With cannabis investment, Constellation bets on a big unknown
Constellation Brands isn’t quite sure whether legal cannabis is friend or foe to the alcohol industry. Either way, it wants in.
The maker of Robert Mondavi wine, Corona beer and Svedka vodka is still waiting for the chips to fall into place after entering the upand-coming (and turbulent) marijuana industry last year by taking a minority stake in Canada’s Canopy Growth. The rapid increase of the cannabis market has caused analysts to question whether drinkers could shift their spending to smoking as prohibitions on the plant’s recreational use are removed.
“It’s probably not worth getting in a big debate right now about whether it’s cannibalistic or complementary,” Constellation chief executive Rob Sands said on a call with analysts Friday. “There’s just not enough information to really say how that’s going to effect beverage alcohol generally moving forward. What we do know is it’s going to be a big market worldwide.”
The Victor, N.Y.-based company’s cannabis investment is being closely watched since it’s the first time that big alcohol has entered the socalled Green Rush. The scrutiny only intensified this week after U.S. Attorney General Jeff Sessions rescinded the Obama-era policy that let federal prosecutors look the other way while states set up their own markets for marijuana. The announcement followed California’s launch of a legal marketplace on Jan. 1.
For now, Sands says Constellation and Canopy are developing a nonalcoholic cannabis beverage for release when Canada’s government legalizes pot drinks, expected in 2019.
Constellation could certainly use a new growth source. Its sales of wine and spirits have persistently fallen, and investors are starting to notice.
Shares of the company fell Friday after it reported declines in volume and sales for wine and spirits. Constellation has ridden the strength of its imported Mexican beer to become an investor darling — 15 analysts recommend buying the shares and none recommend selling them — but even growth in that category was less than what some had expected.