Constellation Brands Archives - Green Market Report

Video StaffVideo StaffOctober 4, 2019
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7min3750

Green Market Report thanks the ArcView Group for allowing us to tape Marijuana Money from their event this week. 

Constellation Brands (NYSE: STZ) wrote down its Canopy Brands (NYSE: CGC) investment to the tune of almost half a billion dollars. Constellation, which also owns Modelo beer and Robert Mondavi wines, said its share of equity losses from its roughly $4 billion investment came to $484.4 million. 

 Canopy Growth Corporation  (TSX: WEED) (NYSE: CGC)  has completed an all-cash transaction to purchase a majority stake in sports nutrition company BioSteel Sports Nutrition Inc. The amount of the acquisition was not disclosed. The deal gives Canopy a significant entry into the sports nutrition and hydration category and lays the groundwork for cannabidiol (CBD) products to be sold in the U.S.

Venture capital firm Canopy Rivers Inc.  (TSX: RIV)(OTC: CNPOF) completed a $10 million investment ( in TerrAscend Canada Inc., a subsidiary of its portfolio company.

Gotham Green Partners has invested an additional $20 million in iAnthus Capital Holdings, Inc. (CSE: IAN)(OTCQX: ITHUF) through the purchase of senior secured convertible notes. Green Gotham said it was part of a broader $100 million financing plan to support the buildout of all existing markets in which iAnthus currently operatesTerrAscend Corp. 

TILT Holdings Inc.  (CSE: TILT) (OTCQB: TLLTF) has negotiated an agreement with six of its remaining founders regarding the immediate forfeiture of all 60,217,088 stock options granted at the time of the merger. Adjusting for the subsequent forfeiture, TILT’s Q2 2019 net loss of $48.9 million would have been almost entirely reduced, bringing the Company close to break-even.

Fire & Flower Holdings Corp. (TSX: FAF) its financial results for the second fiscal quarter ending August 3, 2019, with total revenue of $11.1 million versus $9.5 million for the same time period in 2018. The net loss for the quarter was $6.4 million.

High Tide Inc. (CSE:HITI) (OTCQB:HITIF) announced financial results for the third fiscal quarter of 2019 ending July 31. Revenue in the third quarter increased by 281%, to C$8 million from C$2 million last year. 

48North Cannabis Corp. (TSXV: NRTH) delivered net revenue of $4.8 million marking 48North’s first full year of revenue, but a net loss of $8.1 million. In fiscal 2019, the company raised over $48 million and at the end of the year had $52.7 million in cash and cash equivalents on hand.

Arizona-based DNA testing technology company PathogenDx, Inc. announced $7.5 million in Series B funding. 

And finally HeavenlyRx Ltd. Acquired CBD company PureKana. 


Debra BorchardtDebra BorchardtOctober 3, 2019
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2min2980

Beverage giant  Constellation Brands, Inc. (NYSE: STZ and STZ.B) stock fell over 6% after the company reported a $484 million write-down on its $4 billion Canopy Growth investment. The cut drove its net loss to $525.2 million, or $2.52 a share, for the quarter to Aug. 31, after income of $1.149 billion, or $5.41 a share, in the year-earlier period. Excluding those charges, the company had per-share earnings of $2.72, ahead of the $2.63 FactSet consensus. Overall for Constellation. the company’s sales edged up 2% to $2.344 billion, meeting the FactSet consensus.

Canopy Growth investors didn’t seem to mind. That stock rose almost 2% and was lately trading at $22.38. This was especially comforting to the cannabis community since these stocks have been in a bear market for most of 2019.

The company had signaled this summer that it was losing its warm and fuzzy feeling towards Canopy when it terminated the CEO Bruce Linton. Linton is widely respected within the cannabis community and the termination was seen as a sign that Constellation was flexing against the smaller cannabis company. In a previous analyst call,

“While we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year-end results,” Chief Executive William Newlands told analysts. “However, we continue to aggressively support Canopy on a more focused long-term strategy to win markets and form factors that matter, while paving a clear path to profitability.”

Having said that Constellation said it has been actively developing a range of CBD products and hopes to bring them to the U.S. market by the end of its fiscal year.

Constellation did note that it was planning on going further into the seltzer category by introducing four new flavors of a Corona-brand product planned for Spring 2020. It was described as being “heavily accretive,” but also as a product that could take beer sales. Wine in a can is also turning into a popular product.

 


StaffStaffMay 9, 2019
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10min4090

Forget the marijuana stocks, their partners are more of a sure thing

By Aaron Levitt, InvestorPlace Contributor Apr 4, 2019, 12:24 pm EDT

Marijuana stocks are all the rage these days as legalized cannabis has hit the scene. Analysts now project that the market for both medical and recreational cannabis use will reach a staggering $200 billion in global sales in just five years. As a result, stocks in the sector have surged on the wave of optimism.

