FOR THE INVESTOR

by Alicia Wallace, CNN Business

Updated 9:50 AM ET, Fri November 8, 2019

San Francisco (CNN Business)Cannabis, so hot right now.

The burgeoning North American cannabis industry — and, notably, the booming hemp-derived CBD sector — has become a red-carpet-like affair with celebrities and athletes signing on to pitch one brand or another.

On Thursday, Aubrey Drake Graham, best known as hip-hop artist Drake, partnered with Canadian cannabis giant Canopy Growth to launch the More Life Growth Company cannabis producer in Graham’s hometown of Toronto.

Drake joins a surging wave of celebrities who have aligned themselves with the cannabis industry by selling products, joining corporate boards, or, in this case, creating a joint venture business.

With a list that already includes Jay-Z, Snoop Dogg, Willie Nelson, Montel Williams, Rob Gronkowski, Martha Stewart, Tony Hawk, Gweneth Paltrow, and Whoopi Goldberg, the question becomes: Have we reached peak celebrity cannabis?

“I don’t think they’ve reached full saturation yet,” said Ryan McConnell, senior vice president at Kantar, a business insight and brand consulting firm.

Celebrity endorsements and partnerships are a way to help lend credibility and trust to a business, he said. And for an emerging — and somewhat illicit — industry, that can be huge.

“[Cannabis] is a field that is not, in some people’s eyes, legitimate yet,” he said. “It still has that veneer of being illegal.”

But not all celebrity tie-ups are created equal. People are attracted to brands that are real and authentic, said Diana Eberlein, an entertainment marketing specialist.

“If it feels inauthentic, they will lose that audience very quickly,” said Eberlein, who now heads up marketing efforts at SoRSE, a company that helps make cannabis oil water soluble. SoRSE worked with Mad Tasty, a brand of hemp sparkling waters launched by OneRepublic lead singer Ryan Tedder.

Canopy Growth’s other celebrity partnerships [ under the leadership of Bruce Linton ], have struck that chord well, she said. It made perfect sense that Snoop Dogg, actor Seth Rogen and even Snoop’s pal Martha Stewart,  were venturing into the cannabis industry.

Drake, while hugely popular, doesn’t garner that immediate association with cannabis, she said.

“But Drake is such a big name,” she said. “So, it really depends on how he drives the brand moving forward.”

Drake’s arrangement with Canopy Growth does stand apart from most of the celebrity cannabis deals, which are largely endorsements, minority investments or advisory roles. According to Cassels, a law firm that represents Canopy, Drake is the majority owner of a company that has a license from Health Canada, which oversees the nation’s regulated cannabis market.

Under the agreement, Drake will own 60% of More Life Growth Company while Canopy Growth will retain the other 40% and have the ability to “exclusively exploit certain intellectual property” in Canada and internationally.

For Canopy Growth, which has become a bit of a poster child for the publicly traded cannabis companies in operational and financial flux, the deal underwhelmed at least one analyst who follows the company.

“We take a relatively dim view of the venture’s Canadian prospects in justifying the implied value ceded by Canopy,” Andrew Carter, an analyst with brokerage and investment banking firm Stifel, said in a research note on Thursday. “Canadian cannabis brand development is difficult with restrictions specifically prohibiting utilizing celebrity names, and we believe Canopy is ceding a cash flow positive asset.”

When viewing the deal long-term, however, it could play out well for Canopy.

“But, we believe Canopy is creating another option to enhance its positioning for the US,” Carter wrote. “Canopy’s continued investment towards the larger global opportunity is a differentiating factor versus peers pursuing actions to ensure viability.”

Source: CNN Business