Canopy Growth Corp. (NYSE:CGC) is the world’s largest Cannabis company by market cap which totals $7 billion after the investment by Constellation Brands (NYSE:STZ). Shares for Canopy Growth shot up 47% pre-market as the industry gets shaken up with this new acquisition.
The maker of Corona and Modelo, Constellation Brands (NYSE:STZ) took a 9% stake in the Canopy at the end of 2017, which included the option for future investments, giving Constellation a first toehold in an industry the brewer said it expects to soon be legalized across the U.S. Constellation is purchasing 104.5 million shares of Canopy in the open market at a 51% price premium of yesterday’s close. That is why the stock price shot up so much this morning as they have set the standards for the rest of the industry.
Constellation’s stake will become 38% of Canopy as their focus for this investment is to expand and take over the global industry. Additionally, Constellation will receive 139.7 million in warrants for up to $5 billion in additional funding, which can be exercised over the next three years. If utilized, Constellation could raise its total stake in Canopy to more than 50 percent.
One of the biggest goals for this investment is for Constellation and Canopy to make marijuana-infused drinks that will hit the market. Although, Constellation is not planning on selling these drinks in the U.S before federal legalization of Cannabis but drinks will hit the Canadian market at the end of this year.
“Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” Constellation Brands CEO Rob Sands said in a statement.
“We think the premium paid as well as the size of [Constellation’s] investment reflects the long-term attractiveness of the global cannabis opportunity,” Cowen analysts said in a note Wednesday. The firm says Constellation’s expectation for the deal to be accretive by fiscal year 2021 is eno adding that it is encouraging, as well.
Shares of Canopy Growth Corp. (NYSE:CGC) jumped 47% in premarket trading from Tuesday’s close of $24.62 per share. Constellation said it is acquiring the new stake at average prices which are 51 percent higher than Tuesday’s close.