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.