Constellation Brands announced Monday that it’s acquiring a 9.9 percent stake for about $190 million (C$245 million) in Canadian-based marijuana company Canopy Growth Corp. Canopy trades on the Toronto Stock Exchange under the ticker WEED.
Constellation said it has no plans to sell any cannabis products in the United States or any other market until it’s legal to do so.
“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,” Rob Sands, chief executive of the Fortune 500 company, said in a press release. “Our company’s success is the result of our focus on identifying early stage consumer trends, and this is another step in that direction.”
Constellation, whose wine brands include Robert Mondavi, Mark West, Meloni and Kim Crawford, saw its shares close Monday at $213, up $1.10 or 0.52 percent. Canopy, which has a market cap of C$2 billion, ended the day up 19 percent, to close at C$15.22. .
Cowen and Company Analyst Vivian Azer notes that the investment “is small, but meaningful, as the company is the first major alcohol manufacturer to invest in legal cannabis.” Constellation will have an observer role on the board and the option to raise its stake to about 20 percent.
Wells Fargo Analyst Bonnie Herzog told her clients that through the partnership, Constellation “intends to develop drinkable cannabis products [a small but growing niche of the $8 billion legal cannabis trade in N. America today] to be sold in Canada when edible/drinkable marijuana is legalized for recreational use [expected in 2019] and any other countries where recreational marijuana use is permitted.”
“Overall, we think this deal makes a lot of sense,” Herzog said. “This gives STZ (Constellation Brands) a clear first mover advantage in insuring that it remains not just the leading Total Alcohol Beverage Company, but indeed, the Total Alcohol-Marijuana Beverage Company. We expect the market will view this transaction favorably.”