Canopy shares at new high af­ter deal with Con­stel­la­tion

Winnipeg Free Press - - NEWS - ARMINA LIG­AYA

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 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 about $12.98 at 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 “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 United States or any other mar­ket un­less or un­til it is legally per­mis­si­ble to do so at all gov­ern­ment lev­els.

Canada is mov­ing to­wards 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 cannabis-in­fused bev­er­ages.

“They’ve been fairly clear that in 2019 they ex­pect to en­hance and ex­pand that of­fer­ing,” he said. “Will that in­clude va­por­ize­able 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.”

In the mean­time, Canopy has a li­cence with an ex­emp­tion that will al­low it to cre­ate and de­velop cannabis prod­ucts for a fu­ture U.S. mar­ket, he added.

“It does give us a plat­form for which we can cre­ate for­mu­la­tions and com­pounds that go to­ward med­i­cal or it could go to dif­fer­en­ti­ated prod­ucts (for) adult ac­cess,” he said.

He is op­ti­mistic that these cannabis-in­fused bev­er­ages, which will not have al­co­hol, will ap­peal to con­sumers who want a more “so­cially-nor­mal­ized” way of con­sum­ing mar­i­juana.

“What they re­ally want is a way to ac­cess the prod­uct that feels so­cially, more stan­dard,” he said. “And I think bev­er­ages might be that for­mat.”

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 lever­aged 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.”

ED ANDRIESKI / THE AS­SO­CI­ATED PRESS FILES

The maker of Corona beer has en­tered the pot mar­ket.

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