Canopy and Big Tobacco I've been trying to understand how big tobacco would be of benefit to Canopy. I know Bruce has said that it was just a matter of time for them to get involved because MJ would be a tobacco disruptor, but I'm not sure it would specifically benefit Canopy for the following reasons:
1. Altria invested in Cronos to diversify itself away from tobacco because sales in the US are droppping each year, but are growing in foreign countries. I see it more of an invesment than a partnership. As Cronos expands and grows in revenues/market value then Altria's balance sheet looks that much better through its investment. Eventually, like Constellation, they could control the comapny.
2. If tobacco invests in an LP as a partnership, what do they bring to the table besides financing? Tobacco does understand the marketing and distribution rules as they are pretty much the same as MJ in Canada, but what else? Most tobacco comapnies buy their tobacco from farmers and they don't have retail outlets selling their tobacco producrs and accessories as it's mostly sold in convenience stores.
3. The Canadian model and what is mostly happening in the US are companies setting up retail shops to sell various MJ products or there own products if they are a LP. Canopy has retail outlets in most parts of Canada such as Tokoyo Smoke. It will have a retail presence in Ontario come April 1, but it will be legally structured to meet the 9.9% affiliated rule. One avenue may be by franchising retail stores to get around the 9.9% rule, but I'll leave that to much smarter corporate lawyers. Again, I don't see tobacco adding value.
4. In Canopy's case, I don't see a benefit and there may also be Constellation agreement rules that prevent it. Remember, Constellation paid for warrants in the $5B deal that allow it to take specific future ownership % positions with the 2 future deals. If Canopy enters into an agreement with a big tobacco company, it will likely be through an investment which means selling shares to them and further diluting Canopy shares. This would mean that Constellation would then have to buy more shares to acquire the same specific ownership % which I don't believe can happen because of the Constellation agreement and specific number of warrants that were purchased.
5. The last purchase that Canopy made for Storz & Bickel was all cash. I believe most, if not all, future major acquistions will be all cash to prevent further dilution as per the Constellation agreement. They gave Canopy $5B so they could expand and not dilute. If they are allowed to dilute, I'm sure there are clauses in the agreement that benefit Constellation so as not to change their future ownership % position if and when they decide to exercise their warrants.
Just my thoughts and I welcome any constructive arguments or addtional thoughts. GLTA