Canopy Growth shares close at all-time high after Constellation Brands deal
The maker of Corona beer is branching out into marijuana with a minority stake in Canopy Growth Corp. (TSX: WEED), a “gamechanger” deal that sent the Canadian cannabis producer’s stock to close at a new high.
Constellation Brands has signed a deal to acquire a nearly 10 per cent stake in Canada’s biggest licensed producer of medical marijuana for $245 million, the companies announced Monday.
Canopy chairman and chief executive Bruce Linton said the partnership marks the first major wine, beer and spirits producer to invest in legal cannabis. Canopy and Constellation will also collaborate on cannabis-based drinks, he added.
Linton said he had as many as a dozen investment options on the table since Canopy began discussions with Constellation in the summer, for a similar or larger amount of money.
“But, what they didn’t come with was a partner who actually could work with us, and think with us, and help create things with us,” he said in an interview.
Shares of Canopy Growth rose as high as $15.72 in Toronto in morning trading on Monday, up 22.9 per cent from $12.79 at close on Friday. Shares closed at $15.22, up 19 per cent and marking its highest close ever.
Under the deal, Constellation will buy a 9.9 per cent stake or nearly a 18.9 million shares in Canopy for $12.9783 per share. It will also acquire an equal number of common share purchase warrants for Canopy.
Constellation said the deal is part of its strategy to stay ahead of evolving consumer trends and market dynamics, while maintaining focus on its core beverage alcohol business.
“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 chief executive Rob Sands, in a statement.
Vahan Ajamian, an analyst with Beacon Securities, called the transaction a “gamechanger for Canopy, as well as the industry at large.”
The deal highlights the disruption alcohol companies will likely face from recreational cannabis, he added in his note to clients.
“We suspect more alcohol companies may look to accelerate plans to enter the industry — as well as pharmaceutical and tobacco companies,” Ajamian said Monday.
Constellation added that it has no plans to sell any cannabis products in the U.S. or any other market unless or until it is legally permissible to do so at all government levels.