The bullish run in pot stocks is gaining momentum as giant beer companies look to develop cannabis-infused drinks in order to keep their businesses afloat. New York-listed shares in Tilray Inc., Aphria Inc., and Cronos Group closed solidly higher on Monday.
Investors are optimistic that all the three marijuana companies could be key candidates for an alliance with Diageo PLC, a beer manufacturer based in London.
Constellation Brands & Canopy Growth
Pot stocks have been making huge runs ever since Constellation Brands announced that it would invest $4 billion in Canopy Growth ($CGC). The maker of Modelo and Corona beer brands, came to the rescue of Canopy when it was on the blink of losing half of its value.
Constellation Brands’ massive investment in the Canadian-based company is going to transform the pot industry. It essentially gives Canopy an opportunity to become the dominant weed products developer in the world.
Constellation Brands may begin selling a marijuana-infused drinks in Canada, but it will have to wait for legalization to happen across the United States. Federal law in the US prohibits recreational use of cannabis though several states like Washington, California, and Colorado have legalized the drug. In Canada, legal recreational use of drug is set to go into effect on October 17, 2018.
Constellation Brands, which is the third largest beer company in the United States, first showed interest in Canopy late last year, when it took a 9.9% stake in the company. With its latest investment, the beer maker is now going to have a stake of 38%, with Canopy controlling the rest.
“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner. Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space,” said Constellation Brands Chief Executive Officer Rob Sands in a statement.
Under the terms of the deal, Constellation also has an opportunity to buy a total of up to 139.7 million in new shares over the next three years, representing up to $5bln in additional funding. The company would raise its interest in Canopy to over 50% if it utilizes those terms.
Molson Coors & Hydropothecary Corp
The British beer company is not the only of its kind that is seeking to take on the marijuana industry. Recently, Hydropothecary Corp, a marijuana company based in Canada, signed a deal with Molson Coors to create a cannabis infused alcoholic beverage.
Hydropothecary Corp will have a 42.5% controlling interest in the joint venture, with Molson Coors having the remaining ownership interest. Hydropothecary Corp in turn will probably have to collaborate with other pot companies (technology, growth, and production) to keep up with competition.
Commenting on the deal, Frederic Landtmeters, the chief executive officer of Molson Coors said, “Canada is breaking new ground in the cannabis sector and, as one of the country’s leading beverage companies, Molson Coors Canada has a unique opportunity to participate in this exciting and rapidly expanding consumer segment.”
“This new venture is consistent with our growth strategy and our commitment to being first choice for consumers and customers by ensuring that Canadians have access to high-quality products that meet their evolving drinking preferences.”
Diego PLC options
Finlay, Johnnie Walker and Smirnoff maker, Diego PLC is reportedly holding talks with executives of Tilray Inc., Aphria Inc., and Cronos Group. An article that published by Bloomberg said that Diego intends to initiate a collaboration or purchase a stake in one of the three cannabis companies.
Striking a deal with a giant beer maker is something of a great significance for most pot companies. Diageo also has every reason to partner with a cannabis company in order to counter Constellation Brands’s huge alliance with Canopy Growth.
However, it is not clear which marijuana grower Diageo will go for and when the deal would happen. This is a big problem for investors looking to trade on these stocks.
One of the sources cited by Bloomberg said that it could take months for Diageo to enter a deal with any of the three companies, with the other source stating that a deal could be struck soon.
Jakob Ripshtein, the CEO of Aphria, previously worked with Diageo from 2011 to April this year. Ripshtein was the president of Diageo Canada and chief financial officer of the Diageo North America. Analysts believe that Aphria has an upper hand over both Tilray and Cronos, thanks to the connections of its chief executive with his previous employer.
But the two also have plenty to offer, considering the status they are currently enjoying in the Canadian pot market. They have significant production capacity and also competitive in global medical cannabis markets, particularly in Germany.
Diageo could also be considering other cannabis companies such as Aurora Cannabis, which comes in second in terms of market capitalization after Canopy Growth. The company has already announced its intentions to develop cannabis-infused drinks.
Marijuana Stocks Looking Prime
A report published by Arcview Market Research and BDS two weeks ago says that the global consumer spending on pot products will hit approximately $32 billion by 2022, from the current levels. If this happens, several consumer categories, such as beer and tobacco would be face extreme disruption.
Beer companies are among the first to take note of this and working hard to avoid being knocked out. Analysts believe that a series of big firms across every consumer segment are soon going to venture into the cannabis industry.
Canada is expected to become the first G7 nation to allow adult recreational use of marijuana in October. Several other nations around the world, including Australia and Germany, have legalized medical cannabis and many others are set to do the same.