Canadian Pot Stocks Jump After Diageo Reported Discussing Deal

(Bloomberg) -- Marijuana stocks including Aurora Cannabis Inc. jumped in Toronto after BNN Bloomberg TV reported Diageo Plc is holding discussions with at least three Canadian cannabis producers about a possible deal.

The U.K. spirits maker has met companies in the past month as it considers a possible investment or alliance to make cannabis-infused beverages, the Canadian television station said on its website, citing people close to the situation who it didn’t identify. One executive told BNN a deal may take months, while another said a deal may be close.

“We never comment on speculation,” a Diageo spokeswoman said in an email. “As we’ve said before, we are monitoring this space closely.”

Canada’s legalization of recreational pot, which begins in October, has attracted broad interest from the drinks industry. This month, Constellation Brands Inc. announced it’ll spend $3.8 billion to increase its stake in Canopy Growth Corp., the biggest deal in the burgeoning marijuana industry yet. Molson Coors Brewing Co. is starting a joint venture with Hydropothecary Corp. to develop cannabis drinks in Canada.

Leamington, Ontario-based Aphria Inc. rose 6.8 percent to C$12.20 at 9:59 a.m. in Toronto, Aurora Cannabis gained 3.6 percent to C$8.32 and Canopy surged 7.2 percent, taking its gains to six days, the longest winning streak since November, 2016. That helped drive the BI Canada Cannabis Competitive Peers index up as much as 2.8 percent to the highest in more than six weeks.

‘Incredible Potential’

Aphria’s chief commercial officer, Jakob Ripshtein, was formerly chief financial officer of Diageo North America and former president of Diageo Canada Inc.

Aurora, the second-largest cannabis company by market value after Canopy, said it intends to enter the infused-beverage market.

“There is so much happening in this area right now and we think it has incredible potential,” Aurora spokeswoman Heather MacGregor said in an email. “As a rule, we do not discuss business development initiatives until they are finalized, however we have a responsibility to our shareholders to give proper consideration to all relevant opportunities that are presented.”

Marijuana and alcohol industries are increasingly seen as converging into a one-stop shop for recreation, with Heineken’s California-based craft brewery Lagunitas announcing in June that it was working on an India pale ale-inspired sparkling water infused with THC.

“They cannot ignore this space,” said Steve Ottaway, an investment banker who specializes in cannabis for Toronto-based GMP Securities. “How they actually get there and the construct is to be determined, but they’re coming.”

BNN, owned by BCE Inc.’s Bell Media unit, entered a content-sharing partnership with Bloomberg Media earlier this year.

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