In 2016, California voted to legalize recreational marijuana.
This means that the 6th largest economy in the world would allow everyone to buy, grow, and consumer marijuana.
That's a big deal.
But... I think this is WAY bigger.
I hate to over-sensationalize this, but I think this is a big, BIG deal.
The third largest beer company in America just invested $191 million in the largest cannabis company in the world, that is located in Canada!
There's a lot going on in that sentence. Let me break it down for you...
The third largest beer company in America is Constellation Brands.
Founded in 1945, they have a market cap over $40 billion, over 9,000 employees, and do over $8 billion in sales every year. Constellation Brands owns these brands:
So, Constellation Brands bought a $191 million stake in Canopy growth, which is about 9.9% of the company.
For $191 million, you could have acquired entire companies in the Canadian Marijuana Index:
Source: MI
And in the US Marijuana Index, you could have bought even more:
Source: MI
Now let me go back to that sentence again: The third largest beer company in America just invested $191 million in the largest cannabis company in the world, that is located in Canada!
That last part of the sentence is interesting. A US based company (Constellation Brands) invested in a foreign cannabis company.
So, a US based company, that is regulated by the US Federal Government, has invested in a foreign cannabis company.
That same US Federal Government that classifies cannabis as a Schedule 1 drug, is NOT prohibiting Constellation Brands from investing in a cannabis company.
Source: DEA
This fact - that marijuana is illegal under US Federal Law - has kept MANY investors out of the cannabis investment market.
To be clear, Canada has made recreational cannabis legal, so technically Constellation Brands is investing in a company that does not have to conform to US Federal Law.
But, oh boy, have the lines been blurred.
Because, also technically, a US corporation is taking US profits in US dollars to purchase stakes in companies that would be classified as illegal if they were in the US.
But here is the thing...
It's currently legal to consume cannabis for recreational purposes in 8 states plus the District of Columbia (where the Federal Government is ironically headquartered).
And it's currently legal to consume cannabis for medical purposes in 29 states.
AND THE FEDERAL GOVERNMENT IS DOING ALMOST NOTHING TO ENFORCE THEIR OWN LAWS.
Source: Statista
From The Wall Street Journal:
The C$245 million (US$191 million) deal gives Constellation a toehold in an industry that the brewer expects to be legalized nationwide in the U.S. in the coming years.
"We think that it's highly likely, given what's happened at the state level," Rob Sands, chief executive of the Victor, N.Y.-based beer, wine and spirits company, said in an interview. "We're obviously trying to get first-mover advantage."
Mr. Sands said he doesn't see pot as a threat to booze.
But if a consumer is going to choose a can of beer, a glass of wine, a shot of liquor or a weed-laced elixir, he wants to be able to offer all four, he said.
"Could it be a threat? Yes, I guess it could be," he said. "We're not going to stand around twiddling our thumbs."
It's important to note that: Constellation doesn't plan to lobby for or against marijuana legalization in the U.S., Mr. Sands said.
But, what about the other beer giants?
"Wine and spirits are not sitting still, and marijuana is being legalized in many states," Heineken USA Chief Executive Ronald den Elzen said at a beer wholesalers conference earlier this month. "We have to act now, and we have to do it together."
So, if Constellation Brands isn't going to lobby... then who is?
Source: OS
In 2017, over $22 million has been spent on lobbying, which is actually down from 2016's nearly $27 million. And if Constellation Brands doesn't plan on lobbying, I'm sure there are plenty of other alcohol brands with much larger lobbying budgets that will gladly step in:
Source: OS
Interestingly, Paul Ryan, who is the current Speaker of the United States House of Representatives, is not a big fan of cannabis.
He has voted against it repeatedly, but does say that states should have the right to make their own decision.
Well, considering that he is the number one recipient of alcohol lobbying, maybe he'll change his tune...
Source: OS
As far as I'm concerned, this move by Constellation Brands means, "GAME ON!"
Of course, the eventual legalization of cannabis in the United States is not going to happen over night. We are probably years away from that.
However, now that the major corporations are getting involved and there is major money to be made, things will start to move much quicker.
Come on... that's how America works!
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And if you are interested in investing in early stage cannabis companies, that is exactly what we are doing. We know that these companies will be prime targets for major corporations in the coming years. It’s time to position yourself now.