Constellation Breaks Pot Taboo, Opens Door for Major Brands

Updated on
  • Deal by seller of Corona may signal interest by other brewers
  • Sixty-four percent in U.S. support marijuana legalization

Constellation Brands Mixes Business of Pot, Alcohol

Beer and weed could be a good mix for companies that sell both.

The decision by Corona beer seller Constellation Brands Inc. to buy a minority stake in a Canadian pot company marked the first major foray of an alcohol brand into the nascent weed industry. With the taboo now broken, other purveyors of beer, wine and spirits may look for similar opportunities in the expanding world of legal pot.

Brewers and distillers such as Molson Coors Brewing Co., Anheuser-Busch InBev NV, Diageo Plc and Pernod Ricard SA may already be examining the marijuana space, according to beverage-industry analysts. Constellation’s move only intensifies the competitive pressure.

“There’s a threat on the horizon that if they don’t get into the game, they’re going to be left behind,” said Jason Zandberg, an analyst at PI Financial in Vancouver.

Constellation, based in Victor, New York, agreed to pay about C$245 million ($191 million) for a 9.9 percent stake in Canopy Growth Corp., a Canadian seller of medicinal-marijuana products. The deal kicked off the biggest rally in nearly a year for Canopy, which trades on the Toronto Stock Exchange under the ticker WEED.

Among its peers, Constellation has taken a more progressive stance on weed for quite a while. Chief Executive Officer Rob Sands said in November that the company was keeping an eye on potential cannabis investments. 

Diageo said it’s keeping a close eye on the “space around marijuana.” Molson Coors said Monday it was continuing to monitor marijuana developments in the U.S. and Canada.

“We’ll leave it to policy makers to figure out those hard questions with respect to cannabis,” said Colin Wheeler, a spokesman for Molson Coors. “In the meantime, we’re focused on our portfolio of beer and cider brands.”

Anheuser-Busch didn’t immediately have a comment on Constellation’s investment. Pernod Ricard declined to comment.

“Big alcohol could be a very positive bedfellow for the cannabis industry,” said Derek Peterson, CEO of Terra Tech, which sells tools for growing cannabis crops.

Timely Action

Constellation’s move is timely. Canada has legalized marijuana for medical use nationally and is expected to allow recreational weed by July 2018. Eight U.S. states -- including California -- and the District of Columbia allow for recreational use. That means one in five American adults can eat, drink, vape or smoke the product as they please. Twenty-one additional U.S. states have made medical marijuana use licit, even though the drug remains illegal under federal law.

Public opinion about legal marijuana is changing. Sixty-four percent of the U.S. population now wants to lift the ban on the plant, according to a Gallup poll released last week. That’s the largest rating since the firm started asking about the topic in 1969, when only 12 percent approved.

For the big brewers and distillers, investing in cannabis is a chance to get in on the action rather than get hit by the consequences. In some states where pot is legal, alcohol sales volumes have declined as cannabis has gained.

Sixty percent of cannabis consumers in North America report some reduction in alcohol use when they are already using marijuana, said Vivien Azer, an analyst at Cowen & Co. In the U.S., cannabis use has been on the rise for almost a decade among 21- to 25-year-olds, while drinking alcohol has been on the decline.

“The alcohol companies are somewhat terrified of this industry,” said Brendan Kennedy, CEO of Tilray, a closely held Canadian medical marijuana producer. “They see cannabis as a substitute for alcohol.”

Test Market

Constellation is probably treating Canada as an advanced test market to develop cannabis-infused beverages. More deals are likely with the country’s large producers, including MedReleaf Corp., Aurora Cannabis, Aphria Inc. and Tilray, PI Financial’s Zandberg said.

Neil Closner, CEO of MedReleaf, said in an email that it was “safe to assume that more conversations will take place” as a result of the Constellation deal.

To date, drinkable weed hasn’t been a particularly prominent category. Forty percent of cannabis consumers have tried pot-infused beverages, compared with 85 percent who have tried baked goods, 72 percent who have eaten chocolates and 68 percent who have consumed gummies, according to BDS Analytics, a cannabis market data company.

Still, drinks have been particularly popular with female consumers who don’t want the calories of those other edible options, said Linda Gilbert, managing director of consumer research at BDS Analytics.

“We see cannabis-infused beverages being a particular point of emphasis when it comes to marketing to women consumers,” she said. “Most other edibles options on the market are candies, cookies and brownies, which are high in sugar and have a lot of calories.”

Drinkable pot also benefits from the fact that people are used to imbibing social lubricants in that form.

“We have a culture of drinking our intoxicants,” Zandberg said. “That will be a big product winner. Having a beverage is very social, and it’s what a lot of people are used to.”

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