The company behind Corona and Ballast Point beers has decided to up its stake in the cannabis industry. Constellation Brands, which has been making beer, wine, and whiskey for seven decades, will be investing $3.8 billion in Canadian cannabis grower Canopy Growth Corp.
The Victor, New York-based Constellation Brands will be boosting its stake in Canopy Growth ahead of full cannabis legalization in Canada. Canada is set to legalize recreational pot on October 17.
More specifically, the beverage company will buy 104.5 million shares of Canopy Growth at C$48.6 per share. This will lift its stake in the cannabis grower to 38 per cent. The deal will also include warrants that would allow Constellation to boost its stake by a further $3.4 billion.
It can be recalled that Constellation acquired 10 per cent of Canopy in 2017.
This deal between Canopy Growth and Constellation is just one in the latest surge of marijuana deals between beer/spirits makers and cannabis companies. Beer makers are setting their eyes on cannabis as the next big market movers when it comes to consumers getting their share of buzz.
According to Canopy CEO Bruce Linton, Constellation’s new investment in their company is “rocket fuel.”
Constellation, on the other hand, described their new investment as the largest one in the cannabis space to date. The beer company is hoping that this investment will offset stagnant alcohol sales in their key markets, including North America.
Constellation CEO Rob Sands said that the cannabis market has tremendous growth opportunity. He added that they are looking forward to supporting Canopy Growth as it extends its recognized global leadership in the cannabis space.
Constellation’s earlier investment in the cannabis company has already paid off, with the brewer reporting a healthy growth in profits in June.
The Financial Times cited Wells Fargo analyst Bonnie Herzog as saying that she would not be surprised if the beermaker eventually acquires all of Canopy Growth. She explained that if Constellation exercises all the warrants it obtained as part of the new deal, the company’s stake in Canopy would top 50 per cent.
According to Herzog, this was the right move for Constellation as it solidifies its first-mover advantage further. Constellation was ahead of other major brewers in pursuing cannabis as a potential driver for market growth.
While there could be a “cannibalisation risk” for Constellation’s alcoholic beverage portfolio, there is reason to believe that its strategic partnership with Canopy Growth will be incremental to its core business in the long run, Herzog added.