Why Corona’s Parent Company Is Investing In Cannabis

Constellation Brands is not a household name, but the intoxicants it stands behind sure are — Robert Mondavi wine, Corona beer and Svedka vodka are all under the brand. These days, all three are facing a new competitor: cannabis.

As Cannabis has rolled toward legalization in an increasing number of states, Constellation is eyeing a competing intoxicant, treading ever closer to its turf. And though some in the spirits industry have decided to try and beat back the growing green tide, Constellation seems to have decided that it wants to join up. As a result, it has taken a stake in Canada’s Canopy Growth — an up-and-coming player in the blooming pot industry.

“It’s probably not worth getting in a big debate right now about whether it’s cannibalistic or complementary,” said Constellation Chief Executive Rob Sands, according to Bloomberg. “There’s just not enough information to really say how that’s going to affect beverage alcohol generally moving forward. What we do know is it’s going to be a big market worldwide.”

And it’s a big market that Constellation is ready to wade into — albeit slowly.

“This is rocket fuel,” Canopy Chief Executive Officer Bruce Linton said. “We’re going to be way more global.”

Going forward, Constellation will own 38 percent of Canopy, up from about 10 percent. The deal will be closely watched — as the cannabis industry in the United States exploded quickly in the era of intentional under-enforcement of federal statutes during the Obama years. The fate of that industry now remains a bit uncertain. U.S. Attorney General Jeff Sessions is a strong opponent of legalization and moved to officially rescind the Obama-era policy that let federal prosecutors look the other way while states set up their own markets for marijuana.

The announcement followed California’s launch of a legal marketplace on Jan. 1 and, so far, the legal and medical cannabis marketplaces in the states have shown no signs of closing up shop.

According to Sands, Constellation and Canopy are developing a non-alcoholic cannabis beverage for release for the anticipated legalization of pot drinks by Canada’s government in 2019. The move could give Constellation a much-needed boost after falling alcohol sales have exerted downward pressure on the company’s share price. Though its sales for its imported Mexican beer (Corona) remains strong, sales for its wine and spirits products continue to fall.

Other alcohol brands are hoping to get in on the ground floor with pot — Molson Coors Brewing Company has started working with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market, and a sub-label of Heineken is slated to begin production of its own non-alcoholic THC-infused beverage shortly.

On Oct. 17, Canada will become the first G7 country to legalize pot for recreational use. In the U.S., federal law still prohibits the drug, despite its legal status in some states. By some estimates, global consumer spending on pot and its products will reach $32 billion by 2022, triple current levels, according to a report by Arcview Market Research and BDS Analytics. In the U.S. alone, the industry employs over 200,000 workers.

Canopy’s CEO noted recently that while the U.S. is a complicated market to enter at present (because it is a complicated industry), those complications could lift with full federal legality “sooner than people think,” and he added that Canopy is doing everything lawful to get ready.