Dear Client:

It certainly seems to us, based on what we’re heard from beer distributors, that some would like to carry cannabis beverages – if only upon further legal clarification. 

And so we sat down with Canopy CEO David Klein in Miami last week  before a special dinner with product partner and strategic advisor, Martha Stewart.

Our whole purpose for interrogating David, a longtime Constellation vet, aimed to establish: How exactly do Canopy products relate to Constellation’s beer distributors? 

“It comes back to where I started — learning from Bill Hackett,” for whom David has worked directly. 

“The partnership [between Canopy and Constellation] is super important and it shows that the beer network, in particular, is … a really passionate group of people. And so, we want to build on that partnership. That means there’s going to be some give and take. … At the end of the day, if we get it right, we’ll create a lot of value for all of us, which is the goal.”

Canopy apparently intends to build a path to market with Constellation distributors — but wholesalers need to focus on more than just drinks, and jump in wholeheartedly to help create policy. 

WHAT COULD THIS CATEGORY LOOK LIKE IN THE US? Part of the reason distributors seem to want “in” on the cannabis category is the potential size of the prize. 

For his part, David thinks that “cannabis ends up being the same size as the beer industry in the U.S.”

Over what period of time?

“I don’t know. Call it 10 years,” he guesstimates. 

(To size the current U.S. legal market, it hit $17.5 billion last year. THC beverages are around 1% of the total.)

Of course, total cannabis drinks, where many beer industry distributors would likely start first, is a small subset of that whole. 

David explains: “If I’m a cannabis user, I may use inhalables, I may use gummies, I may use drinks. 5% of the time I’m going to go to a drink, the rest of the time I’m going to do something else.”

“WE WANT PARTNERS THAT WOULD PARTICIPATE IN $100 BILLION [INDUSTRY] — NOT A SUBSET OF IT.” But how big could drinks be? 

“Pretty big,” David thinks. “But, the size of the prize is $100 billion. And so, if we’re building partners in distribution, we kind of want partners that would participate in a $100 billion dollars, not a subset of it. That’s the thing that I think that Constellation and Canopy are really interested in engaging with the alcohol distributors to say, how do we build that unbeatable platform to go to market in the U.S.?

“I just think that we want to make sure that the beer distributors are thinking beyond drinks. … Whatever the products are. Then as it relates to: ‘is it the beer network or is it wine and spirits?’ I think that’s brand and channel specific.”

ARE WINE AND SPIRITS DISTRIBS BETTER POSITIONED FOR THIS STUFF? AND IF SO WHY? But we did have to ask whether Canopy prefers the wine and spirits network at the moment. 

As BBD readers know, after all, Southern Glazer’s has been tapped to distribute Canopy Growth’s CBD beverages, beginning with CBD-infused sparkling water brand, Quatreau. They’ve also landed Marth Stewart’s CBD wellness supplements (which are bringing loads of new-to-CBD consumers into the brand umbrella, by the way: 1/3 of Martha Stewart gummy purchasers are new to CBD, and 58% of the product’s consumer base take them every day). 

David certainly didn’t give any indication that they prefer wine and spirits  versus beer distributors for cannabis beverages (although, our own conjecture is that they might prefer to have a more singular point of contact for CBD products so far, vs. a multi-point beer distributor network).

However, “You might say there are some products that are going to do better in the channels that the beer guys own,” he said. But “there might be stuff that does better business in the channels that the wine and spirits guys own.” 

Still, “We haven’t made those decisions. THC drinks, THC products are promised to no one.

“There are all kinds of opportunities. And we’re going to work really closely with Constellation. And we’d love to work really closely with the alcohol distribution networks to get this drink for everybody.”

But where are the channels that make more sense for the Southerns versus, say, the Reyeses?

“I think … it’s going to depend on brand and it’s going to depend even on what the brands do.” He points out that they brought Biosteel to the beer network, “and Biosteel could be a billion dollar brand.”

Biosteel doesn’t contain CBD in the U.S.

“We do have CBD versions of it, but we haven’t brought it to the U.S. Mostly what we’re moving to the beer network right now is hydration ready to drinks. But I think that’s a massive opportunity for that network.”

But does he see a day where these products are sold in not just dispensaries, but are also more closely aligned to where beer is sold or where wine and spirits are sold?

THE IMPORTANCE OF LOBBYING. “This is total hypothesis,” David warned, “but right now you have the program that you have. So in California, you go through the 700 dispensaries in California. It feels like a liquor store model. That’s not going to change upon federal permissibility. The only way that’s going to be changed is if the state lobbies start cranking up around a wider distribution, and you have to imagine that’s going to help.”

We pointed out that they’re still talking about selling spirits in beer channels. That’s exactly the point, says David. 

“Here’s why it might be important for it to happen really fast. As we know from the alcohol industry, it’s really hard to change this stuff once it’s in place.”

And so, “If 7-Eleven and other people like that want to sell … in their channels; if they want to sell cannabis products in their stores, their state level lobby is what’s going to make the difference.”

“What we need to see out of all of the distributors is a commitment to the space. And so, I think that there are a lot of people who aren’t interested in committing yet, because it’s not legal.”

WHERE THEY SELL RIGHT NOW. But how many U.S. states does Canopy sell in now? And where are they able to sell CBD ingestibles currently? The FDA seems to have frowned upon CBD ingestibles and yet, it seems like some retailers don’t care. 

