5 Disruptors to Watch in the Food Industry: Canopy Growth

This article is part of a series on Disruptors to Watch in the Food Industry. You can read the full series, starting here

Probably the biggest disruptor in the food and beverage industry, and one that’s moving up the calendar with each passing day, is the potential of cannabis ingredients. And the leader in this space is Canopy Growth Corp.

“I operate the biggest legal producer of cannabis on the planet” – that was Bruce Linton’s opening remark to a financial analysts meeting in February. Not long ago, a statement like that would get you arrested. Now it gets you investors, and ones that plunk down cash, not Bitcoins.

If you think cannabis is the biggest thing since Prohibition, Canopy Growth is the company you want to own a piece of. Just ask U.S. alcohol company Constellation Brands (more on that in a moment). On the other hand, if you think those predicting a billion-dollar market are smoking something, Canopy Growth could be the next AOL.

Linton was founder, chairman and co-CEO (until July 3) of Canopy Growth, operating from a former Hershey chocolate factory in tiny Smiths Falls, Ontario (population 8,978). It started life as Tweed Marijuana Inc. in 2013, when marijuana in Canada was only legal for medical use. As country-wide legalization became more likely (which occurred Oct. 17, 2018), Linton positioned the company well and renamed it Canopy Growth in 2015.

On July 3, Canopy Growth Corp., apparently the world's largest (legal) cannabis company, said Bruce Linton – founder, chairman and co-CEO – is stepping down. Read the news report

Canopy Growth has been listed on the Toronto Stock Exchange (as Tweed) since 2010 and joined the New York Stock Exchange in May of 2018. It’s growing more than marijuana plants; after a couple of timely acquisitions, it’s the world’s largest cannabis company, based on market capitalization (currently US$14 billion).

Biggest in sales, too, although the actual numbers pale in comparison to the hype. Its fiscal 2019 just closed on March 31, with revenues coming in at C$253 million (all these figures are in Canadian dollars, one of which currently is worth about 75 cents U.S.). That’s more than triple the FY2018 figure, which itself was double the 2017 figure (C$78 million). Growing even faster are the annual losses: $670 million in FY19, $53 million in FY18 and $14 million in FY17.

It apparently went public in 2010 at 75 cents a share, sunk to 3 cents in early 2013, but since the beginning of this year has been swinging between about $50-60 a share. Those are all Canadian dollars – Canopy’s June 24 stock price of C$53.53 per share is US40.57 on NYSE.

The legalization of marijuana in Canada and potential for the same in the U.S. “is an opportunity unheard of in our lifetime,” Bill Newlands, CEO of Constellation Brands, said at the same financial analysts meeting. The U.S. marketer of such old-school “relaxation” products as Corona beer, Mondavi wines and Svedka vodka is the biggest investor in Canopy Growth. Constellation already has sunk $4 billion into the Canadian company, and if all warrants are exercised will own 50 percent of Canopy Growth.

Jim Cramer, host of the TV investment show “Mad Money,” recently said: “If you’re Big Alcohol and you don’t get a piece of legalization, legalization is going to take a piece of you.”

Constellation so far is the lone beverage company investing in Canopy Growth, but is not alone in buying into what could displace a significant share of their sales. Molson Coors created a joint venture with Hydropothecary Corp. Anheuser-Busch InBev has some kind of a partnership with Tilray. Diageo reportedly has been investigating.

Legalization of marijuana and its derivatives occurred last October in Canada, and in June the Government of Canada published regulations on how marijuana edibles and cannabis-infused products are to be produced and distributed across Canada (see p11). Those products are expected to be available across that country by the end of this year. To the dismay of some, mixing cannabis into alcoholic products is prohibited, but there will be plenty of other opportunities for Constellation, Molson Coors, Budweiser and others.