The problem is, marijuana stocks aren’t exactly a slam dunk.

Many are fraught with some big-time risks, hefty volatility, zero profits, etc. At this point, many marijuana stocks are just speculative bets. They could pay off or they could crash and burn. But one thing many of the top cannabis stocks do have is partners. Specifically, major corporate partners that are as far from speculative plays as you can get.

It’s here that more conservative investors can cash in on the marijuana stock mania and benefit from everything it has to offer. Sure, these stocks won’t rise as much as some of the pure marijuana stocks. But, you know what? They won’t fall as much either and they’ll still be able to reap potential billions in revenues derived from cannabis.

With that, here are the 3 top partners of the marijuana stocks and why you should focus on them.

Constellation Brands (STZ)

Seemingly overnight, Constellation Brands(NYSE:STZ) become one of the biggest marijuana stocks out there. That’s thanks to its big partnership with Canopy Growth(NYSE:CGC). For a cool $4 billion, STZ purchased a 38% stake in Canopy last year. The firm now owns warrants that would allow it own a majority stake in 2021.

The end game STZ is pretty simple. Marijuana would be perfect “fourth leg of a stool” to the company’s beer, wine, and spirits operations. Constellation owns over 100 world class beverage brands including Corona beer, Svedka Vodka, and Robert Mondavi wines. These are highly regulated consumer products. The end goal is for STZ to do the same with cannabis. Apply its vast branding knowledge and distribution network to get various pot products into the hands of the masses.

Constellation has already started working with Canopy on cannabis-infused drinks. At the same time, it’s looking to parlay is vast marketing knowledge into other cannabis areas such as edibles and other consumable products. These can and will be all major sources of revenues once the switch is flipped and full legalization happens.

In the meantime, STZ is no slouch with regards to what it already generates money on and its recently undergone some moves to shore up its balance sheet and pay for CGC purchase. This allows it to be a safer play than any of the marijuana stocks.

Novartis (NVS)

One of the main reasons why marijuana stocks have surged so far has been the growing use of medical marijuana and cannabis treatments. Demand here has already begun to surge and it could grow further as doctors look for alternatives to addictive opioids for pain relief.

International drug giant Novartis (NYSE:NVS) saw the writing on the wall and decided that it needed to get into the cannabis game. This prompted it to partner with major grower Tilray (NASDAQ:TLRY).

That partnership allows for NVS division Sandoz to develop and distribute TLRY’s medical marijuana in legal jurisdictions around the world. With the deal, Tilray is able to tap into Novartis vast distribution network and will allow TLRY to help commercialize its non-smokable/noncombustible medical cannabis products. For NVS, it’s able to collect fees and revenues from sales. Moreover, the deal allows it to co-brand some products to help enhance sales further.

For both partners, the deal seems like a win-win. NVS gets its hands-on fast-growing medical marijuana, while Tilray can actually sell its products to more consumers. Given how good the deal is, both firms decided to expand more on those partnerships and look into developing new cannabis-related drugs.

The win for investors by choosing NVS over TLRY is that you get the backing of one of the largest drug manufacturers on the planet.

Altria (MO)

Big Tobacco has been eyeballing legalized cannabis sales for what seems like decades, so it’s no surprise that cigarette-king Altria(NYSE:MO) would be looking at the marijuana stocks for a partnership. That came from a $1.8 billion investment in pot grower Cronos Group(NASDAQ:CRON). MO now has a 45% stake in the firm.

Traditional cigarette sales continue to fall and MO has been looking for ways to expand its portfolio and reduce potential revenue loss. This helps explain its major purchase of vaping specialist Juul Labs. Its CRON buy helps expand on that vaping tech.

Speculation has already begun that Altria could fill Juul Pods with CBD once pot is legal everywhere or add it to its other vaping/e-cigarette brands. Meanwhile, MO’s huge production facilities could instantly be flipped towards smokable marijuana products. The deal also allows for CRON to co-develop new products that could be sold on Altria’s large network. Together, it gives Altria an instant foothold in a growing business.

And that’s important for the firm. Potentially, it gives Big Tobacco a way to really reduce its multi-year declines. Last quarter again, Altria managed to miss estimates for sales.

Meanwhile, investors buying MO over other marijuana stocks gets plenty of stability, profits and hefty 5.93% dividend yield.

Disclosure: At the time of writing, Aaron Levitt did not hold a position in any of the marijuana stocks mentioned.


