Constellation Brands increases stake in cannabis company

Constellation Brands has increased its stake in cannabis company Canopy Growth, meaning it now owns 38.6% of the business.

In a statement issued on 1 May, Constellation said it had made the investment through its subsidiary company Greenstar Canada Investment.

The drinks giant said it had exercised warrants for shares worth around C$245 million, originally issued in November 2017. With this investment, it has increased its stake in the cannabis company to total 38.6%.

In addition to these shares, Constellation also has warrants and senior notes, which if exercised and converted, would bring its ownership stake in Canopy Growth to 55.8%.

According to Market Watch, the warrants that were exercised were due to expire on 1 May if no investment was made. Constellation also has further warrants which expire in November 2023.

Constellation’s statement noted that the company now holds over 142m shares in Canopy Growth, as well as almost 140m warrants to purchase shares and senior notes worth C$200m.

In February this year, the drinks company said it doesn’t intend to make any additional cash contributions to Canopy Growth in addition to exercising warrants.

President and CEO of Constellation Brands, Bill Newlands, said: “While global legalisation of cannabis is still in its infancy, we continue to believe the long-term opportunity in this evolving market is substantial. Canopy is best positioned to win in the emerging cannabis space and we are confident in the strategic direction of the company under David Klein and his team.”

CEO of Canopy Growth, David Klein, added: “This additional investment validates the work our team has done since attracting the initial investment in 2017. It also strengthens our ability to pursue the immense market and product opportunities available to Canopy in Canada, the US and other key global markets.

Constellation first invested in Canopy Growth in October 2017, purchasing a 9.9% stake for £141m. In August the following year, it increased its stake in the company, investing around US$4 billion in the company. In January 2019, it announced that it would be building a hemp extraction and product manufacturing facility in New York. 

However, as share prices in Canopy Growth have fallen, Constellation has faced criticism for its decision to invest substantial sums in cannabis.

In January this year, the company postponed the launch of a line of cannabis drinks due to being unable increase production to a viable commercial level. In the same month, Constellation wrote down its stake in Canopy Growth by US$534 million. It had already marked down its investment by $839 million in October of the previous year.

Spiros Malandrakis, drinks analyst at Euromonitor, previously told the drinks business that Constellation’s experience should not discourage others from investing in cannabis, however the way they do so is important.

He said: “There is a cautionary tale here but it’s not about entering the cannabis segment, it’s about having a more strategic or nuanced approach than ‘big is best’.”