Wine conglomerate Constellation Brands buying 10% stake in pot company Canopy Growth
$245M deal gives the alcohol company the right to buy even more of the marijuana company later
A major alcohol conglomerate has agreed to buy almost 10 per cent of Canada's biggest marijuana company for $245 million Cdn.
New York-based Constellation Brands will buy up to 18.9 million shares in Canopy Growth Corporation, the Smiths Falls, Ont.-based company that has grown to quickly become Canada's largest marijuana company.
The move sent shares of Canopy Growth on Monday as high as $15.72 in Toronto before they at finished the day up 19 per cent at a record high close of $15.22.
As part of the deal, Constellation will provide marketing and brand development support to Canopy. The two companies will work together to produce marijuana-based drinks — a market that some estimates have pegged at $10 billion a year, should the products become legal in the United States.
Eight U.S. states have legalized marijuana for recreational use, and 22 more have legalized it for medical purposes, but consumption of any marijuana-based products is still a federal crime in the U.S.
In a release, Constellation makes it clear that it has no intention to sell any cannabis products in the U.S. or any other market unless or until it is legally permissible to do so at all government levels.
Canada, meanwhile, is on track to legalize recreational marijuana consumption under certain circumstances next summer, after which regulations will follow for edible pot products.
The government has "been fairly clear that in 2019 they expect to enhance and expand that offering," of what types of marijuana will be legal, Canopy CEO Bruce Linton said. "Will that include vaporizable products, edible products or liquid drinkable products? Could be any or all of them. So we're talking now about a year and a half away, potentially."
Constellation owns distribution rights to more than 100 brand names of alcoholic products, including Mondavi, Ruffino and Corona.
"We are thrilled to have the backing of such a well-established and respected organization such as Constellation Brands," Linton said. "We look forward to working with the Constellation Brands team to access their deep knowledge and experience in growing brands as we continue to expand our business."
The deal also gives Constellation the option to purchase an additional ownership interest in the future.
Eight Capital analyst Daniel Pearlstein said the move validates the cannabis industry as both a threat and an opportunity for larger established companies in industries including alcohol, tobacco and pharmaceuticals.
"This move is a complete game changer, not only for Canopy, but also for the entire industry," he said.
With files from Reuters and The Canadian Press