It looks to us like Drake’s team didn’t do their homework when deciding on a cannabis partner.
If your goal is to start a premium cannabis brand, the first step is finding a supplier of high quality cannabis.
Canopy (TSE: WEED, NYSE: CGC) is not that supplier.
Drake could have easily partnered with well regarded growers like Supreme, Tantalus or WeedMd.
Even if scale and a larger distribution network were essential he would be better off partnering with one of the other large LPs like Aurora or Aphria.
Of the three largest growers, Canopy is the only one without a premium brand that resonates with consumers.
Aurora owns premium organic grower Whistler Cannabis while Aphria has market favourite Broken Coast.
Drake’s brand is built on quality and if he ends up being associated with sub-par weed, it won’t do his reputation or brand any favours.
For Canopy on the other hand, this deal was a coup, lets be frank.
Drake is one of the biggest celebrities in the world and any brand would kill to use his likeness.
Canopy now has an opportunity to put its cannabis flower and other formats, in front of Drake’s massive social media following.
Advertising restrictions in Canada will make it difficult to leverage the true potential of the partnership for now, but Canopy is likely betting rules will change over time.
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Canopy also has the option to leverage Drake’s name internationally which could prove much more lucrative with looser branding restrictions in America.
Overall it looks like Drake took a risk by favouring financial resources over a quality product.
Canopy has already won from a brand building perspective, but only time will tell if this deal turns into a triple-platinum success for Drake as well.
Details of the Deal
The structure of this deal is simply a way to get around strict cannabis advertising and marketing rules in Canada.
At the end of the day Canopy wanted to associate its products with a well known celebrity like Drake, and the mechanics of the deal will allow them to take what has always been a Canopy product and attach Drake’s name to it.
Canopy will grow, process, and package the cannabis in its own facilities and then distribute it with the labeling designed by Drake.
From Drake’s point of view this is a standard branding deal but with an ownership interest thrown in on top.
Canopy is on the hook to pay royalties to Drake based on sales of More Life Growth products.
This new recreational cannabis entity will focus on wellness and personal growth and exists as a 60 / 40 ownership split between Drake and Canopy Growth.
In addition to their 40% stake in the company, the deal sees Canopy nominating two directors to the More Life Growth board.
Canopy will also hold exclusive rights for marketing and sale of More Life Growth products, with the international non-Canadian rights to only remain after 18 months if performance milestones are met.
Cultivation and processing of cannabis will be in a Toronto, Ontario-based facility. More Life Growth serves as the beneficial owner of an entity licensed for production at that location.
Commenting on launching this new international venture with Drake, Canopy Growth’s Chief Executive Officer Mark Zekulin had this to say:
Aside from Drake and Snoop Dogg, Canopy Growth is no stranger to high profile collaborations, having previously teamed up with the Houseplant brand from Hollywood celebrity duo Seth Rogen and Evan Goldberg.
That deal saw Canopy gaining a minority stake in a venture from the comedy team known for such films as Sausage Party, Pineapple Express, and the iconic Superbad.
Celebrity-branded products have a long history in the North American cannabis industry, from the Justin Trudope strain offered by Lift & Co to The Supreme Cannabis Company (TSE: FIRE; OTCQX: SPRWF; FRA: 53S1) teaming up with Wiz Khalifa to sell KKE Oil products.