Move ‘further solidifies Constellation Brands first mover advantage’ in the cannabis space, says Wells Fargo analyst.

By CIARA LINNANE – Marketwatch.com

U.S.-listed shares of Canada-based Canopy Growth Corp. soared almost 30% Wednesday, after liquor seller Constellation Brands Inc. said it will invest another CAD $5 billion, or about $4 billion, in the diversified cannabis company.

Constellation Brands STZ, -2.78% the brewer of Corona beer and distributor of Robert Mondavi wine, said it will increase its stake in Canopy CGC, -3.71%WEED, -3.60%  to 38% from about 10% by buying 104.5 million shares at C$48.60 a share, a 51.2% premium to Tuesday’s closing price of C$32.15, and assuming exercise of existing warrants.

The company will also receive additional warrants that if exercised would provide Canopy with an additional C$4.5 billion and give Constellation a stake of more than 50%. Canopy will upon closing have initial proceeds of about $4 billion, making it the biggest investment to date in the cannabis space.

Canopy’s U.S.-listed shares rocketed 30%, which would be their biggest one-day gain since they started trading on the NYSE in May 2018.

Wells Fargo analyst Bonnie Herzog said the news is “very positive” and the right move for Constellation Brands, as it “further solidifies Constellation Brands’ first-mover advantage as many of the major brewers are now pursuing cannabis as a potential growth driver.

“While there could be some cannibalization risk for Constellation Brands beer/alcohol portfolio, we believe the strategic partnership will ultimately be incremental to Constellation Brands’ core business, especially as the deal opens the door to tremendous white space opportunities globally – beyond Constellation Brands’ current U.S. limits with its core brands.“

The liquor company may eventually buy all of Canopy, she added, noting it has already reported a gain of more than $700 million on its initial investment.

See: Corona parent Constellation Brands has seen $700 million in gains from cannabis investment

Related: Cigarette maker Imperial betting on medical pot

Canopy, meanwhile, is planning to use the proceeds to build or acquire assets needed to create global scale in the nearly 30 countries that are pursuing legal medical cannabis programs and lay the foundation for emerging recreational cannabis markets.

Canada is gearing up for full legalization of the substance after the Senate passed a bill in June. The Canadian government is expected to select a date sometime in September for the official launch.

Uruguay was the first country to legalize cannabis’s production, sale and consumption in 2013. In the U.S., 30 states have approved medical cannabis, while nine states and the District of Columbia have approved it for recreational use.

SOURCE: https://www.marketwatch.com/story/cannabis-company-canopy-growths-stock-soars-28-as-corona-brewer-increases-stake-2018-08-15?siteid=yhoof2&yptr=yahoo

 

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