Canopy Growth Makes Big US Play, Betting on Federal Legalization

Dear Client:

Canadian marijuana supplier Canopy Growth Corp. announced it has entered into a “definitive arrangement” with US-based Acreage Holdings that grants Canopy the right to acquire 100% of Acreage should cannabis become federally legal.

Acreage Holdings is a vertically integrated cannabis company with operations in 19 US states. The company owns cannabis licenses and assets, and last year launched a national retail brand dubbed The Botanist.

It’s a “complex transaction with a simple objective,” says Canopy chief Bruce Linton. “Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists.”

FEDERAL LEGALIZATION ON THE HORIZON. The complex deal, valued at $3.4 billion, all depends on whether marijuana becomes federally legal in the US, which they believe will happen sooner rather than later.

“We believe it takes place sooner than others anticipate – I’m going to call within the next 12 months, 18 months on the far side,” Acreage chairman and chief exec Kevin Murphy told the Financial Times.

“This is probably one of the few bipartisan issues in Washington,” Kevin said. “You’ve got politicians on both sides of the aisle that are striving to eliminate the black market, regulate the market [and] put taxes on cannabis.”

In fact, earlier this month Congress reintroduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which protects states’ rights to implement their own marijuana policies as well as protecting banks that work with marijuana businesses, per Cannabis Business Times.

Currently, 10 states have legalized recreational use and 34 states allow medicinal use. And several other states are looking into recreational use this year including New York, New Jersey, Illinois and Florida.

The Canopy/Acreage deal is also subject to obtaining the requisite prior approval of the shareholders of both Acreage and Canopy as well as the approval of the Supreme Court of British Columbia, per a release.

Speaking of shareholders…

WHAT THIS MEANS FOR CONSTELLATION. Constellation Brands owns 38% of Canopy Growth. Shortly after Canopy’s announcement, Constellation issued its own statement, modifying its warrants and other rights to Canopy.

Constellation svp corporate communications Mike McGrew told sister publication Beer Business Daily that the adjustment of their investments protects Constellation and gives them some flexibility. It “extends the warrants, from a period of 3 years to a period of 5-7. What that does is, it gives us more flexibility to leverage our cashflow, invest in growth and return value to shareholders during that period,” says Mike.

It also “helps control the costs associated with exercising warrants” as they continue to build their cannabis business, he says. “And the other thing it does is, it now allows us to be able to purchase Canopy stock on the open market, which is not something we had the ability to do before. That allows us to, if we choose, get to that 50% or more ownership.”

“At the same time for us, strategically, the US market is the prize,” says Mike. “It is the largest, or expected to be the largest, cannabis market in the world by far. There are obviously certain restrictions, because of the fact that cannabis is not yet federally legal in this country, that are restrictive in terms of Canopy’s level of participation in this market. So essentially Canopy has aligned with one of the leading multi-state operators.”

This isn’t Canopy’s first dip into the US market. You may recall, Canopy also recently announced plans to invest between $100 million and $150 million on a hemp processing project in New York [see WSD 01-15-2019].


March was a tough month for spirits in control states. After a strong showing at the start of the year, spirits volumes were down 3% and sales were down 0.6% for the month, thanks to tough comps and reporting calendar anomalies, according to recent NABCA data.

This year’s March had 12 fewer selling days than last year’s. After equivalizing, spirits volumes are up 1.2% and sales were up 4% for the month.

Irish whiskey and tequila were the only spirits categories to post positive growth in March, up 12% and 4.2%, respectively. Meanwhile, the rest were in the red: brandy/Cognac (-5.3%), Canadian whiskey (-1.4%), cordials (-6.4%), domestic whiskey (-0.2%), gin (-5.2%), rum (-7.5%), Scotch (-3.4%) and vodka (-3.9%).

Wine volumes took an even bigger hit, down 10% for the month with a rolling 12-month trend of -1.8%.


Last week, the Oregon Senate “easily” passed legislation to tighten restrictions on wine labels, per a local news affiliate.

The bills would require out-of-state wineries to pay the $25 grape tonnage tax that Oregon wineries pay on grapes they crush from Oregon. Out-of-state wineries would also have to adhere to stricter standards when it comes to varietal and regional content on labels, and labeling violations would carry a $25,000 fine (up from the current $5,000).

However, not everyone in the state’s wine industry in on board. You may recall, several large Oregon wineries, including A to Z Wineworks, Union Wine Co. and Del Rio Vineyard Estate, spoke out in opposition of the bills [see WSD 03-29-2019].

The legislation is expected to pass through the House as well.

You’ll recall, the recent labeling controversy around Napa Valley-based Copper Cane Wines’ Oregon wine brands kickstarted this issue.


PERNOD’S ABSOLUT LAUNCHES NEW EARTH DAY CAMPAIGN. Absolut Vodka has launched a new campaign today with its new Planet Earth’s Favorite Vodka campaign. To help bring the #AbsolutPlanet vision to life, they have launched a digital hub featuring live data and analysis of dynamic facts about the environment (like waste pollution and recycling) and conversations about equality, acceptance and fighting for LGBTQ rights, per a release. To kick off the campaign Absolut has focused on waste pollution in Los Angeles and recycling in NYC. In LA they partnered with non-profit organization Global Inheritance to organize a large scale cleanup, and then partnered with artist Dan Tobin Smith to turn trash into an interactive, educational, 3-D live billboard. In NYC, Absolut is piloting Absolut Bar Recycling, where guests are encouraged to trade in recyclables and enjoy a cocktail while raising awareness for recycling efforts in NYC. The company has also organized 40+ clean-up activities in 41 cities across 17 states tailored around their local communities.

PRECEPT WINE APPOINTS DIRECTOR OF STRATEGIC ACCOUNTS. Precept Wine has promoted Courtney Bradbury to the strategic accounts team, led by Austin Gangel, svp of strategic accounts. She will continue to steward accounts that are currently in her charge, including Costco Kirklands signature program and Alaska Airlines “on board” wines. Courtney will report directly to Taylor Hardman, svp sales – west.

RNDC PROMOTES EVP, VIRGINIA. Republic National Distributing Company has promoted Chip Stevens to evp, leading the Virginia business unit. In his new role, Chip will be responsible for leading the teams and executing the RNDC business initiatives for the state.

Until tomorrow,

“Give me a couple years, and I’ll make that actress an overnight success.” – Samuel Goldwyn

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