RE:RE:RE:RE:RE:Private retail in Ontario disappoints big timeConstellation Brands is upping its bet on the cannabis industry, announcing an additional $4 billion stake in Canopy Growth on Wednesday. The maker of Corona and Modelo beers in October took a 9.9 percent stake in the Canadian cannabis company. The deal 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 United States.
Shares of Canopy Growth surged as much as 50 percent in Wednesday's premarket from Tuesday's close of $24.62 per share. Constellation's stock was down more than 3.5 percent.
With this latest investment and the execution of some warrants, Constellation says its stake will become 38 percent of Canopy. Constellation also received an opportunity over the next three years to buy up to 139.7 million in new shares, which represents up to $5 billion in additional funding. If Constellation utilized those warrants, it could raise its total stake in Canopy to more than 50 percent.
"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 also encouraging.
Constellation said it is acquiring the new stake at average prices that are 51 percent higher than Tuesday's close.
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