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.”