Canadian Cannabis giants Canopy Growth, Aphria looking to US market – Business Insider

A team member of Aurora Cannabis works in the grow room at Aurora Sky cannabis growing greenhouse in Alberta, Canada, in this 2018 handout image. Alberta Cannabis Inc/Handout via REUTERS

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  • Canadian cannabis companies are looking to the US, especially after cannabis swept last Tuesday’s election.
  • Three of Canada’s largest cannabis companies, Canopy Growth, Tilray, and Aurora Cannabis, reported earnings on Monday. The US election was a big topic of discussion.
  • Canopy Growth and Aphria have developed clever strategies to advertise their brands in the US, despite the fact that marijuana is federally illegal.
  • Subscribe to Insider Cannabis for more stories like this.

Cannabis giants are developing plans to dominate the lucrative US marijuana market — even though they probably won’t be able to enter it for some time, analysts and experts say.

Two of the biggest Canadian cannabis companies, Canopy Growth and Aphria are using deals and partnerships to gain a foothold in the US.

These moves come as five states, including New Jersey and Arizona, voted to legalize marijuana during last week’s election. Cannabis firms are betting that President-elect Joe Biden and Vice President-elect Kamala Harris will be friendlier to the industry than President Donald Trump, as the Biden campaign has pledged to decriminalize marijuana.

Read more: The ultimate guide to marijuana legalization: Here are all the states that passed cannabis reform, the key dates to know, and which stocks could benefit the most.

Adding to the optimism, the Democratic-led House of Representatives is set to vote in December on the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which would federally decriminalize cannabis and expunge the records of those convicted for cannabis-related crimes, per a memo from House Majority Leader Steny Hoyer. The MORE Act, however, is likely a non-starter in the Republican-controlled Senate. 

Canopy Growth is planning to sell THC-infused beverages in California and Illinois via a partnership with US cannabis company Acreage Holdings. Canopy has a deal to acquire Acreage as soon as it’s “federally permissible” in the US to do so. Aphria, for its part, paid $300 million to acquire Atlanta-based SweetWater Brewing Company, a craft brewer known for its 420 Extra Pale Ale.

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Democratic presidential nominee Joe Biden and his running mate Sen. Kamala Harris (D-CA) arrive to deliver remarks at the Alexis Dupont High School on August 12, 2020 in Wilmington, Delaware. Drew Angerer/Getty Images

‘Legal marijuana is becoming the American norm’

“Legal marijuana is becoming the American norm,” Canopy’s CEO, David Klein, said on the company’s earnings call Monday morning. His comments were echoed by his competition, including the CEOs of Tilray and Aurora Cannabis, which also reported earnings on Monday. 

“The case for federal legalization and cannabis reform emerges stronger from this election,” Tilray CEO Brendan Kennedy said on his firm’s earnings call. “We now believe that it is only a matter of time.” 

Aurora Cannabis CEO Miguel Martin said on a Monday earnings call that because of his company’s experience with Canada and in getting into new markets like Poland and Germany, it’ll be prepared to jump into the US and might even have an advantage over US counterparts.

“That is muscle memory that you can’t replicate quickly,” Martin said. “Those companies that have acted responsibly in a compliance-driven manner in Canada clearly are going to have an advantage when that construct presents itself.” 

Martin said that the state-level votes were “very positive news.”

“We see both in the U.S. and globally and increasing sort of openness towards THC bearing cannabinoids and that bodes well for a company like Aurora,” he added. 

Cannabis

A worker checks cannabis plants inside the Tilray factory hothouse in Cantanhede, Portugal April 24, 2019. REUTERS/Rafael Marchante

Cannabis companies are focusing their lobbying efforts on the MORE Act 

In an interview with Business Insider, Klein said that in his view, “some variant” of the MORE Act is most likely to pass Congress, as opposed to other competing pieces of cannabis legislation.

Politico reported in October that cannabis industry lobbying groups had shifted focus to the MORE Act over competing legislation. Vice President-elect Kamala Harris introduced a version of the MORE Act in the Senate. 

Klein said Canopy’s lobbying efforts — along with those of Constellation Brands and Acreage Holdings — will be focused on the MORE Act. 

“It’s the industry, it’s us, it’s Constellation, it’s some other CPG [consumer packaged goods] players, it’s some banks, who all have an interest in getting some legislation to change,” Klein said.

Read more: Here’s why a Biden administration will be good for the US cannabis industry, even though it’s unlikely he’ll legalize marijuana federally

Jordan Sinclair, a VP of communications at Canopy Growth, said that lobbying is one of the key things Canopy can do with Acreage before integrating the two businesses.

To get the MORE Act passed will be an uphill battle if Republicans maintain control of the Senate, Cowen analyst Vivien Azer said in a note, meaning that Canopy Growth probably won’t be able to enter the US.

Klein conceded that “some negotiation” will have to happen between the House, Senate, and the White House to get the MORE Act passed. 

“It’s going to have to include some social justice wording to get the president’s signature,” he said.

Despite these clear challenges with passing cannabis-friendly legislation, cannabis stocks went haywire after media outlets began declaring Biden’s victory.

Aurora Cannabis’ stock shot up over 90% on Friday, only to fall 25% on Tuesday. Azer, the Cowen analyst, said the markets are “misunderstanding” Biden’s win and the state-level votes.

“The federal backdrop does not provide a pathway to a near-term catalyst for Canadian entry into the US THC market,” she wrote. 

The US's cannabis market is projected to hit $100 billion in 2030

Sawyer Click/Business Insider

Canadian cannabis giants like Canopy Growth and Aphria are figuring out clever ways to advertise their brands in the US even though marijuana is federally illegal

The US is set to become a $100 billion cannabis market by 2030, per Cowen, up from about $61 billion this year. Canadian cannabis companies are finding creative ways to shop their brands to US consumers so they can hit the ground running as soon as they are able.

“Arguably Canopy’s numbers today were irrelevant,” analysts from the investment bank Jefferies wrote in a Monday note. “Where there is likely much focus and excitement is the positive updates around US legislation coming out of the US election.” 

Canopy, they say, is the best positioned out of all the Canadian cannabis companies because of its ability to take over Acreage as soon as there is federal permissibility to do so. 

That’s a deal that can be closed within 60 days, Klein said. Canopy is also an investor in TerrAscend, a cannabis company with significant assets in New Jersey.

Already, Klein said Canopy is marketing its Tweed brand of cannabis products in legal states through Acreage. “We’re going to see more and more the whole behavior of us bringing our intellectual property to the US,” Klein said.

On top of that, Canopy Growth has a partnership with Martha Stewart to sell a line of CBD gummies in the US, with flavors like kumquat and blood orange. 

Read more: 9 top cannabis execs break down what marijuana’s election sweep means for their companies and the industry’s future in the US

Similar to Canopy Growth’s partnership with Acreage, Aphria CEO Irwin Simon said owning SweetWater Brewing is a way for Aphria to get its brands in front of customers ahead of legalization.

He says he’ll sell Aphria’s proprietary drink formulations — without the THC — under SweetWater’s 420 brand to consumers in legal states.

Once it’s federally permissible, Simon said Aphria will be able to quickly flip the switch.

“My ultimate goal is selling THC soda water in the US under the 420 brand,” Simon said. “I think the next big drink is THC club soda that millennials will drink. And I want to be ready to pounce on that, if and when that happens.”

Plus, he’ll be able to plug Aphria’s drinks into SweetWater’s existing bottling and distribution facilities, something he says will give him a leg up on his competitors.

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