Beer-and-wine giant Constellation Brands (STZ) has agreed to take a 9.9% stake in the Canadian marijuana company Canopy Growth — the latest intersection of corporate America and the rapidly growing crop of cannabis upstarts.
X Constellation, whose beer portfolio includes Corona and craft brewer Ballast Point, said in a Monday statement dated Monday that the move was part of its plans to "identify, meet and stay ahead of evolving consumer trends and market dynamics". The two companies, Constellation said, would use the agreement to exchange "knowledge and expertise."
In an interview with the Wall Street Journal, Constellation CEO Rob Sands said Constellation was considering developing nonalcoholic cannabis-based beverages. He also said in that interview that he believed, like many investors, that full legalization in the U.S. was "highly likely."
Constellation's investment comes as restrictions surrounding selling and possessing marijuana loosen in U.S. states and beverage companies try to anticipate changes in the way people get socially lubricated. Constellation, Jack Daniel's maker Brown-Forman (BFB) and Samuel Adams maker Boston Beer Co. (SAM) have all said in annual reports that rising pot consumption could pose a risk to their business.
"Our company's success is the result of our focus on identifying early stage consumer trends, and this is another step in that direction," Constellation CEO Rob Sands said in a statement.
The transaction is expected to be about $245 million Canadian dollars and is set to close during Constellation's third quarter of fiscal 2018.
IBD'S TAKE: Even as investors in the cannabis industry try to get in on the ground floor, investing in the space in the U.S. can be tricky.
Canopy Growth trades on the Toronto Stock Exchange under the ticker WEED. Since its founding in 2014, the company's valuation has surpassed $2 billion. Canopy Growth operates a handful of cannabis companies and serves customers in Canada and other markets where medical cannabis products are legal. Canada has been moving forward with legislation to legalize recreational marijuana by next summer. Medical use is already legal.
Constellation said it wouldn't actually be selling any cannabis products in the U.S. or elsewhere until it was fully legal. But increasingly, investors are positioning themselves for a coming legal-pot boom.
One of the biggest markets in the U.S., California, is preparing to legalize growing and selling marijuana on a recreational level next year. Cannabis investing conferences are likelier to fill convention centers, with companies selling cannabis edibles, drinkables, extracts, lotions, pain-relief products and information technology.
Bigger, publicly traded companies are also getting less shy. Scotts Miracle-Gro (SMG) has placed more of a focus on hydroponics. GW Pharmaceuticals (GWPH) makes a cannabidiol-based drug that combats seizures. Cannabidiol, or CBD, is a non-psychoactive component of marijuana often used as a relaxant.
Meanwhile, a former BlackRock (BLK) executive is heading up the MedMen Opportunity Fund II, which is seeking to invest in the cannabis space.
Constellation Brands rose 0.5% to 213.01 in the stock market today, slightly extended from a recent breakout. Brown Forman dipped 0.3%, while Boston Beer rose 2.8%.
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