Harvard Case - Constellation Brands' Investment in Canopy Growth: Aiming High
"Constellation Brands' Investment in Canopy Growth: Aiming High" Harvard business case study is written by Stuart C. Gilson, Sarah L. Abbott. It deals with the challenges in the field of Finance. The case study is 31 page(s) long and it was first published on : Nov 16, 2019
At Fern Fort University, we recommend that Constellation Brands continue its investment in Canopy Growth, but with a more strategic focus on building a global cannabis empire. This should involve a combination of organic growth, strategic acquisitions, and a focus on expanding into new markets, particularly in the US where the cannabis market is rapidly growing.
2. Background
Constellation Brands, a leading beverage alcohol company, made a significant investment in Canopy Growth, a Canadian cannabis company, in 2017. This investment was driven by the belief that the cannabis market was poised for significant growth and that Constellation Brands could leverage its expertise in marketing, distribution, and brand building to capitalize on this opportunity.
The case study focuses on Constellation Brands' decision to invest in Canopy Growth, the challenges faced by the company, and the potential for future growth. The main protagonists are:
- Constellation Brands: A global beverage alcohol company with a strong portfolio of brands and a proven track record in marketing and distribution.
- Canopy Growth: A Canadian cannabis company with a leading market share in Canada and a global presence.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic alliances, financial analysis, and risk assessment.
Strategic Alliances:
- Synergies: Constellation Brands aimed to leverage its expertise in marketing, distribution, and brand building to help Canopy Growth expand its market reach and build stronger brands.
- Market Access: Constellation Brands hoped to gain access to the burgeoning cannabis market, which was expected to experience significant growth in the coming years.
- Competitive Advantage: The partnership aimed to give Constellation Brands a competitive advantage in the rapidly evolving beverage market by providing a potential entry point into non-alcoholic beverages and potentially creating new product categories.
Financial Analysis:
- Valuation: Constellation Brands' investment in Canopy Growth was based on a valuation of the company that took into account its potential for future growth.
- Cash Flow: The investment was expected to generate significant cash flow for Constellation Brands in the long term.
- Return on Investment (ROI): Constellation Brands needed to carefully assess the potential ROI on its investment in Canopy Growth, considering the risks and uncertainties associated with the cannabis industry.
Risk Assessment:
- Regulatory Uncertainty: The legal status of cannabis was uncertain in many countries, and this uncertainty posed a significant risk to the investment.
- Competition: The cannabis industry was highly competitive, with many players vying for market share.
- Consumer Acceptance: It was unclear how consumers would react to cannabis-infused beverages, and this uncertainty could impact the success of the partnership.
4. Recommendations
Constellation Brands should:
- Focus on US Expansion: The US cannabis market is expected to grow significantly in the coming years, and Constellation Brands should prioritize expanding Canopy Growth's presence in this market.
- Strategic Acquisitions: Constellation Brands should continue to make strategic acquisitions of cannabis companies with strong brands, innovative products, or a strong presence in key markets.
- Develop New Product Categories: Constellation Brands should work with Canopy Growth to develop new cannabis-infused beverages and other products that appeal to a wider range of consumers.
- Invest in Technology and Analytics: Constellation Brands should leverage technology and analytics to improve its understanding of the cannabis market, optimize its marketing and distribution strategies, and develop new products.
- Strengthen Brand Building: Constellation Brands should leverage its expertise in brand building to help Canopy Growth develop stronger brands that resonate with consumers.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Constellation Brands has a strong track record in marketing, distribution, and brand building, and these competencies are essential for success in the cannabis market.
- External Customers and Internal Clients: Constellation Brands needs to understand the needs of consumers in the cannabis market and develop products that meet those needs.
- Competitors: Constellation Brands needs to be aware of its competitors in the cannabis market and develop strategies to differentiate itself.
- Attractiveness - Quantitative Measures: The US cannabis market is expected to grow significantly in the coming years, and this growth presents a significant opportunity for Constellation Brands.
6. Conclusion
Constellation Brands' investment in Canopy Growth has the potential to be a highly successful venture. However, the company needs to take a strategic approach to its investment, focusing on building a global cannabis empire through organic growth, strategic acquisitions, and a focus on expanding into new markets. By doing so, Constellation Brands can capitalize on the growth potential of the cannabis market and create significant value for its shareholders.
7. Discussion
Other alternatives not selected include:
- Exiting the investment: This would have been a safe option, but it would have missed out on the potential for significant growth in the cannabis market.
- Maintaining a passive investment: This would have limited Constellation Brands' ability to influence Canopy Growth's strategy and create value for its shareholders.
The key assumptions underlying these recommendations are:
- The cannabis market will continue to grow in the coming years.
- Constellation Brands will be able to successfully navigate the regulatory challenges associated with the cannabis industry.
- Constellation Brands will be able to develop innovative products that appeal to a wide range of consumers.
8. Next Steps
Constellation Brands should:
- Develop a detailed strategic plan for its investment in Canopy Growth.
- Identify and prioritize key markets for expansion.
- Begin the process of acquiring cannabis companies with strong brands, innovative products, or a strong presence in key markets.
- Invest in technology and analytics to improve its understanding of the cannabis market.
- Work with Canopy Growth to develop new cannabis-infused beverages and other products.
- Develop a strong marketing and distribution strategy for its cannabis products.
Constellation Brands should monitor the progress of its investment in Canopy Growth and make adjustments to its strategy as needed. The company should also be prepared to address the risks and challenges associated with the cannabis industry.
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Case Description
In 2017, Constellation Brands, the U.S. based beverage company, acquired a 9.9% equity interest in the Canadian marijuana company, Canopy Growth. In 2018, Constellation announced a subsequent investment in Canopy-taking its ownership interest to 37%. However, Canopy's performance had been volatile and net losses had increased since the investment. In an effort to get into the cannabis market early, had Constellation Brands been too early?
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