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Breakingviews - Constellation Brands takes the party up a notch
October 30, 2017 / 9:13 PM / a month ago

Breakingviews - Constellation Brands takes the party up a notch

NEW YORK (Reuters Breakingviews) - Ever since Colorado, Washington and other states legalized marijuana, the conventional wisdom has been that the U.S. weed business would in a matter of years move from a cottage industry into the arms of Big Tobacco. But Constellation Brands, maker of Svedka vodka and Corona beer, just dropped something into that punchbowl. It’s taking the legit ganja party up a notch.

A marijuana leaf is displayed at Canna Pi medical marijuana dispensary in Seattle, Washington, November 27, 2012. REUTERS/Anthony Bolante

The booze company is paying C$245 million ($191 million) for a 9.9 percent stake in Canada’s Canopy Growth, a diversified cannabis firm whose brands include Tweed and Bedrocan. Constellation also received warrants allowing it to increase its share. The deal sent Canopy Growth shares 15 percent higher, giving it a C$2.5 billion market value to make it the big kahuna of the emerging public weed complex.

Though the prevailing assumption had been that cigarette manufacturers would feel most threatened by increased marijuana usage, Constellation has recognized otherwise. Where nicotine may be an addictive everyday substance, the active ingredient in pot, THC, offers something else: a longer-lasting euphoria more akin to the party spirit that Constellation’s core products impart to consumers.

In that sense, Constellation’s deal is almost entirely defensive. The $200 billion American alcohol business faces declining usage in part because of rising marijuana consumption, as Cowen & Co researchers pointed out in a 100-page report last year. Their analysis argued that alcohol incidence among American males had fallen 2 percent over the past decade, while weed tokage rose 2.6 percent.

That trend will almost certainly accelerate as more states legalize recreational marijuana. At present, just eight have done so, with another 22 making the plant available for medicinal use. Canada legalized recreational use nationwide starting next July, with edibles and THC-infused drinks coming the following year.

Constellation has seen the future, and it includes Corona with a skunky chaser.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at http://www.reutersoe.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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