Constellation/Canopy Makes Big U.S. Play

Dear Client:

Constellation’s weed partner, Canopy Growth, announced an arrangement that grants Canopy “the right to acquire 100 percent of the shares” of New York-based Acreage Holdings, which is a vertically integrated cannabis company with operations in 19 U.S. states. Acreage owns cannabis licenses and assets, and last year launched a national retail brand dubbed The Botanist.

CONTINGENT ON TRIGGER EVENT. The deal comes “with a requirement” to acquire “at such time as cannabis production and sale becomes federally legal in the United States.” Of course, this is subject to obtaining the requisite prior approval of the shareholders of each of Acreage and Canopy Growth, as well as the approval of the Supreme Court of British Columbia.

SO WHATZIT MEAN FOR CONSTELLATION? After Canopy made their announcement, major shareholder Constellation made its own.

“Constellation has agreed to waive its veto rights to this transaction subject to certain proposed modifications to the warrants and other conditions,” it said.  Sz Mike McGrew told BBD the adjustment of their investments protects Constellation and gives them some flexibility.

Among the changes of investment rights, it “extends the exercise period for the warrants, from 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.

“The second part is, it helps control the costs associated with exercising  warrants as Canopy, and now Acerage, continue to build the business. Which is also a benefit to us.

“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.

“So all of it helps maintain our position as Canopy’s largest shareholder while giving us some flexibility in the meantime and controlling costs.”

(So this basically allows Constellation to buy a certain tranche of Canopy shares at a lower price, if the stock were to rip.)  

“At the same time for us, strategically, the U.S. market is the prize,” says Mike. “It is the largest, or expected to be the largest, cannabis market in the world by far [ed note: California already is]. 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.

“They’ve got operations in 19 states [Acerage does]. And it positions Canopy at the point that, [when] cannabis becomes federally legal, we take an immediate leadership position in this market, with an established, sophisticated player.”

By the same token, Mike said, “it gives Acerage the ability to become part of a leading global cannabis company and provides access to markets outside the U.S.

“I think it’s a pretty exciting announcement overall; we continue to have a lot of energy around the space. It’s evolving quickly. With every step Canopy is making… they are positioning themselves to be a truly global dominant force in this emerging market.

WHY NOW?  “None of us can predict” federal legalization, he said.  “But I’ll tell you, if you look at the trends. … Start from a global standpoint – globally, five years ago, the only major player – or major country that had any form of federal legalized cannabis was Canada (medical before adult use). Today, there are somewhere around 30 countries around the world that have either allowed federally permissible cannabis — some form of it — or are pursuing that. So there’s tremendous momentum on the global stage.”

As for the U.S., now you see some 2/3 of people across the country that now support legalization. “When was the last time 2/3 of people in this country agreed on anything?” Mike said. There’s “tremendous momentum from a public sentiment standpoint.

“There are 30-plus U.S. states that have legalized some form of cannabis; and 10 of those states, including the District of Columbia, have legalized recreational marijuana. So, we see tremendous momentum; it’s getting a lot more attention on Capitol Hill, in terms of legislation conversations being had.”

Credit Suisse analyst Kaumil Gajrawala agrees.  “The new agreement gives Constellation flexibility in its own cash deployment, mitigates potential dilution impact, and gives the company more time to assess the developing recreational cannabis market before making  strategic decisions,” he writes. “Constellation also retains four seats on the Canopy Growth board (out of seven total). Ultimately, this deal leaves open the possibility of Constellation becoming a major shareholder in a larger entity operating in the rapidly developing cannabis industry.”  


Since Constellation’s de facto terminations in California, the distribution tier has been put in disarray.  Sources tell us there’s deals and non-deals: One A-B distributor was allegedly offered book value for their company by their supplier according to several sources; a big blue-silver distributor looking to get out; Reyes on the move again; importer-on-craft plays; and other developments that we won’t detail yet out of respect for employees. All the while, Constellation holds the cards on the majority of these deals.  California is in play, big time. Brace yourselves.


Launches.  Get it? Title puns are the best. Because this new beer was inspired by an old Budweiser red lager recipe from the time of the Apollo Moon missions 50 years ago. And it comes in a stubby bottle popular at the time. The Bud Discovery Reserve is brewed by Karissa Norrington, a Budweiser brewmaster and retired U.S. Air Force Captain, and A-B donates a buck a case to the Folds of Honor Foundation, benefiting fallen and disabled vets and their families.

This is the newest in the Reserve Series Collection, preceded by Bud Reserve Copper Lager, Bud Freedom Reserve and Bud Repeal Reserve, which was launched nearly two years ago.  Budweiser vp Ricardo Marques told BBD “the Reserve Collection is a top 10 share gainer nationally, driven by key states like California.”

I asked Ricardo if all these Reserve brands might confuse the consumer, or distract from brand Budweiser.  He said that these brands provide a “halo effect” and that “brand health numbers” have improved among “people who are aware of Reserve Series.” Meaning they have a “better opinion of Budweiser especially on quality.”  Plus there are “synergies in market execution” helping Budweiser along.

BEERNET EXTRA:  The Discovery Reserve :30 second spot, complete with Spirit in the Sky backdrop, which was released in the summer of ’69, the year of the Apollo moon landing (and your editor’s year of birth):


ED. NOTE:  Our friend and Freetail Brewing founder (and former BA board member) Scott Metzger finds himself a free agent.  Interested breweries contact him at

Until tomorrow,

Harry, Jenn, and Jordan

“Happiness is an attitude. We either make ourselves miserable, or happy and strong. The amount of work is the same.”  — Carlos Castaneda

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