Cannabis sector expected to attract even more big names
TORONTO The landmark investment by U.S.-based alcohol company Constellation Brands Inc. in Canadian pot producer Canopy Growth Corp. has opened the door to speculation about similar investments by other big names looking to break into the cannabis sector.
Canopy chairman and co-CEO Bruce Linton alluded to as much on a conference call last week, when he said that the future will bring other big names into the cannabis sector and that the Constellation investment was a preemptive measure.
“We’ll be on a call, in a year, 18 months,” Linton said. “And when you say the competitive set, it won’t be any of the cannabis names that are started up in Canada, it will be big pharma, it’ll be other packaged beverage.”
Constellation’s decision to plow around $5 billion into Canopy was indeed seen as a strong vote of confidence in the cannabis business, and as a possible sign that the alcohol and other traditional industries may be ready to branch out from their usual wares.
“While investors clearly did not like Constellation Brands’ incremental capital outlay into the cannabis market, we are of a different mind,” a recent note from RBC Capital Markets said. “In fact, we think this is exactly the type of move that more companies should be making (not in cannabis necessarily, but having the foresight to invest in future revenue streams, especially at a time when the core business is performing).”
The latest Canopy-Constellation deal was also preceded by the Canadian arm of Molson Coors Brewing Co. and Quebec-based pot producer Hydropothecary Corp. announcing their plan to form a joint venture to work on developing non-alcoholic, cannabisinfused beverages.
There may be more cross-industry collaboration to come as well.
“From my perspective, it is literally only the beginning,” said Andrew Stordeur, chief commercial officer of Alberta-based cannabis producer Sundial Growers Inc. “The reason I think that is the unprecedented opportunity even in that fast-moving consumer goods area. There’s hundreds of billions of dollars in revenue and attractive profit pools that are there.”
Privately held Sundial has had some of these sorts of conversations, Stordeur said, with the producer announcing Wednesday that it had struck a supply agreement with the Alberta Gaming, Liquor and Cannabis Commission.
Stordeur, who was previously the chief sales and customer officer at Molson Coors Canada, said traditional industries like alcohol and consumer packaged goods could be taking a look at cannabis because of the challenges they face in growing their own businesses.
“I think they’re looking at cannabis as a way to diversify, and I think it would be absolutely silly for them not to given that growth is so hard to come by these days, certainly in those industries,” he added.
The alcohol industry is already seeing some of its growth curbed, even without legalized marijuana to compete with.
Greg McLeish, analyst at Mackie Research Capital Corp., said there has been some data showing that alcohol sales have declined in U.S. states where marijuana has been legalized, and mentioned Diageo Plc as a company who may be interested in tackling the cannabis quandary. BNN Bloomberg reported Friday that the U.K.-based liquor giant was “pursuing a deal” with a Canadian cannabis company and had held discussions with at least three producers.
“The most logical ones are always alcohol, tobacco and pharma, but we could see a consumer products company come in and sort of say this is a growing market space beyond potential drinks, including CBD and other cannabinoids,” McLeish said.
McLeish also said there have been some signs that CBD, the nonpsychoactive compound derived from the cannabis plant, could be a good fit for sports recovery drinks, as it has some anti-inflammation and pain-reducing properties.
And while the Oct. 17 date for Canada to legalize cannabis is creeping closer, it may not necessarily be a deadline for deal-making. McLeish noted that provinces are still preparing their retail infrastructure and predicted some companies will have challenges supplying either good quality product or product in general
“It could sort of change some of the valuations of some of these companies,” he said.