Constellation Brands To Explore Marijuana-based Beverages

Constellation Brands Inc. (NYSE:STZ) has announced its intentions to buy a minority stake in Canopy Growth Corp., a Canadian pot company. The company agreed to pay about $191 million for a 9.9 percent stake in the seller of medicinal-marijuana products. The purchase would make Constellation the company’s biggest shareholder.

In November, Constellation Chief Executive Officer Rob Sands said that the company was keeping an eye on potential marijuana investments. The announcement of the deal kicked off the biggest rally in nearly a year for Canopy. The company trades on the Toronto Stock Exchange under the ticker WEED.

The move is the first major foray of an alcohol brand into the budding weed industry. As part of the Constellation agreement, the two companies will collaborate on cannabis-based beverages that can be sold as adult products. Such products will be phased in as Canada moves to legalize recreational marijuana. Marijuana is already legalized for medical use nationally in Canada and the country is expected to allow recreational use by July 2018.

The world of legal pot is expanding. Eight states and the District of Columbia allow for recreational use if cannabis in the United States. The states are Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington. Twenty-one more states have made medical marijuana use legal.

In some of the states that have legalized marijuana, alcohol sales volumes have fallen as pot purchases have risen. Among 21- to 25-year-olds in the U.S., pot use has been on the rise for almost a decade while alcohol drinking has been on the decline. Constellation said it has no plans to sell cannabis in the U.S. or other markets until it’s legal “at all government levels.”

In the most recent Gallup polls, 64 percent of the U.S. population said the ban on the plant should be lifted. In 1969, when the firm first started asking about the topic, only 12 percent of the population approved of making marijuana use legal. However, pot remains prohibited at the federal level in the U.S., so American companies will have to move carefully.

Other sellers of beer, wine and spirits may look for similar opportunities with the country’s large marijuana producers. According to beverage-industry analysts, Molson Coors Brewing Co., Anheuser-Busch InBev NV, Diageo Plc and Pernod Ricard SA may already be examining prospects in the marijuana market. Cowen & Co. estimates the legal cannabis market was $6 billion last year and is expected to reach $50 billion by 2026.

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