Al­co­hol com­pany buys stake in Canopy

Pro­ducer of Corona beer ac­quires nearly 10 per cent of Cana­dian cannabis firm


SMITHS FALLS, ONT.— The maker of Corona beer is branch­ing out into mar­i­juana with a mi­nor­ity stake in Canopy Growth Corp., a “game-changer” deal that sent the Cana­dian cannabis pro­ducer’s stock on track 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 chair­per­son 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 closed at $15.22 on Mon­day, up 19 per cent from $12.79 at close on Fri­day.

Un­der the deal, Con­stel­la­tion will buy a 9.9 per cent stake or nearly 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,” Con­stel­la­tion chief ex­ec­u­tive Rob Sands said in a state­ment.

Va­han Ajamian, an an­a­lyst with Bea­con Se­cu­ri­ties, called the trans­ac­tion a “game-changer 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.

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.

Canada is mov­ing to­ward a July 2018 dead­line for le­gal­iza­tion of recre­ational mar­i­juana, but sales of edi­bles will come later, once reg­u­la­tions for pro­duc­tion and sale can be de­vel­oped. Lin­ton says Canada will likely be its first mar­ket for cannabis­in­fused bev­er­ages.

“They’ve been fairly clear that in 2019 they ex­pect to en­hance and ex­pand that of­fer­ing,” he said. “Will that in­clude va­por­iz­able prod­ucts, ed­i­ble prod­ucts or liq­uid drink­able prod­ucts? Could be any or all of them. So we’re talk­ing now about a year and a half away, po­ten­tially.”

He’s op­ti­mistic that the cannabis­in­fused bev­er­ages, which won’t have al­co­hol, will ap­peal to con­sumers who want a more “so­cially nor­mal­ized” way of con­sum­ing mar­i­juana.

The com­pa­nies said Mon­day the agree­ment will see Con­stel­la­tion pro­vide mar­ket­ing and brand de­vel­op­ment sup­port to Canopy.

Lin­ton said Con­stel­la­tion, which has about 40 winer­ies, brew­eries and dis­til­leries in its port­fo­lio, has lever- aged its ex­pe­ri­ence nav­i­gat­ing re­stric­tions on mar­ket­ing in the var­i­ous ju­ris­dic­tions it op­er­ates in.

Still, it’s un­clear the ex­tent to which li­censed pro­duc­ers can advertise and mar­ket their prod­ucts.

The pro­posed Cannabis act stip­u­lates that any pro­mo­tion, pack­ag­ing or la­belling of cannabis that could be ap­peal­ing to young per­sons or en­cour­ages con­sump­tion would be pro­hib­ited. The frame­work may be more akin to ad­ver­tis­ing reg­u­la­tions for to­bacco, which are more re­stric­tive than those that ap­ply to al­co­hol.

“They’re go­ing to evolve,” Lin­ton said. “We’re go­ing to land some­where in be­tween booze and cig­a­rettes in our cur­rent rules.”


Canopy Growth Corp., which is based in Smiths Falls, Ont., is cur­rently Canada’s big­gest li­censed pro­ducer of med­i­cal mar­i­juana.

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