Houston, Texas, USA : Corona Beer brewer, Constellation Brands Inc (STZ,STZ-B) will invest C$5 billion, or $4 billion, in Canadian cannabis (marijuana) company Canopy Growth Corp. (CGC) as part of an expansion of the two companies’ strategic partnership, the companies said Wednesday. Shares of Canopy Growth are gaining more than 27 percent in the regular trading.
“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner. Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” said Rob Sands, Chief Executive Officer of Constellation Brands.
Canopy Growth is Canada’s largest medical marijuana producer. The company operates ten cannabis production sites with over 2.4 million square feet of production capacity, including over 500,000 square feet of GMP-certified production space.
Constellation Brands, which acquired a 9.9 percent stake in Canopy Growth in October 2017, will increase its ownership interest in the company by acquiring 104.5 million shares directly from Canopy Growth.
Constellation will thus achieve 38 percent ownership when assuming exercise of the existing Constellation warrants. The company will buy the new shares at C$48.60 per share, representing a 51.2 percent premium to Tuesday’s closing price of C$32.15.
Constellation will also receive additional warrants of Canopy that if exercised would provide for at least an additional C$4.5 billion to Canopy Growth. In addition, Constellation will nominate four directors to Canopy Growth’s seven-member board of directors.
According to Constellation, the investment will provide funds that Canopy Growth can deploy to strategically build or acquire key assets required to establish global scale in the nearly 30 countries pursuing a federally permissible medical cannabis program.
The transaction requires Canopy shareholder approval and is expected to close by the end of October 2018.
The maker of Corona is betting that consumers want something more than beer. Constellation Brands is spending $4 billion to boost its stake in cannabis company Canopy Growth. Constellation also owns a big wine business, SVEDKA vodka and Casa Noble tequila
The alcohol industry is betting big on the consumable cannabis market. Molson Coors Brewing Co. (TAP, TAP-A, TPX.TO) said in early August that it will form a joint venture with Canadian cannabis producer Hydropothecary Corp. or HEXO (HEXO.TO) to develop non-alcoholic, marijuana-infused beverages for the Canadian market following legalization.
Shares of Canopy, which trade on both the New York Stock Exchange and Toronto Stock Exchange surged more than 25% on the Constellation news. (Canopy’s TSE ticker is WEED by the way.)
Other publicly traded cannabis companies, such as Cronos and MedMen Enterprises, rallied in the United States and Canada.
Constellation’s stock, however, fell nearly 6% after announcing the investment.
Constellation CEO Rob Sands said during Canopy’s earnings conference call Wednesday morning that it was an extremely exciting time to be in the cannabis business.
“This could potentially be one of the most significant global growth opportunities for the next decade,” Sands said.
Canopy Growth CEO Bruce Linton said in an interview Wednesday that the deal gives Canopy more credibility.
As more countries around the world start to legalize marijuana, Constellation may be able to launch more cannabis-based alcoholic beverages. Linton said that a drink with no calories that can help fight depression is a possibility for example.
“Constellation gets it. This is happening globally,” Linton said, adding that Constellation can benefit by being the first to market with cannabis-based drinks while other beer and alcohol companies are still trying to figure out what to do in the market.
Even though the recreational use of marijuana is legal in California, Colorado and Vermont and several other states, it is still a federal crime to purchase and possess marijuana in the U.S.
One drugmaker, GW Pharmaceuticals, has a cannabis-based treatment for epilepsy called Epidiolex that was recently approved by the US Food and Drug Administration.