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Constellation Brands’ $4 Billion Investment in Canopy Growth Closes

Constellation Brands announcing that it was pouring $4 billion into a Canadian marijuana company called Canopy Growth this past August shocked Wall Street. It was the biggest investment to date in a marijuana company.

“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 at the time.

“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 also encouraging.

Constellation had even said the average price of its new stake was 51% higher than the closing price around the time of the announcement. Shortly after the news, SunTrust analyst Bill Chappell downgraded Constellation Brands stock to hold, citing “little certainty” in the investment.

According to Chappell, the investment would “keep a cloud over the stock (pun intended) for at least the next few quarters.”

“Where we have concerns is STZ or anyone’s attempt to (1) define the eventual size market, (2) pick the eventual winners, and (3) forecast the potential revenue or profits for any player,” Chappell wrote.

On November 1st, Constellation Brands, Inc. and Canopy Growth Corporation both announced that the companies had closed on the staggering investment.

“We’re excited to expand our strategic partnership with Canopy Growth and to begin helping them build the global scale needed to win long-term,” said Rob Sands, chief executive officer, Constellation Brands. He added, “The global cannabis market presents a significant growth opportunity and Canopy Growth is well-positioned to establish a strong leadership position in this fast-evolving category.”

Constellation Brands increased its ownership interest in Canopy Growth to approximately 37 percent of outstanding common shares of the company with the $4 billion investment. Constellation Brands has also appointed two members of its executive team, as well as two independent directors, to the Board of Directors of Canopy Growth.

“Our cash position opens up a world of opportunity for us,” said Bruce Linton, chairman and co-chief executive officer, Canopy Growth.  “Relative to our valuation, we have never been in a better position to create shareholder value. This investment was a landmark moment for the entire sector when it was announced. Now that the capital is Canopy’s to deploy, we’re going to quickly get to work increasing our lead by adding strategic assets around the world.”

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