On Thursday, Canopy CEO Bruce Linton spoke at the Marijuana Business Daily International conference in Toronto about the legal U.S. and Canadian cannabis markets, where consumer spending is projected to triple to $31 billion by 2022, according to the most recent industry report from Arcview Research. He also answered questions about the Constellation deal, strategies for international expansion, and whether big alcohol companies should be afraid of weed.

Canopy Growth and Constellation Brands

While other beverage brands have begun to invest in the cannabis business, this deal buys Constellation a 38% stake in the company, which became the first marijuana company in Canada to reach a $5 billion valuation last year.

“This is rocket fuel,” Linton said of the deal on the company’s earnings call Wednesday. “We’re going to be way more global.”

Constellation called this the biggest investment in the burgeoning marijuana industry yet in their press release Wednesday.

International Expansion for the Marijuana Industry

Growing in medical marijuana markets is key for Canopy’s plans to expand globally.

“We’re going all in on medical,” Linton said, because research on those products has the potential to pay off worldwide. For example, if the company works on trials to develop a product that helps people in Canada sleep better, “making Germans sleep is probably not that different,” he says.

Canopy is focused on research and bringing new offerings to market. While an emphasis on the retail operation is good for building brand trust and loyalty, it’s owning the vertical integration in the marijuana industry that the company is betting on, he said. “We want to spend a lot more money on things that are globally applicable.”

Recreational Cannabis in Canada

Canada’s government voted to legalize recreational marijuana in June—becoming the first G20 nation to do so.

The policy will take effect on October 17 and cannabis companies are impatient to enter the new market: “We were expecting maybe September 1,” Linton said.

A record $2.2 billion in capital was raised by the cannabis industry in Canada in the first half of 2018 (Canopy alone accounted for $900 million of that figure). Spending on legal marijuana in the country is expected to reach $5.5 billion by 2022, according to Arcview Research.

What’s Next?

“What we have to work on is how we migrate people from an illegal activity to the legal activity and how we take a prohibitive ingredient and turn it into something compelling,” Linton said of the industry’s challenges over the next ten years.

As capital continues to flow into the sector, the problem he sees arising is disintegration rather than consolidation. “Disintegration happens when people make promises and valuations that they can’t possibly fulfill.”

Linton says he expects there will be one “Google-like company” in the space and then a considerable battle for the second, third, and fourth spots.

He also anticipates that consumers will turn toward “ingestibles” (rather than edibles) and away from the actual plant, predicting that sales of flowers in stores will diminish, with the price for the bud itself increasing as it becomes a more bespoke offering, like high-end craft beer.

And don’t expect those ingestibles to be something like gummy bears, he says, but “more structured, uniform, container-proper” products, according to Linton.

A Test Case in Nova Scotia

He pointed to Nova Scotia as a “fascinating” place to watch buyer behavior.

The Canadian province will allow for marijuana products to be sold in the same locations as alcohol in about a dozen liquor stores, creating a testing ground for consumer preferences when they open in October.

Linton described a clear, zero calorie cannabis beverage that Canopy and Constellation are working to develop “that makes you feel uplifted, that doesn’t have a lot of drug on drug interaction, doesn’t leave you with the same residual side effects as alcohol.”

The test will also provide the first opportunity to see whether shoppers will choose marijuana-infused beverages over traditional libations.

“This disruptive nature of what we do with Constellation will be the most specific exhibit A on the planet of: What do people prefer? What period of time do they transition away from caloric alcohol-driven beverages? You’ll be able to start to see what the substitution affects directly, because you’re parked in one spot,” he said.”

The Changing U.S. Marijuana Market

“It’s amazing in the marijuana sector, a good idea two years ago is probably a horrible idea today,” Linton said, “The best thing to do in every business, particularly this one, is copy businesses that work in other sectors.”

“We’re trying to be in all markets that are legal. We’re as close to the edge of this as we can, but we’re not over any line,” he said. “Why are we on the New York Stock Exchange? Because we don’t break laws.”

But from record voter support to legalization endorsements from both progressive and conservative political figures in recent months, it’s clear that the mood around marijuana investments in the U.S. is shifting, despite a federal administration that has been vocal in criticizing pot use.

Linton pointed out that it’s Bank of America who will lend Constellation Brands the $4 billion to invest in Canopy and Goldman Sachs advised them on the deal, indicating it’s a sign that entering the cannabis business is becoming more mainstream.

Should Big Beer and Liquor be Scared of Pot?

Legacy alcohol brands are certainly thinking about how to position themselves as legalized weed continues to gain ground and popularity.

“Can you imagine how shitty it is to be a CEO of a beer or clear liquors business and have a meeting on [cannabis] with shareholders?” Linton asked at the conference Thursday. He says if these companies are responding with old, ineffective strategies like corporate committees or without plans that can be swiftly implemented, they should be worried.

“The reason we like Constellation: entrepreneur, entrepreneur, entrepreneur,” Linton said. “I like the fact that I can call [Constellation CEO Robert Sands] and pretty much go through him to get to the bottom of anything. That’s not a committee.”

While he believes more beverage companies should be thinking like Constellation, he says the industry doesn’t need to be scared.

“Fear is a paralyzing response. They shouldn’t fear,” he said, predicting that instead they will get more involved in the industry. “I think if we have this conference in a year, the names that we see on the roster globally are huge corporations with big plans.”