Corona beer parent company bets big on marijuana


The big buy lifted other Canada weed stocks like Aurora Cannabis (ACB.Canada) and Aphria (APH.Canada), which had moved sideways since Barron's sampled the sector in a March cover story that described Canada's legalization of adult recreational use as historic but overvalued in the stock market.

"This [deal] marks the end of the warm-up in our's fully go-time", said Canopy's chief executive Bruce Linton on an investment call.

Earlier this month, Molson Coors Canada entered into a joint venture with the Hydropothecary develop non-alcoholic cannabis-infused products.

With its new deal, Constellation is paying a 38 percent premium to Canopy's five-day average price, taking its ownership in the company to 38 percent.

Global consumer spending on cannabis will hit US$32 billion by 2022, triple current levels, according to a report this week by USA research firms Arcview Market Research and BDS Analytics.

Constellation was among the first major alcohol producers to invest in marijuana production when it pumped almost $200 million into Canopy a year ago, but the latest announcement makes it by far the biggest investment in the industry.

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The Constellation deal comes as other alcohol companies have also started honing in on the cannabis industry.

Canopy's target acquisition list exceeds $1 billion for worldwide assets and non-cultivation assets in Canada, Linton said.

Corona beer owner Constellation Brands is set to pour some $4bn (£3.15bn) into Canada's top cannabis producer, Canopy Growth, in a deal marking the largest investment in the industry to-date.

Canopy, based in Smiths Falls, Ontario, doesn't now have any operations south of the border, where marijuana is banned federally.

Canopy will keep its position on the Canadian stock exchange and the group's existing management team will remain in place. Entering the USA may create challenges for its listing on the Toronto Stock Exchange, as the bourse has said it may delist marijuana companies that run afoul of US federal law.

Wednesday's gains, if materialized when markets open, could easily take Canopy's stock price past Wall Street's $30 target, as high as $37.

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Canopy Growth was founded in 2013 and has a presence in 11 countries.

Constellation will also receive 139.7 million new warrants, which are exercisable over the next three years.

Constellation said it did not have a plan for such a product yet.

Under the agreement, Constellation will acquire 104.5 million Canopy shares at a price of $48.60 per share.

Constellation, whose beer business is based in Chicago, will be able to name four of Canopy Growth's seven directors.

Linton said Wednesday the money would largely be used to position the licensed producer for global expansion opportunities as cannabis becomes legal in new regions.

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"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", said Rob Sands, chief executive of Constellation Brands.