“Right now, I think we’re in 32 states with ‘Shop Canopy. We’re comfortable in those states. There are some places we’re not,” David says. 

What about chains? 

“I think when you get to national chains, less so, but there are some really powerful regional chains, like Wegmans carries Martha Stewart CBD products.” 

“IT’S SHOCKINGLY NORMAL.” “Look, it’s shockingly normal,” says David, even of THC drinks. “There are a lot of people that are … maybe they’re curious, but they’re not sure what’s going to happen. Literally, the effect that one of our Tweed drinks will have on you should be no different than the effect you would get from a beer.”

Brenna Eller, VP of Communications at Canopy, adds that that’s where beverages are exciting. “It is really bringing in people that maybe have only had an experience smoking in the past,” she said. “It really is something that’s comparable to drinking a glass of wine or having a beer.” 

David asked us what we’re hearing from the beer distributors. We said: “They want to know how they can get in on it.”

“We want them all to get in on it,” says David.

“And we want to help them get in on it, but I think the point is, we need to work together to figure out: what does that look like?”

Tomorrow, more on imminent actionable items — such as how their U.S. partner, Acreage, could bring Canopy’s THC branded drinks to states in the U.S. this summer — and who could distribute them. 

CANOPY CHIEF DAVID KLEIN ON “THE WORK WE NEED TO DO OVER THE NEXT SIX MONTHS” WITH WHOLESALERS

So when is “go” time for THC beverages in the United States?

ACREAGE BRINGING TWEED THC DRINKS TO ILLINOIS AND CALIFORNIA THIS SUMMER. “We will have THC drinks in the U.S. soon, in Illinois and California,” David says.

“I don’t know if we’ve been clear on a date. We’ve been saying summertime,” he said, though he stressed that “if our lawyer was here, he would want me to just be really clear: We can’t bring anything to the U.S.”

This is how it works: “Acreage has a right to bring our products to the U.S. and Acreage plans to launch our Tweed drinks in the U.S. over the next several months. I don’t know a date because it’s Acreage’s decision, it’s not mine.”

They take Canopy’s recipe and they produce it with what they have in a given state, basically.

“Our brands, our recipe,” says David. “Because it’s our intellectual property, we get to sign off on [that].” 

And so, we asked: Who will distribute these products? 

“Distribution is going to evolve in time to meet the demands of the industry because it’s so massive,” said Brenna Eller, VP of Communications at Canopy. 

David added: “Again, because of where I come from, I want to make sure that the alcohol distribution network doesn’t lose out in this whole transition. That’s why we just need to work really closely together to get from here to there.”

With Constellation’s network? We asked. 

“The way I think about it is, it’s Canopy, it’s Constellation, and it’s their combined distribution network,” David answered. 

“And so, those groups of people, we could figure out an awful lot for the industry if we work together, in terms of: How should we align our forces for lobbying? How should we think about the strategy for distribution over time? How should we talk to our potential retailers, whether they’re dispensaries or they’re existing retailers?”

“THE WORK THAT WE NEED TO DO OVER THE NEXT SIX MONTHS.” “I think there’s a lot of work to be done, and I know that the beer distributors and the wine and spirits distributors want to figure this out. Constellation has partnerships with those people. We have the connection with Constellation. We want to make sure we get all that right. And I think that’s the work that we need to do over the next six months, no matter what happens from a regulatory stance.”

EXACTLY HOW CLOSELY DO THEY WORK WITH CONSTELLATION ON STRATEGY AND MORE? “If you look at my leadership team, our Head of Insights and Strategy is the former Constellation Head of Strategy. Our Head of Innovation ran the organization at Constellation that connected Canopy and Constellation. The CFO used to be the CFO for the wine business. I used to be the CFO of the company and I used to be the CFO for the beer business …

“That’s what The Street wants out of Canopy. The Street is giving us the benefit of the doubt because we have that connection with Constellation from a brand standpoint, from a route to market standpoint, from a supply chain standpoint, and what they get from us is cannabis know-how. So I think it’s a good partnership.”

Finally, he took us way back, to the strategy behind Constellation’s initial investment in the cannabis space. (Perhaps certain beer wholesalers will go through a similar evolution of heart?) 

“I was one of the people at Constellation [for whom] the strategy team worked. … And so, we were trying to decide adjacencies to alcohol that we wanted to enter. And as we were doing that business, we came across cannabis and we just kept saying, ‘yeah, okay, that’s a little weird.’ Like the fifth time we talked about it, suddenly we said, ‘we better spend some time here.’ Because there’s no reason if you were to start the world all over today, you would decide alcohol is legal and cannabis isn’t. It would be like, they probably both should be legal.”

HOW WILL THEY BE ABLE TO ADVERTISE IN THE STATES? That begs the question: if cannabis should be legal, based on the idea that alcohol is, that probably means cannabis should be strictly regulated as well. 

To that end, we wondered how they foresee being able to advertise their products in the states.

“Look, we’re going to be really careful — the way alcohol companies are really careful in terms of who you market things to,” said David. “I can see a day where this gets advertised the same way alcohol gets advertised with kind of responsible use and all of that really important stuff that has to be a part of the message.”

Until tomorrow,

Harry, Jenn, and Jordan

“Try to learn something about everything and everything about something.” – Thomas H. Huxley

———- Sell Day Calendar ———-

Today’s Sell Day: 16

Sell days this month: 21

Sell days this month last year: 21

This month ends on a: Mon.

This month last year ended on a: Fri.

YTD sell days Over/Under: -1