USA/Canada: Constellation Brands increases stake in marijuana grower

After having bought a 9.9% minority share in the $2 billion Canadian medical marijuana company Canopy Growth last October (inside.beer, 30.10.2017), Constellation Brands now stacks up its investment to 38%, while also providing further warrants that could take the stake to over 50%. The deal is worth $4 billion.

Constellation Brands is acquiring the new shares at a price of C$48.60 per share, which is a 51.2% premium to the closing price on August 14, 2018. Because of the high premium, Constellation’s stock fell immediately more than 7% and could not recover.

The transaction is subject to customary closing conditions, including Canopy shareholder approval and applicable Canadian government and regulatory approvals, and is expected to close by the end of October 2018.

Constellation Brands, which ranks 3rd among all brewing companies in the US, is not the only brewer to enter the promising market of functional marijuana products:

Two weeks ago, Molson Coors Canada, the Canadian business unit of North America’s second largest brewer Molson Coors Brewing Co., announced to start a joint venture with Hydropothecary Corp., a medical marijuana company based in Gatineau, Quebec. The partners said they plan to develop non-alcoholic, cannabis-infused beverages for the Canadian market in anticipation of the legalization of recreational marijuana in Canada on Oct. 17. (inside.beer, 2.8.2018)

Also Heineken, number 4 in the US beer market, launched on July 30 a marijuana-based product through its Lagunitas craft beer brewery. Called Hi-Fi Hops, Lagunitas' new cannabis drink is made with marijuana instead of alcohol and contains THC, the main psychoactive ingredient in marijuana.

Only market leader AB InBev has so far refrained from investing into the new product category. AB InBev’s CEO Carlos Brito said in an interview in June that “Cannabis is still something that we as a company are trying to learn more about.”

Constellation Brands, however, want to keep the advantage as the first mover. “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,” Rob Sands, Chief Executive Officer, Constellation Brands, was quoted in the press statement.

 “Canopy Growth will immediately upon closing have proceeds of approximately $5 billion CAD ($4 billion USD) to bolster its leadership position in the global cannabis industry.  This investment, the largest to date in the cannabis space, will provide funds which Canopy Growth will deploy to strategically build and/or acquire key assets needed to establish global scale in the nearly 30 countries pursuing a federally permissible medical cannabis program, while also rapidly laying the global foundation needed for new recreational cannabis markets,” Constellation Brands said in a press release.

Founded in 2013, Canopy Growth has cemented itself as the industry leader in Canada’s legal cannabis market.  Through its subsidiaries Tweed and Spectrum Cannabis, Canopy Growth has established a global presence in 11 countries which is driven by product innovation, a robust intellectual property portfolio, and clinical research programs targeting both human and animal health.  In Canada, Canopy Growth has established sophisticated operations to support recreational sales by raising capital and making the strategic investments required to maintain and accelerate its market leadership position at a critical time in the company’s evolution.  Substantial capital is required to fully capitalize on Canopy Growth’s market-leading position in Canada and establish similar leading positions in markets around the globe.

“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.”

 

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