Beer giant gets in bed with marijuana business

Beer giant gets in bed with marijuana business

The brewer of Corona beer has bought a 10 percent stake in a Canadian cannabis producer.

Constellation brands, which also distills Svedka vodka, shelled out $191 million for its stake in Canada-based Canopy Growth Corp., making it the first major wine, beer and spirits producer to invest in legal cannabis.

The high-dollar pot pounce comes as Canada and a growing number of US states move to legalize marijuana for recreational use, despite the fact that it’s still illegal at the federal level.

Constellation shares rose as much as 1 percent in premarket trading in response.

“We’re obviously trying to get first-mover advantage,” Constellation Chief Executive Rob Sands told the Wall Street Journal.

He expected the cannabis industry to be legalized nationwide in the United States in coming years.

”We think that it’s highly likely, given what’s happened at the state level,” Sands said.

Eight states, including California and Nevada, have legalized marijuana for recreational use. At least 22 other states have legalized the plant for medicinal use.

A number of drug companies have products that are cannabis derivatives and an index of Canadian marijuana stocks calculated by research house Canaccord Genuity rose 36 percent in the month to Oct. 11.

But major firms in other sectors have kept their distance, worried by the connotations of involvement with a banned substance.

Constellation said it had no immediate plans to sell cannabis products in the US or any other market unless it was legally permissible to do so at both a state and Federal level.

Eight Capital analyst Daniel Pearlstein said the move validated the cannabis industry as both a threat and opportunity for larger established companies in industries including alcohol, tobacco and pharmaceuticals.

“This move is a complete game changer, not only for Canopy, but also for the entire industry,” he said.

Analysts said a more immediate option for Constellation could be to develop non-alcoholic cannabis-infused beverages for the Canadian cannabis market, which consultants estimate could be worth around $5 billion to $10 billion.

The deal also comes ahead of the widely anticipated move by Canada to legalize cannabis for recreational use nationwide by July 2018. The following year, edible and drinkable products are expected to become legal.

Canopy Growth is the biggest licensed producer of medical marijuana in Canada and is traded on the Toronto Stock exchange with a market capitalization of C$2.2 billion.

Constellation said the deal also gives it the option to purchase an additional ownership interest in Canopy in the future.