After Constellation Brands Inc. (NYSE: STZ)’s massive investment in Canopy Growth Corp. (NYSE: CGC), Benzinga spoke with Alan Brochstein, founding partner of New Cannabis Ventures, about future dealmaking in the industry.
Brochstein told the hosts of Benzinga's PreMarket Prep show that he considers Constellation's $4-billion investment in Canopy Growth a "green swan event" — the weed equivalent of a black swan.
“For those who want a very simple way to look at it, Constellation dipped their toes into the water with a very specific goal to develop a cannabis beverage and through the relationships’ development over the last several months, the company got a lot more comfortable with Canopy Growth and the global opportunities it had,” Brochstein said.
“So I would say it's a lot more than a toe in the water now with $3.8 billion and the ability to put more money into the company.”
Brochstein considered three sectors that might follow Constellation's lead.
“I don't know about the tobacco area so much,” Brochstein said. “They have distribution, it's not really a substitution, but it's a business where people know what they’re doing in terms of distribution and you’d think that they could maybe migrate some of that into the space.”
Brochstein quickly referenced tobacco company Alliance One International, and its “relatively minor” limited partnership with companies like Criticality (an industrial hemp company), Canada’s Island Garden and Goldleaf Pharm. Alliance One’s acquisitions included significant equity in each cannabis company.
Despite limited exposure otherwise, Brochstein said he would not rule out more tobacco-marijuana tie-ups.
The alcohol industry has the opportunity to play offense or defense in the cannabis market, Brochstein said. A defensive position is more valauble, since alcohol growth is declining and threatened by cannabis, he said.
“So a company would need to play defense, they need to make sure they’re going to be prepared for that shift, as cannabis becomes more frequently legal across the world and as the product set develops ... it can be a pure substitute. Certainly we’ll see more of that."
Brochstein told Benzinga that Molson Coors Brewing Co. (NYSE: TAP) has been working on the development of a cannabis beverage.
The pharmaceutical industry has the biggest cannabis opportunity, Brochstein said.
Patients often critique the costs and the side effects of drugs, and spending in the sector is colossal, he said.
“As cannabis becomes more legal and more studied, we will see pharmaceutical companies enter the space. Among these Canadian LP’s, several of them are running clinical trials right now and these trials are going to open the door to insurance coverage for health patients in Canada. The number of health patients is 300,000-plus and is growing rapidly."
The European market has rapidly migrated toward medical cannabis that is covered by insurance and distributed in pharmacies, he said.
“It is really an awesome system and I think these companies are doing these clinical trials to make health claims for their products and get insurance coverage,” Brochstein said.
Pharma companies should consider buying licensed cannabis producers in order to enter the research game and generate positive cash flow, he said.
"It is very exciting to see a major global brand step up and bet on cannabis.”
Check out more industry news from the Cannabis Capital Conference here.
Listen to the full interview with Brochstein at 14:20 in the clip below.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.
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