Constellation Brands, which owns Corona and Svedka vodka, announced Wednesday it invested $4 billion in Canopy Growth, a publicly traded Canadian cannabis producer. The deal comes nearly 10 months after Constellation first took a 10 percent stake in Canopy to help create nonalcoholic cannabis-infused drinks and other products.
Constellation’s investment in Canopy, the biggest known deal in the marijuana industry, shows what alcoholic beverage companies are willing to do for growth. As beer sales fall in the United States, brewers have begun to bet legalization of marijuana around the globe and in the U.S., will gain momentum and sales of cannabis products will take off.
The research firm Euromonitor estimates the U.S. market for legal marijuana products will reach $20 billion by 2020, up from $5.4 billion in 2015.
While several states legalized recreational marijuana use recently, purchasing or possessing it remains a federal crime. Constellation said in November it does not plan to sell cannabis products in the United States while it remains illegal federally.
But as cannabis becomes legal in more countries — in Canada, recreational use will be legal Oct. 17 — alcoholic beverage companies are trying to buy into the cannabis industry before it disrupts them.
How concerned are beer companies? Molson Coors listed legal cannabis among the biggest possible risks to its business in its annual shareholder report earlier this year.
Heineken’s Lagunitas brand started selling nonalcoholic sparkling water featuring THC, the active component of marijuana. Molson Coors formed a joint venture with Hydropothecary, a weed producer, to make cannabis-infused beverages.
Under the terms of Wednesday’s deal, Constellation’s stake in Canopy will increase to 38 percent and Constellation can raise that to 50 percent.
“As the leader in the total beverage alcohol space, we look forward to reaping the benefits of our cannabis investment, which we see as incremental to our core beer, wine and spirits portfolio,” said Robert Sands, Constellation’s chief executive.
Such bold moves still face hurdles. The Justice Department under Attorney General Jeff Sessions has toughened its stance on marijuana-related crimes, making the future of cannabis regulation uncertain.
Then there is potential resistance from shareholders. While shares in Canopy were up nearly 30 percent as of Wednesday afternoon, at 41.68 Canadian dollars, those in Constellation were down 6 percent, at $208.15.