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TheCannalysts have recently wondered where Constellation Brands ($STZ) is going with their Canopy Growth Corporation ($WEED) asset. Anecdotally, it doesn’t appear to be Canada is a focus at the moment but that isn’t exactly evidence.
This morning, Canopy’s $45MM man…..CEO David Klein…..laid out a clear path forward for the company. That plan?
The United States, of course. And…..that’s about it.
In some of the most useful comments I have seen him make, Klein addresses questions about the near-term future of Canopy and gets specific about the year ahead. This is a change in tone. The Klein ‘Sphinx’ has been less than specific previously. I – for one – enjoy this relative bluntness, and have had several lingering questions of my own addressed in the interview.
Last June, Klein stated flatly that $WEED expects 75% growth YoY. That his drinks were ‘better than seltzer’, and that Acreage would be the platform for production/distribution of them in the US (umm, yeah. We’ll get to that in a minute).
About the recent prospects of federal legalization in the United States?
The references Klein makes is not nessecarily about ‘full’ legalization.
That would take addressing the minor (sic) hurdle of re-scheduling cannabis federally, but includes creating rules around intra-state commerce, revision of the Cole Memorandum (it doesn’t even exist….it was rescinded), as well as the implementation of a ‘SAFE’ Banking Act (which, has been presented and failed to pass in every single Congress that’s convened since 2013).
The pessimism I express about federal legalization in the States stems from precisely these reasons.
At a lower altitude, today (literally), New Jersey – a ‘slam dunk’ State that several Funds have been piteously slobbering over the past 6 months – dropped a regulatory meteor strike, backing up the whole affair for an indeterminate period of time. Will it still pass? Likely. When? Dunno. What will it finally look like……as in economics and potentiality? Nobody knows. And that’s one single state.
Take a moment to consider that, and the structural shift both federally AND state AND municipal levels. Across the Bible Belt. Across the Midwest. The Eastern-seaboard. Hey, perhaps its’ even just possible. Call me skeptical.
At any rate, $STZ’s interest isn’t about opening Tokyo Smoke locations in every US city (about that, see above), but it is about acquiring a US exchange listing with operations based down south. It is the prize for them (and Altria/$MO), as it permits them to access capital for US deployment, allows moving to a larger exchange, and permits CPG companies (like $STZ and $MO) to actually take part in any ramp towards legalization. Notionally, it’s as good as it gets right now: eliminating several operating restrictions between the countries. The importance of accessing a wider US investor base – particularly over the next while – is big.
Addressing $WEED’s ‘investment in Acreage ($ACRG)? God, I love the line Klein drops about them:
Translation: The last muppet is gone and our guy is in. About $ACRG manufacturing and distributing $STZ beverages? Envision having to establish a bottling plant in each and every state for production. Until those regulatory hurdles get cleared and the law of the land is changed, that’s what would need to happen.
What about $STZ doing another re-price of $WEED’s optionality? It’s happened twice, and cost existing shareholders a good whack of equity, just by being there when $STZ decided it didn’t think $WEED what worth what it had agreed to pay for it. Hey, when you are the company, you can do what you want. Another re-price is off the table now – as Klein says they’ll let the young’un fend for themselves unless they save up their allowance:
Go get ’em kid. Given $WEED’s the vehicle for $ACRG ownership, you can probably spot the path forward, and that Klein’s that so open about it, he is probably feeling pretty good about it indeed.
Regarding Canada, I’d mused in December about $WEED’s presence in the market, and the paucity of relative ‘new’ product introduction in 2.0. Klein addresses the Canadian market in the interview, but for the most part….it looks like they don’t much give a shit about it from here on. They have all they need apparently:
I encourage the interested reader to reflect on the risk profile and exposure of $WEED one year ago……versus the $WEED that was presented this morning. Times could be changing, at least for the big outfits. Changes by Democrats have huge implications for Canopy at this point.
The whole interview is up sometime over the weekend.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $WEED, $ACRG, $TER, or $STZ
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