Canopy Growth Corporation (CGC) stock jumped over 27% to lately trade at $31 after it was announced that alcohol beverage company Constellation Brands (STZ) was increasing its stake in the company. This is a significant expansion of the partnership that was initiated last year.
Constellation is acquiring 104.5 million shares of Canopy Growth at a price of C$48.60 a share or $36.99 by today’s currency exchange rates. This is a 37.9% premium to Canopy’s 5-day average price and a 51.2% premium to the closing price on August 14. Constellation will also receive additional warrants of Canopy that, if exercised, would provide for at least an additional $4.5 billion CAD to Canopy Growth. The deal is expected to close by the end of October.
“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner,” said Rob Sands, Chief Executive Officer, Constellation Brands. “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. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space.”
Canopy Growth will now immediately get proceeds of C$5 billion and it will provide the funds to build or acquire key assets. Canopy Growth noted that the Canadian platform does not need additional cannabis assets and the company has its sights set on the U.S. among other countries as a strategic priority. However, the company also said that it wouldn’t enter the U.S. market if it meant breaking federal law.
“Our business can now make the strategic investments required to accelerate our market position globally,” said Bruce Linton, Chairman, and Co-CEO, Canopy Growth. “Constellation’s concentration of global cannabis activities exclusively through Canopy, coupled with the investment and its expert capabilities in brand-building, marketing, consumer insights and M&A will be a huge benefit as we look to expand our portfolio in Canada, the United States and emerging cannabis markets around the globe. We view this investment in our business as an endorsement of our execution since forming our initial strategic relationship in October 2017.”
That transaction last year was for roughly C$245 million or $190 million and represented an ownership interest of 9.9% of Canopy Growth Corporation, plus warrants that gave Constellation Brands the option to purchase an additional ownership interest in the future.
In addition, the company said that the transaction is expected to be accretive to the company’s full-year diluted earnings per share in fiscal 2021. The statement said that Constellation Brands remains committed to its investment grade rating and therefore, has no plans to engage in mergers, acquisitions or share repurchase activity until the company returns to its 3.5x leverage target, which is expected to occur within 18-24 months of deal closing.
Canopy Growth stock jumped to a high of $33 on the news before slipping closer to $30. The company reached its year high back in June when it topped out at $36.