On Wednesday, Canopy Growth Corporation (TSX:WEED)(NYSE: CGC) and Constellation Brands (NYSE:STZ and STZ.B) announced the expansion of their strategic partnership, with Constellation Brands increasing their holdings in Canada’s largest cannabis company by an estimated 38 percent through the purchase of an additional 104.5 million shares. At a price north of $36 per share, the total worth of the deal is around $4 billion.
Expanding Their International Presence
Following the deal, Canopy Growth plans to increase its presence in the international cannabis market. The company hopes to expand into countries where medical cannabis is legal at the federal level, and they plan to do so with more than Constellation’s financial support. In fact, Constellation, producer of alcoholic beverages such as Corona, Woodbridge, and Svedka understands branding and marketing from a global perspective which both companies argue will be a tremendous asset to Canopy Growth on the international front.
“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner,” said Rob Sands, Chief Executive Officer, Constellation Brands in a statement. “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. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space.”
Canopy Growth plans to tap into the support Constellation can provide in a number of areas including mergers and acquisitions as well as consumer brand loyalty.
In a statement, Bruce Linton, Chairman and Co-CEO of Canopy Growth said, “Our business can now make the strategic investments required to accelerate our market position globally.” Canopy Growth has already begun to make their way into the international cannabis market, specifically in Latin America. In the last month, the company acquired holdings in both Colombia and Chile.
The benefits of this investment are mutual for both companies. While Constellation Brands helps bring market expansion and production expertise to Canopy Growth, Canopy Growth offers Constellation Brands additional access to the cannabis industry. Last year, Constellation became the first alcohol company to join the legal cannabis industry to create infused drinks tapping into the very profitable edible market.
Alcohol Explores Cannabis
Investing in cannabis companies may be a smart move for alcohol companies. Fewer adults are purchasing alcohol in U.S. states where cannabis is legal. A recent study conducted by Georgia State University and the University of Connecticut revealed that alcohol sales decreased by as much as 13 percent. Studies that show that cannabis has fewer adverse effects on consumer health may be driving the decrease in sales.
Experts expect sales alcohol sales to continue to fall as more states legalize marijuana for medical and recreational purposes. Constellation is not the only brand investing in pot. Other alcohol companies like Heineken N.V. who produces Heineken beer and Molson Coors Brewing Co (NYSE:TAP) who owns Blue Moon and Coors, have all jumped into the cannabis game recently.
Major Benefits For Shareholders
At the end of July, Canopy Growth shareholders overwhelmingly agreed to a split stock resolution, allowing the board to double or triple the number of investor shares. It’s usually a move that companies make when they are confident about their future. In addition to the split stock resolution, the value of the company’s stock increased by more than 30 percent on the same day as the announcement of Constellation’s additional investment.
The announcement comes one day after Canopy Growth released their Q1 financial results for the 2019 fiscal year. The company reported “revenue acceleration” with revenues totaling $25.9 million which is compared to a 63 percent increase over last year’s first quarter. They also saw a 14 percent increase over revenues of $22.8 million in the fourth quarter of the previous fiscal. The report also highlighted growth and expansion in international markets as well as the acquisition of other cannabis companies in Canada.