The wait is nearly over. With literally hours remaining, Canada is set to lift the curtain on nine decades of recreational marijuana prohibition tomorrow. When licensed dispensaries open for business on Oct. 17, 2018, adults aged 18 or 19 (depending on the province) and older will be able to buy up to 30 grams of cannabis. This makes Canada the first industrialized country in the world to legalize adult-use weed.
As you might rightly imagine, investors can't wait for this legalization to take place. It's expected to usher in billions of dollars in added annual sales for the legal pot industry, as well as provide a boost to ancillary businesses operating in the background. But what might be the most remarkable aspect of Canada's historic move to wave the green flag on cannabis is that it has some of the world's most consumer-facing companies itching to get in on the action.
Image source: Walmart.
Rolling back prices, and rolling out cannabis products?
As reported by Bloomberg last week, the world's largest private employer with 2.2 million workers, Walmart (NYSE: WMT), is seriously tinkering with the idea of selling cannabidiol (CBD)-based products in Canada. CBD is the non-psychoactive cannabinoid of the cannabis plant that's best known for its perceived medical benefits. While Walmart isn't going to stock its shelves with dried cannabis products, it may aim to put CBD oils, capsules, and pills right alongside Tylenol in the first-aid aisles of its Canadian locations.
Should Walmart choose to move forward with its plan to stock CBD in its store or online, it would actually mark a natural progression for a company that, according to Marijuana Business Daily, already sells hemp oil products online. Hemp plants contains minute amounts of tetrahydrocannabinol (THC), the cannabinoid that gets a user "high," but is rich in CBD. Adding CBD products even to its online assortment could allow Walmart yet another dangling carrot to keep consumers within its retail sphere.
Of course, there's nothing laid in concrete as of yet. In an email to Hemp Industry Daily, Walmart Canada spokeswoman Anika Malik said, "As we would for any new industry, Walmart Canada has done some preliminary fact-finding on this issue. But we do not have plans to carry CBD products at this time."
That could change once the curtain is lifted on prohibition and the demand for recreational and medical products becomes apparent in Canada. Though estimates vary, Wall Street seems to believe this legalization could net up to $5 billion in added annual sales for the industry.
Image source: Getty Images.
Walmart isn't alone
Then again, Walmart isn't the only brand-name giant contemplating a move into cannabis.
Last month, Coca-Cola (NYSE: KO) supposedly stirred the pot (cue laughter) by engaging in discussions with Aurora Cannabis (NASDAQOTH: ACBFF) about a possible investment or product partnership. Aurora Cannabis has previously demonstrated interest in jumping into the cannabis-infused beverage space, while Coca-Cola has recently shown interest in the potential for CBD-infused products. In essence, Coca-Cola would bring its deep pockets, scale, branding, and marketing genius to any investment or joint venture, while Aurora Cannabis would lean on its superior production potential (570,000 kilograms-plus per year at its peak) and weed industry knowledge. It's worth noting that most cannabis alternatives (including CBD-infused beverages) won't be legal tomorrow, but they're expected to be legalized next year.
Prior to Coca-Cola, it was Modelo and Corona beer maker Constellation Brands (NYSE: STZ) announcing a $3.8 billion equity stake in Canopy Growth Corp. (NYSE: CGC). This investment, announced on Aug. 15, actually marked the third time Constellation had taken a stake in Canopy Growth. It had previously acquired a 9.9% equity stake for about $190 million in October 2017, and purchased a third of a 600 million Canadian dollar convertible note offering in June. This partnership is particularly unique in that Constellation will own a 38% stake in Canopy Growth when the deal is finalized. The duo will not only be working on infused beverages, but also complementing their core strengths. For Constellation, that would be branding and international expansion, whereas for Canopy Growth it would be its existing scale and well-known brands.
And then there's the joint venture announced on Aug. 1 between Molson Coors Brewing Co. and HEXO Corp., which was formerly known as Hydropothecary. This joint venture, of which Molson Coors Canada has a 57.5% stake, will feature a collaboration between the two companies to create infused beverages, once they're legal. HEXO was an odd, but interesting choice, given that it's only a fringe top-10 grower in terms of peak production.
Image source: Getty Images.
Expect more brand-name companies to take the plunge
Even if Walmart and Coca-Cola decide to keep their distance for the time being, don't expect their inaction to slow interest in the cannabis space. In particular, the marijuana industry could be a spark for sluggish sales growth in the beverage, tobacco, and pharmaceutical industries.
For example, spirits giant Diageo has been rumored to be looking for an infused beverage partner. Even though Diageo has been able to buck some of the general weakness in alcohol sales relative to, say, Molson Coors, there's the growing threat that pot products could steal sales away from alcohol companies in select markets. Diageo, and other alcohol companies, may be wise to partner with pot stocks rather than see minimal sales growth turn lower.
Big pharma is another logical partner, especially with another possible patent cliff looming within a few years. Although brand-name drugs have exceptionally high margins, they unfortunately have a relatively short time period where they're protected from generic competition. Big pharma could look to bolster their over-the-counter product lines with CBD medicines, or simply aim to broaden their portfolios to include cannabinoid-based drugs.
The era of legal cannabis is basically here, and brand-name companies are really starting to take notice.
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