Canopy Growth Corporation (TSE:WEED) stock jumped after Constellation Brands (NYSE:STZ) agreed to take a 9.9% in Canada’s largest marijuana company
SmallCapPower | October 31, 2017: Canopy Growth Corporation (TSX:WEED) shares surged 19% on Monday, and moved up another 3% in early Tuesday trading, after Constellation Brands (NYSE:STZ), a leading beverage alcohol company, announced that it will invest $245 million in Canopy Growth for 9.9% minority stake. Constellation Brands is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy and Canada. This strategic investment is a sign of confidence in Canopy Growth’s reliable track record and vision for responsible yet aggressive market expansion as the world’s leading cannabis company.
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With the $245 million investment, Constellation Brands will get a 9.9% minority stake along with an option to buy an additional ownership interest in the future. Canopy Growth will issue 18.9 million common shares at a price of $12.98 per share based on a 5-day volume weighted average price (VWAP) as of the close of markets on October 27, 2017. The deal has been conditionally approved by the Toronto Stock Exchange and is expected to close on or about November 2, 2017.
This strategic relationship will give Canopy Growth access to the areas of consumer analytics, market trending, marketing and brand development from Constellation Brands. On the other hand, Constellation Brands will get an exposure into the recreational cannabis market in Canada, which is expected to be legalized in July 2018. In addition, the Companies will collaborate to develop and market cannabis-based beverages that can be marketed as adult-use products in markets where, and when, such products are legal federally. Overall, this deal looks mutually beneficial for both the parties.
This investment by the Fortune 500 company is a game-changer for the Canadian Cannabis industry and can possibly initiate more such investments in the coming months by the global alcohol and tobacco companies. Post the announcement, the Canadian Marijuana Index jumped 5% on Monday.
Canopy Growth shares have climbed more than 42% in the past month due to increased investor interest in the sector as we move closer to the July 1, 2018, legalization date. The investment by Constellation Brands will further increase this ongoing investor demand, which will likely drive share prices in the sector much higher.
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