Canopy Growth Corp CEO Publicly Puts Molson Coors, Beverage Makers On Notice

Benjamin A. Smith

Last night, Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) CEO Bruce Linton made a game-changing public proclamation about the future of cannabanoid consumption in the marketplace. After previously discussing the company’s future Constellation Brands product roll-out in ambiguous terms, Linton busted the door wide open in manner which left nothing to the imagination. We explain.

The catalyzing event occurred during CNBC’s Mad Money interview with Jim Cramer, which aired last night. In it, Bruce Linton discussed the future of Canopy Growth’s trajectory into the beverage space in intricate detail. Needless to say, it was an eye-opener:

Bruce Linton: In the second half of 2019, when we start putting beverages on the shelf with Constellation… Constellation doesn’t have exposure much in Canada right, because they don’t have brands up there they’re not products. So, we’re kind of going in, all-in to take as much market share as we can.

Jim Cramer: Go back to this. Constellation is going to be making, what, Modelo or Corona?

Bruce Linton: In Canada, in the second half of 2019 we’re going to be able to introduce a bunch of new products; likely beverages never guaranteed… So, we expect we’ll be able to make beverages, and those beverages will be no calorie, they will cause you to feel upbeat.

Jim Cramer: Wait a second, wait a second. Are you talking about going a bar and having, let’s say, a spiked Modelo?

Bruce Linton: No, we’re talking about going into a bar and having a tweed and tonic. And it is something like a category creator just like: What’s a Red Bull? A Red Bull is a Red Bull. What is a tweed and tonic? It is its own stand-alone…

While these proclamations won’t surprise anyone—Constellation Brands owns a 10% minority interest in Canopy Growth, and participated in about one-third of the company’s recent $600 million debenture (later upsized)—the intricate details provide several salient points.

The first of which is that Canopy Growth is sprinting towards introducing a beverage product in Q3 2019, when edible legalization may receive approval. In fact, Bruce spells out the plan explicitly by saying “In the second half of 2019, when we start putting beverages on the shelf with Constellation.” To my knowledge, this is the first definitive public acknowledgement of such plans.

Secondly—in a brilliant piece of marketing prowess—Bruce reveals the name of one beverage brand under consideration—the tweed and tonic. Rest assured, the CEO does not appear on national television and blurt out such proclamations unless its development is a very real thing. Whether Constellation’s beer brands like Corona or Modelo are also under development is unclear, but spirit production appears to be a primary focus.

The rest of the CNBC interview is packed with additional details on what the alcoholic beverage-infused market may look like. Everything from how lose-dose cannabanoid infusion into spirits would work, to how cash crop price compression would actually be a good thing for the company.

Canopy Growth CEO Bruce Linton on the state of the sector and where it’s headed

In summary, Canopy fired the first public salvo on competitors racing to create similar products. With first-in advantage in hand, Canopy is presumably miles ahead of the competition.

Molson Coors Publicly Put On Notice

It’s no secret that beer brewers are itching to join the game. Among them, Molson Coors Brewing Company intentions have received perhaps the most public amount attention. Not only did the company proclaim cannabis as a “risk factor” to its operating model back in February, stagnant and declining growth worldwide isn’t helping its stock price.

Thus, it comes as no surprise that Molson Coors has been engaging several cannabis LPs about the possibility of forming their own joint partnership—perhaps similar to the structure Constellation Brands has with Canopy Growth. More specifically, analysts (including the Midas Letter) have zeroed-in on Aphria Inc. as being the most likely suitor, based on several factors.

While Bruce Linton’s comments don’t really change the game for Molson Coors (we’re sure TAP executives already knew about Canopy’s plans internally), they may heap added shareholder pressure to strike a deal soon. It’s been almost nine months since Canopy Growth’s partnership with Constellation was first cemented, and perhaps several months since product development has been ongoing.

Even if Molson Coors partners-up tomorrow, they’re presumably months behind the 8-ball in terms of R&D and logistics. While it isn’t an insurmountable disadvantage to overturn, it can’t be ideal. Playing catch-up from a trailing position rarely is.

Thus, with if Molson Coors really intends to JV with Aphria or someone else, the trigger point may be close at hand. Because like everything else defining the cannabis growth cycle thus far, first-to-market advantage is key. When that advantage is procured by the best branding cannabis LP on the planet, it becomes practically insurmountable. Waiting any longer than necessary for Molson Coors to cement its own partnership does nothing but hinder their preparation in coming to market.

It will be interesting to observe what ramifications—if any—Bruce Linton’s interview had last night. But it likely adds pressure on beverage makers to close their own deals, lest testy shareholders start asking too many poignant questions.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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