This is a historic year for cannabis as the controversial substance is on its way to becoming one of the most valuable investments for the alcohol industry. The product has been hitting headlines lately as Canada prepares for nationwide legalization in October and alcohol companies brace themselves for major competition from the recreational drug. Now, the largest alcohol company in the world, Diageo Plc, is following in the footsteps of their competitors as they pursue a deal with a Canadian cannabis firm.
The UK alcohol giant has been seen having serious discussions with at least three major Canadian cannabis producers, according to Bloomberg. So it seems that the company is also looking into producing cannabis-infused beverages. Bloomberg sources claim that this is because Diageo has been experiencing flat sales in their portfolio of global alcohol products.
Over the past month, Diageo has been discussing potential investments or collaborations with cannabis companies to produce cannabis-infused beverages. A senior executive team from Diageo also attended a Toronto marijuana conference last week where they met with different cannabis companies in the city to discuss potential partnerships or an equity arrangement, according to Bloomberg sources.
However, the company is taking their time with this potential investment and has not confirmed any partnerships yet. A cannabis executive who met with Diageo told Bloomberg that the company will likely wait until marijuana is legalized to make a final decision. On the other hand, another cannabis executive that met with Diageo told Bloomberg that the alcohol company is close to making a deal with a Canadian cannabis producer.
Regardless of these mixed feelings, it’s clear to see that the alcohol industry is set to take a turn after the legalization of marijuana in Canada. This is because the controversial substance is expected to decrease alcohol sales. In fact, researchers from the University of Connecticut and Georgia State University found that alcoholic beverage sales declined by 15 percent between 2006 and 2015 after certain states legalized medical marijuana. In Colorado, where cannabis was legalized in 2014, cannabis sales outgrew alcohol sales last year. As for Canada’s future, research firm Deloitte believes that legalization will produce a similar result.
“If marijuana is legalized in Canada, we will see a decrease in purchases of beer, wine or spirits. So that’s something that the alcohol industry is going to have to understand and think about and try to anticipate what that means,” said Mark Whitmore, Vice Chair and Global Leader Deloitte Private.
This is why major players in the alcohol industry have an “if you can’t beat them, join them” attitude towards legalization. The latest player in this developing industry is Molson Coors, who officially announced a partnership with Canadian cannabis company The Hydropothecary Corporation at the beginning of the month. More recently, alcohol giant Constellation Brands invested CAD $5 billion in Canadian marijuana company Canopy Growth to further their stake in the cannabis company. Both alcohol companies have expressed interest in developing non-alcoholic cannabis-infused beverages. However, Heineken’s Lagunitas Brewing Company has already beaten both competitors to the punch with their recent launch of cannabis-infused sparkling water beverages in California.
After Diageo threw their name into the mix, cannabis stocks skyrocketed over the past few weeks. Shares of Tilray, a medical marijuana producer, went up by 11 percent on Friday and were trading for 20 percent more on Monday. Constellation’s partner, Canopy Growth Corp., experienced a ten percent increase in their stock prices on Friday and on Monday, their stocks grew by over five percent. Marijuana company Cronos Group experienced the highest growth with their shares having increased by 16.6 percent on Friday and 25 percent on Monday.
Nevertheless, edible cannabis products will not be legalized in Canada until October 2019, which means that companies like Diageo still have time to shop around and wait until the dust settles after initial legalization this upcoming October.