31 Oct Cannabis Deal Sizes “Growing”

Two big announcements this week on the finance side of the emerging global cannabis industry. First, yesterday’s word that the giant alcohol company, Constellation Brands, the maker of Corona Beer among others, is acquiring a stake in Canada’s Canopy Growth Corporation. Canopy is possibly the biggest medical cannabis producer in Canada and is a public company. The terms? $245 million for a 9.9% ownership interest. Established industries like tobacco, alcohol and pharma have stayed away from investing in US cannabis companies since it is still a federal crime to produce or sell cannabis. But the Constellation investment is into a totally legal enterprise in Canada.

Separately, this week we also learned that a large US operator of cultivation and dispensary facilities in the US announced it is seeking to raise a $250 million investment fund for buying into cannabis companies in several US states. While tremendous capital has flown into the cannabis industry, it has come principally from high net worth individuals and family offices. Established venture and private equity funds generally are prohibited from investing in illegal enterprises. Several funds have been established for cannabis investment, but none known to be as big as this one is planned to be.

One can only imagine the deluge of capital that will descend on US cannabis businesses if/when the US federal criminal restrictions are eliminated. We have already seen it happening in Canada, mostly driven by a group of very active investment banking firms. Once the shackles of the federal restrictions are removed, it appears the growth trajectory of this toddler US industry will expand exponentially.