Constellation, brewer of Corona beer, spending $3.8B to boost its stake in cannabis grower»
Constellation Brands is spending $3.8 billion to boost its stake in Canadian cannabis grower Canopy Growth Corp., betting legalization of the drug will continue to gain traction in the U.S. and around the world.
Constellation, the brewer of Corona beer, will raise its stake in Canopy to 38 percent in what the companies described was the biggest investment in the burgeoning marijuana industry yet, according to a statement Wednesday.
The agreement, which could eventually give the Victor, N.y.-based beverage company control, follows an initial purchase of about a 10 percent stake last year.
“This is rocket fuel,” Canopy CEO Bruce Linton said of the investment on the company’s earnings call on Wednesday. “We’re going to be way more global.”
Makers of alcoholic beverages are looking to cash in on the growing use of cannabis around the world as their traditional business slows. Molson Coors Brewing has started a joint venture with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market. Heineken’s Lagunitas craft-brewing label has launched a brand specializing in non-alcoholic drinks infused with THC, the active ingredient in marijuaproducts na.
Canada will become the first G-7 country to legalize pot for recreational use on Oct. 17, while states from California to Colorado have already made the drug legal and medical use of cannabis continues growing globally.
Legal sales in Canada are expected to reach $4.9 billion by 2022 and consumer spending globally will hit $32 billion, triple current levels, according to a report by U.S. cannabis research firms Arcview Market Research and BDS Analytics this week. The U.S. legal cannabis industry is gaining economic and political clout, employing more than 200,000 workers, while the market for listed firms has exploded in Canada. The BI Canada Cannabis Competitive Peers Index counts 74 companies with a market value of C$61 billion.
Canopy, based in Smiths Falls, Ontario, doesn’t currently have any operations south of the border, where marijuana is banned federally. Entering the U.S. may create issues for its listing on the Toronto Stock Exchange, as the bourse has said it may delist marijuana companies that run afoul of U.S. federal law. Canopy is also listed on the New York Stock Exchange.
But both companies said they have no plans to sell cannabis in any market unless it is permitted at all applicable government levels.
“Canopy Growth remains committed to not entering the U.S. market in any manner that would contravene U.S. federal laws,” the company said in a statement.
Linton added on the call, however, that it may become legal federally in the U.S. “sooner than people think” and that Canopy is doing everything that’s fully federally lawful to get ready.
Canopy, which has a presence in 11 markets around the world, said it would make international growth a priority. The company is not putting hard guidelines on how it plans to use the influx of capital, though its target acquisition list exceeds $1 billion globally, Linton said. That list will probably grow as new markets open up and the company can now make strategic investments with cash instead of “dilutive” shares, he said.
If Constellation exercises all its existing and new warrants, it could increase its stake to more than 50 percent.
Constellation will be able to name four of Canopy Growth’s seven directors. Canopy will continue to be led by its existing management.
“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,” Constellation CEO Rob Sands said in the statement.