Cannabinoid Investor Note for April 24/19Cannabists,
What’s the buzz these days? Everyone is still talking about the Canopy+Acreage Holdings deal. Why is this deal so important? From my perspective it is two words: Constellation Brands.
Why is Constellation Brands the most important part of this deal? Because Constellation Brands is one of the largest booze companies in the USA with a market cap exceeding $40 billion and it is now two years ahead of any rival booze, tobacco, pharmaceutical or basically any other company in the world. TWO YEARS AHEAD?? Yup, they are literally two years ahead in terms of strategy and execution over everyone. First Mover advantage is so important in business and Constellation Brands is so far out in front now it is actually ridiculous. The only other mainstream company that has taken a position in cannabis is Altria which is one of the largest tobacco companies in the world with a market cap that exceeds $100 billion (Altria took a billion dollar plus position in Cronos not that long ago; although I think Cronos is nothing special and I don’t know why Altria picked Cronos over some better Canadian rivals).
What does a two year head start for Constellation mean? It means a bunch of things:
1. Executive strategy and alignment: Constellation executives and management have been working with Canopy now for years on value added products like infused drinks, edibles, etc. So Constellation understands the industry as well as anyone and already has a massive distribution system in place through its booze business to distribute cannabis when allowed to do so;
2. Big pockets of money: Constellation is Canopy’s piggy bank. They have forked over $5 billion to Canopy and this capital allows Canopy to build out so much more aggressively and confidently than any rival pot competitors. And this advantage now translates to the US market where Canopy will be the piggy bank for Acreage to forge ahead and buy out strategic assets that the competition can only dream of getting their hands on. Canopy + Acreage’s competitors can’t access capital as easily because the US banks are still not lending to cannabis companies and they don’t have huge well funded companies like Constellation with war chests of money to help them grow;
3. Competition must catch-up which means consolidation in the cannabis sector must intensify and rather rapidly: Constellation is laps ahead of the competition. Executives at other big booze, tobacco and Pharma companies have been watching the space closely from the side lines, but as yet have been sitting on their large stacks of investment capital. They can no longer do this. They must enter the fray now or give up on participating in the industry because if they do not start to compete with Constellation Brands now they will never be able to compete with Constellation Brands down the road. Constellation Brands is a pot monster of a company right now and they cannot let it get more formidable and dominant.
Bottom line: The Canopy deal with Acreage changed the industry forever. And it changed the industry forever because it allowed Constellation Brands to effectively take leadership control of the entire North American cannabis industry. If you own shares in Acreage, Curaleaf, Cresco, Green Thumb Industries, Ianthus, Harvest Health and Recreation, Trulieve or Charlotte’s Web you should do really well over the next little while because the merger and acquisition activity in this space is going to pick up enormously as Constellation Brands' competitors get off their duffs and start catching up with the times.
Bottom bottom line: If you do not invest now then don’t bother investing later. It is kind of now or never with the States Act moving its way through Congress and the Safe Banking Act being actively discussed and the Farm Bill passed and the competition having to take positions in companies or lose out on the fastest growing industry in North America...and soon the world. And if you do not Carpe Diem on this idea that is fine as well. Nothing ventured; nothing gained, but nothing lost as well.