Cannabis Musings - June 12, 2024
GTI's mystery letter.
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If you’re like me, you were a bisel surprised by last week’s news that Green Thumb Industries sent a letter to Boston Beer Company suggesting a merger. It got a lot of press, understandably,
and we’ve talked since the beginning of Cannabis Musings about how there’s a natural synergy between the alcohol and cannabis industries (which is why the alcohol distributors are so keen on steering federal cannabis regulation, and why large alcohol companies are behind one of the more prominent cannabis policy trade groups). Boston Beer has itself started to wade into cannabis, having invested in a Canadian infused beverage company back in 2022. But, with all due respect to our friends at GTI, its proposal probably doesn’t really work. Yet. Es iz nisht geshtoygn un nisht gefloygn (“It didn’t climb up and it didn’t fly.”)
The two biggest hurdles to merging a publicly-traded alcohol company with a U.S.-based plant-touching company are Boston Beer’s stock exchange listing and alcohol licenses. In case you forgot, cannabis is federally illegal. So, why would Boston Beer put its NYSE listing, and its federal and state alcohol licenses, at risk in order to acquire a cannabis company? That’s a rhetorical question, because it almost certainly wouldn’t, despite what you may otherwise read. It’s (almost certainly) the same reason why Constellation, when it decided to enter the space in 2018, did so by investing US$4bn into Canadian LP Canopy Growth, which then went on to acquire U.S.-based Acreage, rather than directly investing into a U.S. plant-touching company. (You can still read the August 2018 deck outlining the investment thesis!). It’s also the same reason why alcohol companies (and others) haven’t already swept in and bought up the entire industry with their cheap capital (I’m being hyperbolic for effect, but only slightly).
But, wait, you may cry, what about rescheduling? Or SAFE(+R)? Nope and nope. Neither resolves the licensing issue, and there’s no assurance, or even likelihood, that the NYSE would change its tune about (not) listing cannabis companies.
Now, you may have noticed that I said that it probably doesn’t really work. Maybe there’s a structure out there already being devised by a savvy deal lawyer that gets Boston Beer economics in GTI without any “ownership” for regulatory purposes. That’s what Canopy did with Acreage, Johnson Brothers did with Humble & Fume, Pabst Brewing did with Pabst Labs, Scott’s Miracle-Gro did with RIV Capital, yada yada yada. Maybe Boston Beer buys an option from every GTI stockholder to acquire their shares, which is the original Canopy/Acreage structure. It’d be weird, but I suppose it’s theoretically possible, though they’d still need to be comfortable that the NYSE and the various alcohol licensing authorities don’t roll their eyes at it (not legal advice).
So, okay, if a GTI-Boston Beer merger isn’t practically feasible right now, why then did Ben Kovler, GTI’s CEO, send this letter? Damned if I know. I’m comfortable that it was for more than the lolz – the letter makes a serious business case. The stock market barely reacted to the news, as noted in Bengal Capital’s latest Bengal Bites (which also has some great analysis of the 280E refund strategy, which we’ve discussed, but they’ve run the numbers).
If I had to guess, I’d suggest the GTI letter was a very public attempt (through private channels) to set the narrative that this is a legitimate industry producing a consumer good enjoying a natural overlap with alcohol, and that, at some point, it’ll make sense and be feasible. All of these maneuvers - the GTI letter, the indirect investments into the industry, the lobbying presence - are strategic positioning for the future. It’s not going to be to everyone’s liking, but, to me, it’s inevitable, and the industry needs to be prepared for it. Post-legalization, we’ll see a shift in the cannabis marketplace into something that’s hourglass-shaped, and my hope and expectation is that there will be room for larger, multinational consumer companies, as well as small, independent operators, each serving a different customer base with different needs/wants.
Then again, I could be wrong, but then again, this is a free newsletter (unless, of course, you’re a paid subscriber, which you should totally be because then you get your questions answered).
Be seeing you!
© 2024 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.