Constellation Brands, Inc. (NYSE: STZ) is best known for being the owner of coveted alcohol brands, such as Corona, Modelo, Robert Mondavi and SVEDKA. However, the company recently made headlines when it announced that it has acquired a 9.9% stake in Canadian cannabis giant, Canopy Growth Corporation (OTC Pink: TWMJF) (TSX: WEED) for $191 million (CAD$245 million). The deal gives Canopy Growth Corporation a value of around $1.95 billion (CAD$2.5 billion).
After watching the emerging cannabis industry’s massive growth across North America, Constellation Brands, Inc. acquires a minority stake in one of the largest and most respected medical marijuana companies. Considering alcohol sales and demand are slowing, the move to diversify into recreational and medical marijuana seems like a natural fit. However, Constellation Brands says it will not plan to market any cannabis-based products to any markets until it is fully legalized across “all government levels.”
“Our company’s success is the result of our focus on identifying early-stage consumer trends, and this is another step in that direction,” stated Rob Sands, CEO of Constellation Brands. The two companies will partner to develop cannabis-based beverages, most likely alcohol-based. While cannabis-based beverages may not be legal during the first phase of recreational legalization in Canada, the products will be allowed over time.
Analysts and investors saw the announcement as a major game-changing event for Canopy Growth and the industry overall. Beacon Securities analyst, Vahan Ajamian released a positive note on the deal and increased his target price for Canopy Growth to CAD$17 from CAD$14. “We suspect more alcohol companies may look to accelerate plans to enter the industry, as well as pharmaceutical and tobacco companies,” further detailed Ajamian.
Canopy Growth’s Canadian and U.S. listing jumped 19% and 19.16%, respectively on the news on the acquisition. Other cannabis companies across North America jumped on overall strong volume, as the industry is optimistic for a wave of similar investments.
Disclosure: News purposes only, no business relationship or investments in any company mentioned.
