Canopy Growth Corp: New Partnership Could Turn Canopy into Leading Global Pot Retailer

Canopy Growth Corp: New Partnership Could Turn Canopy into Leading Global Pot Retailer
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Canopy Growth Deal Could Open Global Retail Pot Market

Canopy Growth Corp (NYSE:CGC) reported stellar third-quarter results on February 14, setting the hearts of cannabis bulls aflutter. Since then, the company has given marijuana investors ever more reason to cheer.

Canopy Growth announced that it will be working with Alimentation Couche-Tard Inc (OTCMKTS:ANCTF, TSE:ATD), which has a global footprint of 16,000 convenience stores (including 7,800 in the U.S.), to launch a premium cannabis brand. This new strategic partnership could open the door to global cannabis stores and be a massive first-to-market win for Canopy Growth.

Canopy Growth Announces New Partnership with Couche-Tard

Canopy Growth recently announced that it had formed a new multi-year agreement with global convenience store giant Couche-Tard to open a store in London, Ontario, Canada.

The deal is a little confusing, but Canopy and Couche-Tard have entered into a license agreement to provide support for a “Tweed” cannabis store in London. (Source: “Alimentation Couche-Tard and Canopy Growth to Support Cannabis Retail in London, Ontario,” Canopy Growth Corp, February 21, 2019.)

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The owners of the weed shop will maintain ownership; Canopy and Couche-Tard will just provide their services to help the location. The near-term benefit for Canopy is that the store will sell Canopy Growth’s Tweed brand.

The store is expected to open in April 2019. Once it does, it will carry softgels, dried flower products, oils, and accessories.

April 1 is the first day that private stores will be allowed to sell weed in Ontario. Back in January, the province announced the names of the 25 lottery winners eligible to apply for a license to operate a brick-and-mortar pot shop.

The majority of the 25 lottery winners appear to be individuals, not corporations. Corporations probably won’t have a lot of difficulty opening a store, but it could be a tough go for an individual. (Source: “Expression of Interest in Lottery Selection Results,” Alcohol and Gaming Commission of Ontario, January 11, 2019.)

The January announcement also didn’t exactly give the lottery winners a lot of time to get their pot shops operational. Hence the importance of having the world’s largest weed company and a global convenience store juggernaut at the helm for this particular store owner.

Canopy Growth’s Tweed brand is already well known across Canada, with brick-and-mortar locations already generating sales in Saskatchewan, Manitoba, and Newfoundland and Labrador.

One Location and Counting?

On the surface, partnering with Couche-Tard to help open a single store in London may not sound all that scintillating. But it is. Or rather, it could be. Again, there are many restrictions around weed licenses in Ontario.

For example, under the Cannabis License Act, if a pot producer owns more than 9.9% of a company’s voting rights, it is considered to be an affiliate and is ineligible to get a license. (Source: “Cannabis Licence Act, 2018,” Government of Ontario, last accessed February 26, 2019.)

Canopy initially hoped to get a head start in the retail sector through its July 2018 acquisition of Hiku Brands Company Ltd., which owns Tokyo Smoke, a popular cannabis retailer. (Source: “Canopy Growth and Hiku Announce Closing of Acquisition,” Canopy Growth Corp, September 5, 2018.)

Naturally, Canopy was hoping it could open additional stores under the Tokyo Smoke brand. But under the current rules, it won’t be able to.

Canopy Growth can still sell its products, but it won’t be able to control the look of the store or the way its products are branded. Not exactly the revenue generator Canopy Growth was hoping for.

Canopy may not own a retail license or be able to invest in the pot stores directly, but it can have a major influence. “Helping” a retail license lottery winner open its pot store is a good way to get around these restrictions.

This agreement with Couche-Tard could open the door for Canopy Growth to operate on an international scale.

Again, Quebec-based Couche-Tard has a network of 16,000 stores in North America, Latin America, Europe, Asia, and the Middle East. Here in the U.S., you can find the company’s 7,800 convenience stores in every state except Nebraska and Utah. The stores operate primarily under the Corner Store, Circle K, Holiday, and Kangaroo Express banners.

Partnership Plans

Canopy Growth has not confirmed whether the London pot shop is a launching pad for additional stores in Ontario or whether the situation points to a larger partnership with Couche-Tard on a global scale. But it doesn’t take much to connect the dots.

You don’t send out a press release lauding the benefits of joining forces with one of the biggest convenience store operators on the planet just to brag about helping launch one pot shop that you have no direct ownership in.

And it’s not as if Couche-Tard is just testing the waters of the cannabis industry. Before recreational adult-use cannabis became legal in Canada in October 2018, management at Couche-Tard said they wanted to get into the pot industry.

Couche-Tard CEO Brian Hannasch said, “We’d rather be part of that solution, part of that journey than sit on the sidelines and wait too long.” (Source: “Convenience-Store Giant Couche-Tard Wants to Hop on Pot Wagon,” Bloomberg, September 20, 2018.)

Analyst Take

It’s fair to say that the Couche-Tard partnership is ground zero for Canopy Growth’s desire to dominate the global retail pot market.

Recreational adult-use cannabis is only nationally legal in Canada and Uruguay right now. But that will soon change. Other countries will inevitably legalize recreational marijuana too. And their laws may not be as restrictive as Ontario’s. Even if they are, the two companies will probably find a way around it.

Canopy Growth was the first cannabis company to go public and the first to hit a $1.0-billion market value, The company’s agreement with Couche-Tard has the potential to make it the first truly global cannabis retailer.