William SumnerWilliam SumnerDecember 7, 2018
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3min6830

Today, Cronos Group Inc. (NASDAQ: CRON) announced that it had received a CAD $2.4 billion investment from Altria Group Inc. (NYSE: MO), the owner of Marlboro cigarette marker Phillip Morris USA.

The investment comes a little more than a year after Corona beer distributor Constellation Brands announced that it would invest billions of dollars in Canopy Growth Corporation (NYSE: CGC). For some, the investments from both Constellation and Altria represent the maturation of the cannabis industry and a sign that cannabis has truly gone mainstream.

For others, however, the investments mark the beginning of the end for the independent cannabis industry as Big Tobacco and Alcohol, which have fought against cannabis legalization for decades, start to take over the market.

The private placement investment will give Altria a 45% stake in Cronos Group. Altria will receive 146.2 million Shares of Cronos at closing at a price of CAD $16.25 per Share, representing a 41.5% premium to the 10-day VWAP of the Shares on the TSX on November 30, 2018. In addition, Altria will receive purchase share warrants, valued at CAD $1.4 billion, which if exercised would give the company an additional 10% in Cronos.

“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” said Howard Willard, Chairman and CEO of Altria. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”

Under the agreement, Altria will have the right to name four directors to Cronos Group’s board of directors, which includes one independent director, and the board will be expanded from five directors to seven. Altria will make Cronos its exclusive partner for all world-wide cannabis-related investments, with some limited exceptions.

News of the deal has caused to Cronos’ stock price to jump by nearly 25% in pre-market trading. Altria’s stock price rose by nearly 2% in pre-market trading. As of publication, Cronos is trading at or around USD $13.00 per share, and Altria is trading at or around USD $55.43.

Pending regulatory approval, the deal is expected to close within the first half of 2019. Earlier this morning, Cronos held a conference call discussing today’s announcement, and a recording of the call has been made available at https://thecronosgroup.com/investor-relations.


Anne-Marie FischerAnne-Marie FischerAugust 21, 2018
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4min12730

Constellation Brands’ (STZ) investment in Canopy Growth Corp. (CGC) of 104.5 million shares was based on “a big speculative bet on marijuana”, according to Moody Corporation’s Senior Vice President Linda Montag.

Montag wrote in her report, “There is significant uncertainty around the ultimate demand for cannabis and its derivative products, including cannabis-infused beverages. Legalization in many markets, including the US, also remains uncertain, as does pricing and regulatory dynamics in markets that have legalized. Potential liabilities or litigation could also arise.”

The investment is the largest of the cannabis industry so far.

Canopy immediately acquired proceeds of C$5 billion from the liquor giant, who saw an opportunity to enter the cannabis space amidst legalization. Rob Sands, CEO of Constellation Brands told Green Market Report last week of the acquisition. “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.”

For Constellation, the investment represents an opportunity for diversification away from beverages and the U.S.; having an ownership stake in Canopy assures Constellation access to high-quality supply, production, and R&D. The partnership will represent an extension not only into cannabis beverages, but also edibles, vaping, and medicinal products.

Montag classifies the investment as “defensive play” against cannabis replacing alcoholic beverages in social settings.

Too Much Debt

In addition to the issue surrounding the potential for cannabis-infused beverages, Montag had serious concerns about the deleveraging for Constellation. She wrote that Constellation’s $4 billion investment to increase its share in Canopy Growth turns into a nearly 40% leverage, taking debt/EBITDA to the mid-to-high 4 times range from 3.8 times at the quarter ended in May. “We have previously said that leverage above 4 times could lead us to consider a ratings downgrade,” wrote Montag.

According to studies, alcohol consumption has dropped up to 15% in states where cannabis has been made legal. “Constellation will gain the opportunity to be involved from the ground up, and to take a leadership position in the space. Moody sees this investment as “the biggest opportunity for disrupting the alcoholic beverage business since the repeal of prohibition.”

For Canopy, the investment will allow expansion into the 30 countries that have medical marijuana laws. As a result of the announcement of the investment, Canopy Growth stock jumped to a high of $33 on the news before slipping closer to $30.

 


William SumnerWilliam SumnerAugust 15, 2018
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5min14930

Constellation Brands (STZ), best known as the distributor for Corona beer, is doubling down on its investment in Canopy Growth Corporation (WEED) in what some are calling one the largest investments in cannabis history. On August 15, 2018, Constellation announced that it would acquire 104.5 million shares of Canopy, increasing its stake in the company to 38 percent. At a price of C$48.60 per share, the value of the investment totals to approximately C$5 billion.

