Diageo Plc (NYSE:DEO) is rumored to be “pursuing a deal with a Canadian cannabis firm, holding serious discussions with at least three major producers as the world’s biggest alcohol company seeks to add marijuana-infused beverages.”
Together with its subsidiaries, U.K.-based Diageo produces, markets, and sells its iconic portfolio of alcohol brands including Smirnoff, Cîroc, Ketel One, Johnnie Walker, Crown Royal, Bulleit, Tanqueray, Guinness and more. With all of these major alcohol brands combined, Diageo is one of the largest alcohol companies in the whole world.
If Diageo does in fact enter the cannabis space, it would mark the fourth major alcohol company to do so.
Booze and Bud
It all started back in fall of 2017 when Constellation Brands Inc. (NYSE:STZ) (NYSE:STZ.B) invested $245 million CAD in Canopy Growth Corp. (NYSE:CGC) (TSX:WEED) in exchange for 9.9% equity in the company.
In a small way, we then saw Heineken N.V. (OTC:HEINY) enter the cannabis space back in June when its California-based subsidiary, Lagunitas Brewing Company, launched a line of cannabinoid-infused sparkling waters called Hi-Fi Hops.
Then, on August 1st, the Canadian unit of Molson Coors (NYSE:TAP) announced a joint venture with Hydropothecary Corp. (TSX:HEXO) (OTC:HYYDF).
Most recently, Constellation Brands Inc. announced that it will invest the equivalent of roughly $3.8 billion USD to increase its existing stake in Canopy Growth, marking the largest deal so far in the legal cannabis industry.
Industry Experts Disagree
When it comes to alcohol experts, it’s not just Constellation Brands CEO Rob Sands that thinks the marijuana industry is about to explode. Bar Rescue host and and Taffer Dynamics CEO Jon Taffer agrees, citing a major opportunity for spirits and hospitality companies in the cannabis industry.
On the other hand, there are some major players that aren’t as wowed.
Anheuser-Busch InBev (NYSE:BUD) CEO Carlos Brito says “for now, we don’t feel we need to do anything.” Meanwhile, Aphria Inc. (TSX:APH) (OTC:APHQF) (FRA:10E) CEO Vic Neufeld said he doesn’t think Molson’s involvements is nearly as “transformational” as expected.
When it comes to the push and pull phenomenon between these two industries, I usually defer to Vivien Azer, managing director and senior research analyst specializing in the beverage, tobacco, and cannabis sectors at Cowen (NASDAQ:COWN).
Not only is she rated #98 out of 4,863 wall street analysts in terms of accuracy and average return, but she has the unique positioning to see these competing industries from 1,000 feet up.
As far as Vivien Azer and her team at Cowen are concerned, the cannabis market is expected to generate $75B in worldwide sales by 2030, which would put a huge dent in binge drinking.
This thesis is reflected in Azer’s price targets, as we’ve seen a handful of cannabis-related companies receive buy-ratings and upgrades while a handful of alcohol companies have been downgraded or moved to a ‘hold’ in recent months.
Regardless of what the naysayers think, a Diageo deal would be a major milestone for the marijuana industry. With over £874,000,000 GBP in cash on the balance sheet, equivalent to approximately $1,123,382,790 USD, Diageo certainly has a large enough treasury to make a splash.
It is impossible to guess which Canadian cannabis companies they’re in chats with, but we’ll be watching the situation closely. In the meantime, be sure to subscribe to Cannabis Stock Updates here so you never miss an important update.
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