Published: Thu, August 16, 2018
Business | By Eloise Houston

Canopy Growth marijuana stock surges after new Constellation stake

Canopy Growth marijuana stock surges after new Constellation stake

Constellation, among the first big alcohol makers to invest in the marijuana industry, pumped nearly $200 million in Canopy previous year in a deal to produce a non-alcoholic cannabis-based beverage.

Global consumer spending on cannabis will hit US$32 billion by 2022, triple current levels, according to a report this week by USA research firms Arcview Market Research and BDS Analytics.

Canada will become the first G-7 country to legalize pot for recreational use on October 17, while states from California to Colorado have already made the drug legal and medical use of cannabis continues is growing globally. A day earlier, the company and other Canadian cannabis producers tumbled following Ontario's decision to delay the establishment of private retail outlets by six months. Molson Coors Brewing Co. has started a joint venture with Hydropothecary Corp.to develop nonalcoholic, cannabis-infused beverages for the Canadian market.

Linton said Wednesday the money would largely be used to position the licensed producer for worldwide expansion opportunities as cannabis becomes legal in new regions.

Spirits company Constellation Brands announced Wednesday it will significantly boost its investment in Canada's Canopy Growth in a big bet on the growth of cannabis-based products.

Constellation clearly expects that growing pot could bring magic back to its own revenue growth, which was 6% in the June quarter. "I think they didn't view themselves as a beverage company so much as an entity that provides those occasions with some kind of lift if you will - and that's an easy way to look at cannabis, not as a threat, but as an alternative or additional".

Canopy, based in Smiths Falls, Ontario, has specialized in the medical product and doesn't now have operations south of the border.

It is a 51-per-cent premium to Tuesday's closing price on the Toronto Stock Exchange. Both companies said they have no plans to sell cannabis products anywhere unless it is permitted at all government levels. Today is all about this morning's transformative announcement, which sends shock waves throughout the sector. A big focus of the deal is acquiring businesses in other countries where cannabis use is federally approved, he 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.

Constellation Brands Inc., marketer of Corona beer and Kim Crawford wines, is pumping $5-billion into Canopy Growth Corp.to accelerate the Canadian cannabis company's worldwide expansion plans. The transaction will bring Constellation Brands' ownership in the stock to approximately 38% assuming exercise of the existing Constellation warrants.

As part of the proposed transaction, Constellation will nominate four directors to Canopy's seven-member board of directors, chaired by founder Bruce Linton.

"Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner", said Constellation CEO Rob Sands in a press release announcing the investment.

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