Dive Brief:
- Constellation Brands recorded a $1.1 billion writedown in the value of its investment in Canopy Growth, a cannabis producer it has a nearly 40% stake in, the company said in its second-quarter earnings call on Thursday.
- President and CEO Bill Newlands said while the result is “clearly disappointing,” Constellation remains upbeat that changes to Canopy’s business in Canada and the U.S. are positioning it for success.
- Despite betting $4 billion on cannabis’ growth potential, stalled federal legislation has prevented growth in the category that Constellation and other companies were hoping for, leaving the future of their investments in question. Advocates hope President Joe Biden could move forward with a path toward legalization.
Dive Insight:
While Constellation’s large investment in Canopy four years ago has proven to be ill-timed, there are signs of optimism in the cannabis sector.
Just hours after the Modelo and Corona brewer announced results for its second quarter, President Biden announced he would pardon all prior federal marijuana simple possession offenses. He also asked the heads of the Department of Health and Human Services and the Department of Justice to “review expeditiously” how the drug is classified under federal law.
The announcement stoked optimism that it could be the first step toward legalizing it nationally.
When asked by an investor on the earnings call how Constellation feels about the state of cannabis ahead of this year’s midterm elections, Newlands said he still feels hopeful about the chance of cannabis legislation passing. He said Canopy has an edge over other firms in the U.S. because of its acreage layouts, which sets them up to win in the future.
“We still believe that in the longer run brands are going to matter and I think they are positioning themselves to have the right brands that will matter over the long run here in the U.S.,” Newlands told analysts. “Everybody’s optimistic that we are going to start to see the legislation loosen up, although again being able to predict that” is difficult.
Constellation and Canopy’s partnership has led to some U.S. product launches in states that permit the consumption of CBD. Last October, enhanced water maker Karma launched its CBD Water it created in partnership with Canopy. And a few months earlier Canopy launched its CBD-infused Quatreau sparkling water brand in states that permit CBD consumption.
So far, 37 states and Washington, D.C. have approved marijuana for medical use, with 10 passing laws allowing the use of CBD with little to no THC, according to the National Conference of State Legislatures. The passage of the 2018 Farm Bill, which allowed hemp and its derivatives to no longer be classified as controlled substances, was a significant move for CBD, which can be sourced from this relative of the cannabis plant. However, it is still federally illegal to add cannabis and its derivatives to food and drink.
President Biden “has set into motion the actions needed to heal the harms of the past and chart a course for responsible, legal cannabis markets in the future,” David Culver, vice president of government relations Canopy, said in a statement to Food Dive.
