Constellation Brands Inc. — the company behind Corona beer — will invest nearly $200 million for a 9.9 percent stake in Canopy Growth Corporation, a publicly traded Canadian cannabis company, plus the right to acquire a greater ownership interest over the next 30 months. In addition to the Corona brand, Constellation sells a variety of beer, wine and spirits. The business reasons for the investment appear to be twofold. First, the U.S. market for beer in states with adult-use cannabis laws are experiencing declining sales while cannabis sales are increasing. Second, Constellation Brands Inc. notes the potential to develop cannabis-infused drinks.
Our colleague and HoochLaw blogger, Brian DeFoe, paints a dismal picture for non-craft beer sales in states that regulate adult-use cannabis:
“Beer sales in Colorado, Oregon and Washington (three states with laws permitting adult-use cannabis) fell by 4.4% from January 2015 through December 2016. Correlation does not necessarily equal causation, however. And overall trends for beer were pretty dreadful during most of that time — with sales in the category down 1.5% (or 2.8% if you exclude the craft beer segment) during 2016.”
The press release issued by Canopy Growth Corporation ignores the product diversification issue, but highlights the potential benefits of Constellation’s branding and marketing teams:
“The strategic relationship will see Constellation provide broad support in the areas of consumer analytics, market trending, marketing and brand development to Canopy Growth. In addition, the Companies will collaborate to develop and market cannabis-based beverages that can be marketed as adult-use products in markets where and when such products are federally legal.”
This suggests that we will not see THC-infused Corona until we deschedule cannabis in the U.S. However, Canada may provide a significant test market in the interim. While Constellation and Canopy Growth test the Canadian waters, it is worth noting that state regulated adult-use markets are not chomping at the bit for alcohol-infused cannabis products given the federal control over alcohol by the Alcohol and Tobacco Tax and Trade Bureau (TTB).
Ethanol is commonly used to chemically separate THC and other cannabinoids from cannabis flower and other plant material. Oregon permits the use of ethanol in the separation process, but requires its removal before sale as a cannabis product. Further, ORS 471.446(2) provides the OLCC with the authority to prevent the sale of alcohol containing adulterated ingredients. Washington and Colorado similarly prohibit the sale of THC-infused alcohol. Therefore, we should expect to see U.S. based investment in ethanol based extraction techniques, but zero alcohol-infused products until we see change at the federal level. Until then, the bulk of product development should occur outside the U.S.
The notable exception is CBD-infused alcohol containing hemp-derived CBD. The TTB has approved CBD-infused formulas, but recent guidance from the DEA suggests conflict between the federal agencies. The continued availability of CBD-infused alcoholic beverages is uncertain. For better or worse, the U.S. is unlikely to be at the forefront of cannabis-infused alcoholic beverages.