Canopy Growth Corp Inspired Sector Run Expected To Ensue Today

Corona owner pumps $4 billion more into weed producer Canopy

In the release, the companies announced that Constellation Brands will acquire new shares at a price of C$48.60 per share, representing a 37.9% premium to Canopy's 5-day volume weighted average price of common shares on the TSX.

Canopy, which has a presence in 11 markets around the world, said it would make global growth a priority.

"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".

Constellation Brands Inc., which for seven decades has made its money off beer, wine and whiskey, sees its future in a marijuana leaf. Constellation will also receive additional warrants of Canopy that, if exercised, would provide for at least an additional $4.5 billion CAD to Canopy Growth. In May, it began trading on the New York Stock Exchange in addition to the Toronto Stock Exchange.

"Our business can now make the strategic investments required to accelerate our market position globally", said Bruce Linton, co-chief executive of Canopy Growth.

Canada, where 4.4 million people reported using marijuana in the first half of the year, approved medical marijuana in 2001 and will fully legalize the recreational use of cannabis in October.

In the biggest (legal) cannabis deal, the Victor, New York-based beverage company will spend about $5 billion (US$3.8 billion) to boost its stake in Canadian grower Canopy Growth Corp., betting legalization will gain traction around the world and especially in the U.S. The alcoholic beverage company joins rivals, including Molson-Coors Brewing and Anheuser-Busch, in exploring business opportunities in the cannabis sector.


"While STZ (Constellation) is paying a rich premium. we believe this was the right move and further solidifies STZ's first-mover advantage.", Bonnie Herzog, a senior analyst at Wells Fargo, said in a note.

Constellation's shares had gained 11.7 percent over the past year before the announcement, underperforming the S&P 500 index.

Canopy is Canada's biggest cannabis firm, with a market capitalization of C$8.9 billion ($6.76 billion). Anticipating the start of Canadian recreational sales soon, Canopy increased its inventories 130%, year-over-year, to C$ 171 million worth.

Recreational use is allowed in nine US states and the District of Columbia, and sales in USA legal markets should almost triple to $16 billion by 2020 from $5.4 billion in 2015, according to Euromonitor International. Both companies said they have no plans to sell cannabis products anywhere unless it is permitted at all government levels.

Constellation is also receiving 139.7 million new warrants which are exercisable over the next three years.

The investment, which is expected to close by the end of October, is subject to customary closing conditions, including Canopy shareholder approval and regulatory approvals.

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