Additionally, Constellation will receive 139.7 million new purchase share warrants, which are exercisable over the next three years. Should Constellation exercise all existing and new warrants, it would increase its ownership of Canopy to 50 percent. As part of the agreement, Constellation will nominate four out of seven directors to Canopy’s Board of Directors, effectively seizing control of the board. Canopy founder, Bruce Linton, will remain as board Chairman and Canopy will continue to be led by its existing management team.

Canopy will use Constellation’s investment to strategically acquire and build critical assets in the United States, so long as it does not violate federal law, and the nearly 30 countries with federally legal medical cannabis programs. Canopy will also begin to lay the groundwork in those countries for future recreational cannabis markets as well. So far, the reaction within the cannabis industry to the investment has been mostly positive.

Beth Stavola, president and founder of MPX Bioceutical Corp. (MPX), said that the investment is a telltale sign of there direction in which the cannabis industry is headed.

“These alcohol and tobacco companies are starting to better understand the cannabis industry and the opportunity for large-scale growth,” said Stavola. “Mood modifying beverages for socialization is a natural segway for their businesses. As people continue to move toward a more healthy lifestyle and recognize some of the negative effects that alcohol may have on the body, I think we are only going to see this trend continue and get stronger.”

Mike Parmar, manager of investor relations for Isodiol International (ISOL), congratulated Canopy on its investment from Constellation, stating that the infused cannabis beverage markets “is poised to take another significant leap forward.” Canopy Growth is Isodiol’s Canadian licensing partner.

Despite the fear that Constellation’s investment would lead to greater market consolidation, Caliva founder Dennis O’Malley thinks that there is still plenty of opportunity of those in the cannabis industry.

“We believe there is a major consumer shift from alcohol to cannabis and that the Budweiser of cannabis has not yet been created,” said O’Malley. “There is a massive opportunity to innovate on form factor, dosage, and formulations in cannabis beverages to meet the fast-changing consumer demands.”

Linda Montag, a Senior Vice President at the financial services company Moody’s, was more circumspect, characterizing the investment as an expensive gamble for Constellation.

“Constellation’s investment in Canopy is a large bet at a very rich price, which can only be justified if the company proves that it can benefit from the changing environment for cannabis in Canada and beyond,” said Montag.”Constellation’s acquisition appetite has long been a rating consideration, but the deviation from its core beverage alcohol business into an entirely new space introduces potential new risks along with opportunities.”


Debra BorchardtDebra BorchardtAugust 15, 2018
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4min19230

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 Canadathe 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.

Stock Performance

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.

 


Debra BorchardtDebra BorchardtOctober 30, 2017
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3min14930

Constellation Brands (STZ) is the first major alcohol brands to make an investment in a cannabis company according to a company press release issued on Monday morning. Constellation Brands is best known as the distributor for Corona beer, but it is also home to numerous wine brands and hard liquor brands.

Constellation has apparently agreed to purchase a 9% stake in Canopy Growth Corporation (TWMJF)  in a plan to develop, market and sell cannabis-infused beverages.  “Canopy Growth has a seasoned leadership team that understands the legal, regulatory and economic landscape for an emerging market that is predicted to become a significant consumer category in the future,” said Constellation Brands President and Chief Executive Officer, Rob Sands. “Our company’s success is the result of our focus on identifying early-stage consumer trends, and this is another step in that direction.”

The investment, which is expected to close in the third quarter of the company’s fiscal 2018 year,  is expected to be roughly C$245 million or $190 million by today’s exchange rates and  represents an ownership interest of 9.9% of Canopy Growth Corporation, plus warrants which give Constellation Brands the option to purchase an additional ownership interest in the future.

That is a lot of money to spend on one of the lowest cannabis consumption categories. BDS Analytics found that in the large market of California, beverages only accounted for 5% of the edibles market. Most consumers prefer candy or chocolates when choosing an edible product, not drinks. Dispensaries also find it difficult to store the products as many of them require refrigeration that is usually stored behind the counter.

Alcohol companies have been circling the fringes of the cannabis industry as liquor consumption has been shown to drop in states where marijuana is legalized. Most have been reluctant to make investments since it is still federally illegal in the United States. It is also one of the lowest categories for cannabis consumption. Eaze cannabis delivery analytics found in a study “Over 82% of people surveyed said that using marijuana has caused them to reduce their alcohol intake. A whopping 11% of respondents said that they’ve quit drinking entirely because of marijuana.”

“We are thrilled to have the backing of such a well-established and respected organization such as Constellation Brands,” said Bruce Linton, Chairman, and Chief Executive Officer, Canopy Growth Corporation. “We look forward to working with the Constellation Brands team to access their deep knowledge and experience in growing brands as we continue to expand our business.”

 



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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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