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Canopy Growth CEO says new data on cannabis beverages show they can be bigger than hard seltzer

Zack Guzman
Senior Writer

The world’s largest cannabis company Canopy Growth (CGC) saw shares fall another 5% Monday after cratering 20% following Friday’s fourth-quarter results, which disappointed against even its own revenue guidance.

Analysts at Stifel Nicolaus cut Canopy to a Sell rating while Morningstar maintained its “No moat” rating on the Ontario-based cannabis giant, indicating an unlikely differentiation from an already struggling cannabis sector, while conceding there remains long-term upside potential if the company can convert customers from the illegal black market.

Canopy Growth CEO David Klein focused on that opportunity in a recent Yahoo Finance Presents interview, noting that company’s recently launched cannabis beverages were off to a hot start. The company, which is backed by alcohol giant Constellation Brands, (STZ) is betting its new cannabis-infused beverages can grow to dwarf even the exploding hard seltzer industry by offering an even healthier alternative to beer.

“The drinks that we have in the marketplace are really good,” Klein said. “When we survey consumers who have tried them, over 75% of those consumers say that they would repurchase the product again, which is a very high repurchase rate.”

The beverages, Tweed Houndstooth & Soda and Tweed Bakerstreet & Ginger, shipped in March and April, respectively, to become the first cannabis-infused beverages on the market from a major cannabis producer. As Klein noted, they are quickly becoming a more important makeup of revenue for the company in its current quarter, but could stand to become a major revenue source if the company can recreate the brand magic that made Constellation Brands famous by turning its imported Modelo and Corona beer brands into international powerhouses.

Noting the shift in consumer tastes away from beer toward lower-calorie spirits and hard seltzers, Klein is optimistic its zero-calorie cannabis beverages can eventually be an even more attractive alternative.

“Interestingly, 20% of those people who say they would purchase [our drinks] again say that they would use it to replace an alcohol occasion,” he said. “And so the way I'm looking at it is that our drinks are better than seltzer because we can make them taste really good, we can have zero calories, zero carbs, and a good [psychoactive] effect that we can actually dial in based upon what the consumer wants to experience.”

Due to current law, Canopy is limited to testing new products in Canada with hopes of eventually introducing them to the U.S. when it becomes legal through the American cannabis company it’s obligated to purchase Acreage Holdings.

“Acreage has the right to bring our products to the U.S. as they see fit,” Klein said. “So we have the ability to develop amazing products, and then Acreage brings them to the U.S.”

The timeline for that expansion and its deal with Acreage to be finalized remains tied to cannabis becoming federally permissible. As analysts have noted, Democrats on the margin have been more quick to embrace cannabis reform and the timeline for reaching federal legalization could accelerate with a blue wave in the 2020 election.

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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