Corona beer maker, Constellation Brands and cannabis business, Canopy Growth Corporation, have announced a significant expansion of their partnership to position Canopy Growth as the global leader in cannabis production. Constellation Brands will increase its ownership interest in Canopy Growth by acquiring 104.5 million shares, thereby achieving approximately 38 percent ownership of the existing Constellation warrants. The transaction is subject to customary closing conditions and is expected to close by the end of October 2018.
This investment, which is the largest to date in the cannabis space, will provide funds which Canopy Growth will deploy in the nearly 30 countries pursuing a federally permissible medical cannabis program, while also rapidly laying the global foundation needed for new recreational cannabis markets.
“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner,” says Rob Sands, Chief Executive Officer, Constellation Brands. “Over the past year, we've come to understand the cannabis market better, the growth opportunity it presents and Canopy’s capabilities in this space. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis sector.”
Constellation Brands is acquiring the new shares at a price of CAD$48.60 per share, which is a 37.9 percent premium to Canopy's 5-day volume weighted average price of the common shares on the Toronto Stock Exchange (VWAP), and a 51.2 percent premium to the closing price on August 14, 2018. As a result of the new shares Constellation is acquiring, Canopy Growth will immediately upon closing have proceeds of approximately CAD$5 billion (US$4 billion) to bolster its leadership position in the global cannabis industry.
Founded in 2013, Canopy Growth has cemented itself as the industry leader in Canada's legal cannabis market. In Canada, Canopy Growth has established sophisticated operations to support sales by raising capital and making the strategic investments required to maintain and accelerate its leadership position at a critical time in the company's evolution. Substantial capital is needed to fully capitalize on Canopy Growth's market-leading position in Canada and establish similar leading positions in markets around the globe.
“Our business can now make the strategic investments required to accelerate our market position globally,” notes Bruce Linton, Chairman and Co-CEO, Canopy Growth. “Constellation's concentration of global cannabis activities exclusively through Canopy, coupled with the investment and its expert capabilities in brand-building, marketing, consumer insights and M&A will be a huge benefit as we look to expand our portfolio in Canada, the United States and emerging cannabis markets around the globe. We view this investment in our business as an endorsement of our execution since forming our initial relationship in October 2017.”
Looking ahead, Canopy Growth's plans include pursuing various product formats in all cannabis channels. Both companies have no plans to sell cannabis products in any market unless it is permissible to do so at government levels. Canopy Growth remains committed to not entering the US market in any manner that would contravene US federal laws, according to the company.
The news of Constellation Brands in this segment comes as part of a growing trend of established alcohol companies diving into the marijuana industry.
Earlier this month, we reported that Heineken's new brew, Hi-Fi Hops, from California beer brand Lagunitas, is made with marijuana instead of alcohol. Hi-Fi Hops is currently only available in a select number of dispensaries in California, where marijuana is legal. Lagunitas, Heineken's fast-growing California beer label, labels its new brew as “hoppy sparkling water.”
