Constellation Brands (STZ) is the first major alcohol brands to make an investment in a cannabis company according to a company press release issued on Monday morning. Constellation Brands is best known as the distributor for Corona beer, but it is also home to numerous wine brands and hard liquor brands.
Constellation has apparently agreed to purchase a 9% stake in Canopy Growth Corporation (TWMJF) in a plan to develop, market and sell cannabis-infused beverages. “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,” said Constellation Brands President and Chief Executive Officer, Rob Sands. “Our company’s success is the result of our focus on identifying early-stage consumer trends, and this is another step in that direction.”
The investment, which is expected to close in the third quarter of the company’s fiscal 2018 year, is expected to be roughly C$245 million or $190 million by today’s exchange rates and represents an ownership interest of 9.9% of Canopy Growth Corporation, plus warrants which give Constellation Brands the option to purchase an additional ownership interest in the future.
That is a lot of money to spend on one of the lowest cannabis consumption categories. BDS Analytics found that in the large market of California, beverages only accounted for 5% of the edibles market. Most consumers prefer candy or chocolates when choosing an edible product, not drinks. Dispensaries also find it difficult to store the products as many of them require refrigeration that is usually stored behind the counter.
Alcohol companies have been circling the fringes of the cannabis industry as liquor consumption has been shown to drop in states where marijuana is legalized. Most have been reluctant to make investments since it is still federally illegal in the United States. It is also one of the lowest categories for cannabis consumption. Eaze cannabis delivery analytics found in a study “Over 82% of people surveyed said that using marijuana has caused them to reduce their alcohol intake. A whopping 11% of respondents said that they’ve quit drinking entirely because of marijuana.”
“We are thrilled to have the backing of such a well-established and respected organization such as Constellation Brands,” said Bruce Linton, Chairman, and Chief Executive Officer, Canopy Growth Corporation. “We look forward to working with the Constellation Brands team to access their deep knowledge and experience in growing brands as we continue to expand our business.”