US – Constellation Brands, a major player in the beverage industry, has announced significant steps to distance itself from its troubled investment in cannabis producer Canopy Growth.
The move comes as Constellation takes measures to realign its capital allocation priorities and address the challenges faced by its investment in the cannabis market.
Last week, Constellation Brands revealed that three of its nominated directors on Canopy Growth’s board will step down, signaling a significant shift in its relationship with the Canadian cannabis company.
Additionally, the Corona maker will convert its stake in Canopy to a new category of shares, relinquishing its voting power and payment collection rights from the company. Consequently, Constellation will no longer have representation on Canopy’s board.
Bill Newlands, President and CEO of Constellation Brands, emphasized the rationale behind the decision, stating, “While we remain supportive of Canopy’s strategy, this Transaction is expected to eliminate the impact to our equity in earnings and is aligned to our intent to not deploy additional investment in Canopy as we’ve previously stated in our capital allocation priorities.”
Under the new agreement, Constellation’s exchangeable shares in Canopy can be converted into common shares on a one-for-one basis.
However, the conversion will be contingent upon the sale of marijuana in the U.S. no longer violating federal laws, including the Controlled Substances Act.
Constellation’s investment in Canopy Growth dates back to 2018 when it injected US$4 billion into the company, with hopes of capitalizing on the potential of cannabis-infused beverages in the U.S. market.
However, the anticipated market growth did not materialize as expected, leading to a US$1.1 billion draw-down in Constellation’s investment in October 2022.
The decision to distance itself from Canopy comes amid uncertainty surrounding federal legislation on cannabis in the U.S. While there have been discussions about potentially reclassifying cannabis at the federal level, definitive action has yet to be taken.
Despite the challenges in its cannabis investment, Constellation Brands reported a robust performance in its recent financial results.
The company posted a profit of US$392.4 million for the fourth quarter of 2023, with net sales reaching US$2.14 billion, up 7 percent year-over-year.
Bill Newlands expressed satisfaction with the company’s overall performance, stating, “We delivered another year of solid performance in Fiscal 24. Our Beer Business continued its strong growth momentum as it achieved its 56th consecutive quarter of volume growth while maintaining best-in-class margins.”
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