Constellation Brands Makes a $5Billion Investment in Canopy Growth
Momentum Public Relations
Blog: August 30 2018
There has been more than a little speculation in the financial press as of late that the boom in marijuana stocks traded on the TSX and TSXV will shortly become a bust and that marijuana shares will return to earth just as quickly as they climbed skywards. Even Canada’s national broadcaster the CBC jumped on the naysaying bandwagon, ending their story with an elementary investment lesson, by quoting Chris Damas, editor of investment newsletter The BCMI Cannabis Report, “But the main thing is to know when to get out,”
Having said that earlier on in the story Damas also said, “You could throw a dart and hit a winner in cannabis.”
While the pundits opined that marijuana stock valuations would slow down after legalization there are a host of indications that the bull market in recreational and medical marijuana and in pharmaceutical companies developing cannabinoid drug therapies will keep on going.
On August 1, 2018 The Financial Post reported that Molson Coors Brewing Co. (TPX.A) And Quebec-based Hydropothecary Corp(HEXO), a licensed marijuana grower, will be forming a joint venture to create a non-alcoholic THC infused beverage. In short, alcoholic beverage producers are starting to see Canadian marijuana legalization, and the growing global acceptance and eventual legalization of marijuana not as a threat, but as an opportunity to counter stagnant and slightly declining beer and liquor sales. The thinking here is quite clearly, if you can’t beat them, join them.
The story quoted Sebastien St-Louis, Hydropothecary CEO, as saying, “This is a material opportunity for both companies and we expect the revenue from adult-use cannabis beverage to be massive.” Molson Coors is not alone. The story also quoted research from Deloitte predicting that Canadian marijuana consumption could rise by 35% once legalization springs into action. Deloitte also predicted that six out of ten Canadian marijuana consumers would opt for marijuana edibles.
A July 4, 2018 story on BNNBloomberg quoted former Molson president and CEO Daniel O’Neil as saying that most big brewers were probably exploring marijuana investments as a guard against the loss of market share to craft brewers and recreational marijuana use.
On June 30, 2018 The Edmonton Star ran a story about producer Element GP providing Toronto-based Province Brands of Canada with cannabis oil for a non-alcoholic beer. Element co-founder and CEO Christopher Lecky said that the cannabis oil infused beer, brewed with barley, would stay in your system for the same amount of time as a real beer.
If you are wondering what will happen to marijuana stocks if the bull market turns into a bear the following anecdote may be of some value. I had a friend whose father worked at Molson’s during the Great Depression. During those years Molson didn’t fire or lay off anyone. They also allowed employees to continue to take home two cases of twenty-four on Friday’s if they wanted to. Business remains good for brewers and distillers during economic hard times. The same will probably apply to marijuana producers as well.
Products like marijuana infused beer and edibles will only become legal in Canada a year after legalization goes into effect. The new wrinkle for Province Brands is that the beer will contain an accelerant to speed the effect and a decelerant to bring the effect to a close, sooner than normal consumption methods. Given that marijuana doesn’t affect the heart or liver the way alcohol does will allow the company to market the beverage as the healthy way to get high and eliminate the baleful spectre of hangovers.
But wait: It is not just big beer companies that are climbing onto the marijuana bandwagon. On August 16, 2018 the Globe and Mail ran a Canadian Press story detailing Second Cup’s plan to enter the marijuana market. When newly minted Ontario premier Doug Ford announced that the province would not enter the pot retailing business and instead leave it open to private entrepreneurs, Second Cup started examining its Ontario options and quickly came up with a plan.
Back in April Second Cup (SCU) had partnered up with marijuana clinic operator National Access to Cannabis to turn some Canadian Second Cup locations into marijuana retail operations. Now the coffee giant is looking closely at which of its 130 or so Ontario locations would be best to turn into marijuana retail operations. Would you like a latte with that?
The granddaddy of all this is of course the Constellation Canopy Growth deal. On August 15, 2018, Constellation announced that it had cut a deal to invest $5 Billion in Canopy Growth. The deal, if all the warrants are exercised will give Constellation slightly more than 50% of Canopy Growth and allow Canopy to pursue its global ambitions.
Constellation Brands is a Fortune 500 company. In its press release announcing the deal Constellation says in an understated fashion that it has, “more than 100 brands in its portfolio, about 40 wineries, brewers and distilleries.” Constellation will provide its marketing and branding expertise and its knowledge of foreign markets to Canopy Growth.
Booze producers are some of the most enduring money making machines in history. Think of the Bronfmans. If today’s booze and beer merchants are investing heavily in the marijuana business, they obviously believe there’s a lot of life left in the marijuana market.
This leaves us with the inevitable question of where do I start investing and the answer to that probably lies in finding the right IPO at the right time.
That time might be sometime in September when the Next Green Wave launches on the Toronto Stock Exchange. The Next Green Wave is launching on the Toronto Exchange because it can’t launch in America. Next Green Wave has an ace up its sleeve when it comes to marijuana marketing. Its CEO, Mike Jennings has won the High Times Cannabis Cup six times and been inducted into the High Times Seedbank Hall of Fame.
The company has a marketing agreement with High Times, the bible of the marijuana industry and the marijuana aficionado.
Next Green Wave also has four different California marijuana licenses: Cultivation; Nursery, Extraction and Distribution, as well as a strong relationship with California marijuana dispenseries. The company raised 21 million dollars in Canada laying the foundation for its IPO.
According to a story by Jeremy Berke in businessinsider.com the newly legalized California marijuana market is expected to reach US$3.7 billion by the end of 2018 and exceed US$5 billion in 2019. The company has four sites in California’s “green zone” for growing marijuana and once additional permits have been granted, 350,000 SF of indoor and mixed light growing space. The company is completely integrated and will focus on retail operations when all is said and done.
Once past the licenses and facilities which almost any marijuana producer can acquire if they meet the conditions, Next Green Wave has two aces up its sleeve that will be hard to beat. It has Jennings and his string of marijuana breeding awards and its promotional partnership with High Times. Even better there’s still time to get in on the ground floor.
This blog should not be construed as investment advice. Any investor should always perform their own due diligence before investing.
- Published in Blog, Medical Marijuana, Next Green Wave