Pot-booze deal: Constellation Brands spending $5B to increase stake in Canopy Growth [UPDATED]

SMITH FALLS, Ont. – Constellation Brands has signed a deal to invest $5 billion in Canopy Growth Corp. to increase its stake in the marijuana company to 38 per cent—marking the largest strategic investment in the cannabis space to date.

As part of the deal, the global producer of beer, wine and spirits will make Canopy its exclusive global cannabis partner, while Canopy intends to use the cash to further ramp up its global expansion.

Constellation Brands chief executive Rob Sands called the deal a “powerful partnership.”

“This is an extremely exciting time to be part of what could potentially be one of the most significant global growth opportunities for the next decade,” Sands told an investor conference call Wednesday.

Under the agreement, Constellation will acquire 104.5 million Canopy shares at a price of $48.60 per share.

Canopy shares were up roughly 30 per cent at $41.82 in morning trading on Wednesday.

The investment follows a deal last year that saw Constellation acquire a nearly 10 per cent stake in Canopy for $245 million and collaborate on the development of cannabis-based drinks.

The agreement Wednesday will see Constellation nominate four directors to Canopy Growth’s seven-member board of directors.

The Constellation deal comes as other alcohol companies have also started honing in on the cannabis industry. Earlier this month, Molson Coors Canada entered into a joint venture with the Hydropothecary Corp. to develop non-alcoholic cannabis-infused products. As well, Heineken-owned Lagunitas Brewing Co. recently introduced a cannabis-infused hoppy sparkling water in California.

Related: Molson enters into joint venture to develop cannabis infused beverages

Canopy chief executive Bruce Linton said Wednesday the money would largely be used to position the licensed producer for international expansion opportunities as cannabis becomes federally legal in those markets.

“This is really rocket fuel. It does add quite a lot. You know, as we look around the world, we’re going to be expanding production, we’re going to be doing more research, we’re going to develop more intellectual property… And we’re going to be way more global,” he told analysts on a conference call.

As well, as part of the partnership, Canopy has a services arrangement with the Corona-beer maker to access their capabilities, Linton added.

Constellation is also receiving 139.7 million new warrants, which are exercisable over the next three years. If Constellation exercises all of its existing and new warrants, its ownership in Canopy would exceed 50 per cent.

The investment, which is expected to close by the end of October, is subject to customary closing conditions, including Canopy shareholder approval and regulatory approvals.

“This is by far the largest strategic investment we have seen in the space to date,” said Russell Stanley, an analyst with Echelon Wealth Partners in a research note.

The investment deal came as Canopy reported a loss of $80.3 million or 40 cents per share for the quarter ended June 30 as it continued to ramp up its operations ahead of the legalization of recreational marijuana in Canada later this year.

The loss compared with a loss of nearly $9.1 million or six cents per share a year ago.

Revenue for the three-month period totalled $25.9 million, up from nearly $15.9 million in the same quarter a year earlier.