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Major Drinks Players Plot Their Strategies In The Cannabis Industry

January 29, 2019

With cannabis rapidly emerging as a blockbuster consumer category, top companies across the drinks landscape are diving in enthusiastically. Much of the action is taking place in Canada, where recreational cannabis sales went legal on October 17, but as more U.S. states eye legalization—including major East Coast markets like New York and New Jersey—the category is primed to heat up in the United States as well. According to a report by Arcview Market Research and BDS Analytics, global consumer spending on cannabis is expected to jump 38% to $16.9 billion this year.

Constellation Brands was the first major drinks group to move into cannabis, initially investing in Canadian producer Canopy Growth in 2017 and upping its stake to 37% on a $4 billion outlay last year. In an interview with Shanken News Daily, incoming Constellation CEO Bill Newlands said, “We consider this as a potential once-in-a-century change in consumer behavior. We see it as a tremendous upside opportunity, and an offensive play for us.”

Canopy and Constellation are in the process of building a bottling plant for their upcoming cannabis beverages, which are expected to launch in the second half of this year when Canada begins allowing sales of edible and drinkable offerings. Bruce Linton, founder, chairman, and co-CEO at Canopy, tells SND the development of the cannabis beverage line has been a multi-year process, but has been jumpstarted by Constellation’s drinks expertise.

Southern Glazer’s has also been an early mover, with its Great North unit becoming the exclusive broker for cannabis producer Aphria in Canada. Doug Wieland, executive vice president and general manager at Southern Glazer’s Canada, says Great North sees vast opportunity in the edible and drinkable market in the years ahead. Aphria recently named Diageo veteran Jakob Ripshtein as president, and Diageo’s former president of U.S. spirits and Canada, Tom Looney, sits on its board.

Likewise, Breakthru Beverage has set up a new Canadian cannabis sales brokerage, Kindred Partners, and taken a $9 million stake in producer CannTrust, with an option to expand its interest in the future. Kindred is CannTrust’s exclusive broker. CannTrust’s recreational brands include Iiiv, Synr.g, Xscape, and Peak Leaf. Kindred general manager David Prodanovic said of the move, “It was a natural fit given that the regulatory model is similar to what is currently in place for beverage alcohol across Canada.”

Also active in the category is Molson Coors, which has formed a joint venture called Truss with cannabis producer Hexo to develop cannabis beverages. Meanwhile, AB InBev and Tilray have formed a partnership to explore the drinkables market in Canada, with plans to invest $100 million in a joint venture project.

Ste. Michelle Wine Estates’ parent company Altria recently invested $1.8 billion in Canadian cannabis company Cronos Group, taking a 45% stake with an option to acquire another 10% over the next four years. Cronos CEO Mike Gorenstein said the investment will “enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D.”

While Canadian legalization has shifted much of the focus north of the border over the past year, these early investments by drinks companies offer them a foothold in the category from which to expand stateside in the years ahead—if and when the U.S. legalizes recreational cannabis at the federal level. The Wine & Spirits Wholesalers of America (WSWA) added its voice to the proponents of legalization last summer, urging the government to allow recreational cannabis provided that states adopt a regulatory framework similar to that of the drinks industry. As WSWA senior vice president for government affairs Dawson Hobbs told SND, “We’re advocating for Congress to give states the right to legalize cannabis—as long as they do it responsibly, based on alcohol regulations.”—Daniel Marsteller

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