After months of debate between Canada's Senate and its House of Commons, and following years of promises from Prime Minister Justin Trudeau, our neighbor to the north stands on the verge of becoming the first industrialized country in the world to legalize recreational marijuana.
Subsequent to the passage of the Cannabis Act on June 19, Trudeau set a date of Oct. 17, 2018 as the official in-dispensary launch for adult-use weed sales. The four-month delay was to give provinces enough time to get their regulatory infrastructure in place, as well as allow growers and cannabis supply chains ample time to get their products into retail locations.
The legalization of recreational pot is expected to generate big bucks for the industry, and hopefully for enthusiastic investors, too. Already bringing in a few hundred million dollars annually from domestic medical marijuana sales and via exports to foreign countries where medical weed is legal, Canada's pot industry could add up to $5 billion in annual sales once it's fully up to scale. Those are eye-popping numbers that'll clearly make Canada the leader in pot progressivism.
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Sorry, folks, but these popular pot products won't be legal in Canada come October 17
Yet considering how aggressive Canada's lawmakers have been with marijuana, it's almost a head-scratcher that two very popular cannabis products won't be legal when the proverbial green flag waves on Oct. 17. While dried cannabis and cannabis oils have been given the green light for sale and consumption, Canadians and tourists looking for edibles containing cannabis, as well as cannabis-infused beverages, are going to be disappointed.
For the sake of simplicity, and given that lawmakers in Parliament already missed Trudeau's hopeful July 1 deadline to legalize, bill C-45, as the Cannabis Act also is known, addressed products that weren't contemplated in the bill with an amendment. Essentially, this amendment requires the Senate and House of Commons to address the Cannabis Act in the future for products like edibles and infused-beverages, which weren't included in the original bill.
When will that happen? While clearly nothing is set in stone, Parliament is expected to take up discussion on edibles and infused beverages sometime next year. If the two houses of Parliament can come to an agreement, both of these popular products could hit dispensary shelves at some point next year.
Of course, it's worth pointing out that a lot will depend on the supply-and-demand outlook within the domestic industry, as well as how successfully provinces are at regulating the weed industry on the front line. In other words, the more hiccups there are, the less likely Parliament will feel pressured to push through legislation on edibles and/or cannabis-infused beverages.
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Legal or not, big deals are brewing
However, the fact that it could be months, a year, or perhaps even longer before Parliament addresses edibles and infused beverages hasn't stopped the alcohol industry from making big cannabis deals. A little more than a week ago, Corona and Modelo beer-maker Constellation Brands (STZ 0.53%) turned heads when it made a $3.8 billion equity investment in Canopy Growth Corp. (CGC 20.65%), the largest marijuana stock by market cap.
This wasn't Constellation's first foray with Canopy Growth, either. In late October 2017, it acquired a 9.9% equity stake for roughly $190 million. Then in June, it gobbled up a third of Canopy's 600 million Canadian dollars (just over $450 million) convertible note offering. Convertible notes give the holder the option of turning their debt into shares of common stock.
By purchasing these convertible notes, Constellation Brands gave itself the opportunity to further build its equity stake in Canopy Growth. Plus, with the 139.7 million warrants Constellation received as part of its newest equity investment, it could eventually push its stake to over 50% if these warrants are exercised.
The duo should be working together on a number of projects, one of which likely will be cannabis-infused beverages. Canopy Growth obviously understands the ins and outs of pot production, while Constellation can bring its marketing and distribution expertise to the table to expand the reach of Canopy's products.
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In similar fashion, on August 1, Molson Coors Brewing (TAP 0.54%) announced that it had chosen the Hydropothecary Corporation (HEXO) as its cannabis partner. The selection was a bit of a surprise, as Hydropothecary may not even wind up as a top-10 producer once capacity expansion for the industry is complete. However, Hydropothecary does have one thing working in its favor: a 200,000-kilogram, five-year supply deal with Quebec. This deal may likely have shown Molson Coors Brewing that Hydropothecary was ready for the main stage.
With Molson Coors' Canadian and U.S. beer sales declining and its Canadian market share shrinking over the past decade, it's hoping that a joint venture with Hydropothecary (Molson will own 57.5% of the joint venture) focused on infused beverages will turn things around.
Beer makers are counting on the cannabis industry to make a difference in their top and bottom line. The big question is: How long will it take before that happens?
