Constellation Brands acquires 38% ownership of cannabis producer Canopy Growth

USA – Constellation Brands, a leading beverage alcohol company, has announced that it has acquired 38% ownership of Canopy Growth Corporation, a leading diversified cannabis company.

The companies also announced a significant expansion of their strategic partnership to position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing.

According to Constellation Brands, it will increase its ownership interest in Canopy Growth by acquiring 104.5 million shares directly from Canopy Growth, thereby achieving approximately the 38% ownership when assuming exercise of the existing Constellation warrants.

The company is acquiring the new shares at a price of US$48.60 per share, which is a 37.9% premium to Canopy’s 5-day volume weighted average price of the common shares on the Toronto Stock Exchange, and a 51.2% premium to the closing price on August 14, 2018.

Constellation will also receive additional warrants of Canopy that, if exercised, would provide for at least an additional US$3.43 billion to Canopy Growth.

As a result of the new shares Constellation is acquiring, Canopy Growth will immediately upon closing have proceeds of approximately US$4 billion to bolster its leadership position in the global cannabis industry.

This investment, the largest to date in the cannabis space, will provide funds which Canopy Growth will deploy to strategically build and/or acquire key assets needed to establish global scale in the nearly 30 countries.

It also enables the company to pursue a federally permissible medical cannabis program, while also rapidly laying the global foundation needed for new recreational cannabis markets.

Canopy Growth’s Canadian platform does not require additional cannabis cultivation assets, and management views other jurisdictions, including the United States, as strategic priorities requiring significant capital.

“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner,” said Rob Sands, Chief Executive Officer, Constellation Brands.

“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 will benefit from Constellation’s deep understanding of consumer trends and shifting preferences, and proven ability to translate those insights into distinct brand positioning that build strong connections with consumers and foster brand loyalty.

Constellation added that its disciplined approach combined with Canopy’s entrepreneurial approach and best-in-class knowledge and expertise within the emerging cannabis sector, will ensure Canopy Growth is set up for sustainable, long-term success as the company and sector evolve.

Founded in 2013, Canopy Growth has cemented itself as the industry leader in Canada’s legal cannabis market.

Through its subsidiaries Tweed and Spectrum Cannabis, Canopy Growth has established a global presence in 11 countries which is driven by product innovation, a robust intellectual property portfolio, and clinical research programs targeting both human and animal health.

In Canada, Canopy Growth has established sophisticated operations to support recreational sales by raising capital and making the strategic investments required to maintain and accelerate its market leadership position at a critical time in the company’s evolution.

Substantial capital is required to fully capitalize on Canopy Growth’s market-leading position in Canada and establish similar leading positions in markets around the globe.

“Our business can now make the strategic investments required to accelerate our market position globally,” said Bruce Linton, Chairman and Co-CEO, Canopy Growth.

“Constellation’s concentration of global cannabis activities exclusively through Canopy, coupled with the investment and its expert capabilities in brand-building, marketing, consumer insights and M&A will be a huge benefit as we look to expand our portfolio in Canada, the United States and emerging cannabis markets around the globe.

We view this investment in our business as an endorsement of our execution since forming our initial strategic relationship in October 2017.”

As part of the proposed transaction, Constellation will nominate four directors to Canopy Growth’s seven-member Board of Directors, Chaired by Founder Bruce Linton.

Canopy Growth will remain a proudly Canadian publicly-traded company headquartered in Smiths Falls, Ontario, Canada and will continue to be led by its existing management team, who will continue to manage all international cannabis operations.

As part of its investment, Constellation is receiving 139.7 million new warrants which are exercisable over the next 3 years.

Of those, 88.5 million are exercisable at a price per share of US$50.40, a 43.0 percent premium to Canopy’s VWAP, and 51.3 million are exercisable at the VWAP at the time of exercise.

Canopy Growth’s future plans include pursuing various product formats in all cannabis channels.

Both companies have no plans to sell cannabis products in any market unless it is permissible to do so at all applicable government levels.

Canopy Growth remains committed to not entering the U.S. market in any manner that would contravene U.S. federal laws.

The transaction is subject to customary closing conditions, including Canopy shareholder approval and applicable Canadian government and regulatory approvals, and is expected to close by the end of October 2018.