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by Uday Sampath Kumar and Nichola Saminather Toronto | Corona beer maker Constellation Brands will infuse another $US4 billion ($5.5 billion) into Canada's top cannabis producer Canopy Growth, the biggest investment in the industry, to capitalize on booming demand for marijuana.
Constellation, among the first big alcohol makers to invest in the marijuana industry, pumped almost $US200 million in Canopy last year in a deal to produce a non-alcoholic cannabis-based beverage.
With the new investment it will support Canopy's full suite of products and assist as it develops new offerings, Constellation chief executive Rob Sands said on a conference call.
Toronto-listed Canopy shares rose as much as 35 per cent and were up 28 per cent at $C41.17 in morning trade, the highest level since June, and lifted shares of its peers. Constellation shares slid 8 per cent to $US203.73 in New York.
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Canopy said it will use the proceeds to expand and gain exposure to the nearly 30 countries likely to approve medical marijuana. It is targeting $C1 billion in overseas acquisitions over the next six to 12 months, Canopy chief executive Bruce Linton said on the call.
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"This (deal) marks the end of the warm-up in our sector ... It's fully go-time," Linton said.
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.
As some countries start opening up to legalising medicinal marijuana, Constellation peers Molson Coors and Anheuser-Busch have also pursued cannabis deals. Molson Coors said this month its Canadian arm would make cannabis-infused drinks with Hydropothecary
With its new deal, Constellation is paying a 38 per cent premium to Canopy's five-day average price, taking its ownership in the company to 38 per cent.
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"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 per cent over the past year before the announcement, underperforming the S&P 500 index. Canopy's share price has almost tripled.
Canopy is Canada's biggest cannabis firm, with a market capitalisation of $C8.9 billion ($9.3 billion).
Five of the biggest Canadian producers are now worth a total of over $C18 billion, despite low sales and almost non-existent profits, as they pour capital into increasing capacity.
Recreational use is allowed in nine US states and the District of Columbia, and sales in US legal markets should nearly triple to $US16 billion by 2020 from $US5.4 billion in 2015, according to Euromonitor International.
Constellation said neither company plans to sell cannabis products in the United States until it is allowed to do so at all government levels.
Canopy's revenue rose 63 per cent to $C25.9 million in the three months ended June 30 from a year earlier. Cannabis sales volumes climbed 47 per cent, while the average sale price was up 12 per cent, driven by increased sales of medical marijuana in Germany, Linton said.
Constellation expects the investment in Canopy to add to earnings in 2021. The deal is expected to close in October.
The deal lifted shares of Aurora Cannabis and Aphria, which rose 21 per cent and 17 per cent respectively. The ETFMG Alternative Harvest ETF, which includes US- and Canadian-listed marijuana producers, rose 6.4 per cent.
Reuters
Nailed it mate -sentiment hasn't changed here at all, just riding on Canopy/AC8's coattails..........
THC Price at posting:
49.0¢ Sentiment: Hold Disclosure: Held
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