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Drinks Seller Plays It Cool -- WSJ

6 Jan 2018 7:32 am
By Cara Lombardo 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 6, 2018).

Constellation Brands Inc. isn't worried beer sales will slow down in California now that recreational cannabis is legal, even as the Corona distributor develops cannabis-infused drinks that could launch in Canada by 2019.

There has been little consensus among beer-industry executives on whether marijuana legalization could cannibalize or conversely complement their sales. Constellation Chief Executive Rob Sands argued both sides of the debate on an earnings call Friday.

The law change in California, Constellation's biggest beer market, is a "nonevent" since marijuana has already been widely available there for medical use, he said.

But the beverage company is also investing in cannabis. Constellation last year spent about $191 million for a 9.9% stake in Canopy Growth Corp., a Canadian cannabis grower. Together they are developing nonalcoholic drinks, though they haven't said what the drinks might taste or look like.

"We don't have everything fully baked nor should we or would we at this point in time," Mr. Sands said.

Constellation expects the drinks to be legal in Canada beginning in 2019.

The company doesn't have plans to market any cannabis-infused drinks in the U.S. unless the drug becomes legal at the federal level. While more than 25 states currently allow it for medical or recreational purposes, federal policy has recently inched in the opposite direction.

Attorney General Jeff Sessions this week rescinded Obama-era measures that took a hands-off approach to enforcing federal marijuana laws, and President Donald Trump's administration has said federal law should be enforced.

Constellation's beer sales rose 7.8% in its latest quarter, with most of the gain continuing to come from the company's Mexican imports such as Corona and Modelo. But results in its wine and spirits business, which includes brands such as Svedka Vodka and Robert Mondavi wine, were weaker than expected. Comparable sales in that segment hardly moved.

Constellation shares, up more than 50% in the past year, fell 2.6% to $220 on Friday.

The Victor, N.Y., company plans to spend $35 million on the national launch of a lower-calorie Corona called Corona Premier, with advertising beginning in April. At the same time it will roll out a product called Corona Familiar in major Hispanic markets, a key demographic for the brand.

Constellation's profit for its fiscal third quarter ended Nov. 30 was $491.1 million, up from $405.9 million a year earlier. Net sales were flat at $1.8 billion and missed Wall Street's expectations. The company cautioned that wine and spirit volumes for the year would be at the low end of its previous forecast of a decline of 4% to 6%.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

January 06, 2018 02:32 ET (07:32 GMT)

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