marketing skills to work in changing consumption preferences. Marketing experts predict that marijuana-infused beverages could be welcomed amongst more health conscious consumers that have been less likely to take marijuana in edible form due to the high sugar and calorie content, which may be lessened with a beverage form. Intoxicants have also long been more socially acceptable in beverage form.
Moving Toward Legalization in the US
Should other alcohol beverage industry players dive into the Great White North’s marijuana business, the lessons they learn there could benefit them in the U.S. Public opinion on recreational marijuana use is changing very quickly with the passage of each month and legislative season. According to a Gallup poll released last month, 64 percent of Americans support legalizing marijuana use. When Gallup first began tracking public opinion on this issue in 1969, only 12 percent of those polled supported legalization.
Recreational use of marijuana is currently legal in eight states and the District of Columbia. Additionally, twenty-one states allow medicinal marijuana use. However, marijuana use in any form remains illegal under federal law. You can’t hold back public opinion forever though and the public demand has so far dominated legalization efforts.
As the floodgates continue open, we will be watching closely to see which industries attempt to expand into the marijuana business. Fast food? Tobacco? Convenience stores? Alcohol beverage suppliers will certainly be poised to pounce when the domestic opportunity comes as the three tier system and specifically the distribution network developed for the massive industry can easily take on another consumer product. If Constellation’s buy-in pays off, it may also make financial sense for alcohol beverage industry lobbyists to ramp up their efforts on Capitol Hill and in statehouses.