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Alcohol giant relies on cannabis with $ 5 billion canopy deal



Part of Cannabis and Investing

Constellation Brands Inc., the global alcohol company that makes Corona Beer and Robert Mondavi, is targeting the booming cannabis market with a $ 5 billion bet on canopy from Growth Corp. ̵

1; Protection against possible declines in beer and spirits sales, as consumer taste shifts. [235] The investment in Canadian marijuana grower announced Wednesday is by far the biggest ever deal in the cannabis industry. It reinforces the link between the alcohol-beverage giant with all its marketing and deal-making expertise and the emerging sector that legitimizes recreational consumption in Canada and elsewhere.

With the spread of new marijuana products From cannabis-soaked drinks to creams and sleeping pills, established players in the liquor and pharmaceutical industries need to rethink their view of the long-taboo plant.

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"We can make cannabis drinks, which gives people a pleasant effect and may not have calories," said Rob Sands, Constellation's Chief Executive Officer. "We believe the value is there, and we believe Canopy is the platform to benefit from."

The news of the transaction caused Canopy's shares to rise 31 percent on Wednesday, giving the company a market value of some $ 9.2 billion. It's a rich valuation after Canopy reported $ 25.9 million in sales on Tuesday and a $ 91 million net loss.

Constellation, based in Victor, NY, surprised the cannabis industry last October with canopy for $ 245 million. The final deal will increase its position from around 18 percent to 38 percent as Constellation bought 104.5 million Canopy shares at $ 48.60, a 51 percent premium on Tuesday's closing price on the Toronto Stock Exchange.

Canopy is also Constellation Warrants, which, when fully exercised, will raise interest rates to over 50 percent and bring another $ 4.5 billion to marijuana producers based in Smiths Falls, Ontario.

"This is really rocket fuel," Bruce Linton, Canopy's chairman and co-CEO, told analysts Wednesday morning a call. "As we look after the world, we will expand production, we will do more research, we will develop more intellectual property, we will create more leading brands, we will have more products and we will be much more global."

Mr. Linton stressed that Canopy, the world's most valuable publicly traded cannabis company, did not want to buy any more cannabis facilities in Canada where marijuana will become legal on 17 October. However, it could use the money to build cannabis bottling facilities Especially in Ontario, where the new conservative government has recently decided to allow private cannabis retail outlets

Last month, Canopy acquired the cannabis retailer Hiku Brands Ltd., which she wants to introduce together with her own dealer. Tweed Main Street, across Ontario and other provinces that allow private retail sales, such as Alberta and British Columbia.

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The focus of the transaction, however, is international, Linton said.

In recent years, Canopy has expanded its presence in countries such as Germany, Australia and Colom bia, where medical cannabis has been approved at national level. These markets are all at an early stage, with only a few thousand patients using cannabis products for medical purposes. But Canopy hopes to repeat its success in the Canadian medical market by following in the footsteps of companies with experience in the regulated medical industries of these countries.

An even greater opportunity could be expected in the US to dispel the size of Canada's medical and recreational markets. A number of states have legalized cannabis use, although the drug remains illegal at federal level and creates insecurity for companies seeking to invest. Linton said in a telephone interview that if and when it becomes federal in the United States, Canopy will enter the market. He said he has already signed a contract to purchase a greenhouse in California and is actively seeking assets and brands in the United States. "We will not do anything illegal, but that does not mean we stop and say, 'I wonder how that will turn out?'

The main catalyst for entry into the United States could be the states that are currently before the US Senate, Linton said. The bill would recognize nationwide the right of states to make their own decisions on whether legal recreational cannabis should be allowed.

"The $ 5 billion will be used for acquiring the best assets in the US," said Martin Landry, Managing Director of Equity Research at GMP Securities. "If I look at the addressable market for Canopy, it used to be $ 5 billion to $ 10 billion in Canada and $ 5 to $ 10 billion worldwide, but it's probably been multiplied by five now."

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A deal of this size is likely a wake up call for other great alcohol players, Landry said.

"You have to find a dance partner, and from a Canadian point of view there is no I think maybe you have five or seven companies that could be legitimate partners for these big global players."

Smaller deals are already taking shape: Two weeks ago, Molson Coors Brewing Co. announced a joint venture with cannabis breeder Quebec The Hydropothecary Corp. to develop cannabis-soaked drinks Heineken NV's US craft brew subsidiary Lagunitas is developing its own THC-soaked beverages.

The pace of established companies entering the cannabis market is expected to increase c "I expect it will take five months," said Matt Bottomley, Equity Analyst at Canaccord Genuity Corp.

"Everyone expects it to be in five years of [large packaged-goods companies] and tobacco and more or less the alcohol and pharmaceutical companies will be heavily invested in space."

Pharmaceutical companies have started looking for the Sandoz Canada Inc., a subsidiary of pharmaceutical giant Novartis International AG, has signed a trademark agreement with Tilray Inc. in March and generic drug maker Apotex Inc., which has a partnership with CannTrust Holdings Inc. [19659028]. Other Canadian cannabis companies could benefit from these partnerships and most major licensed producers traded on the Constellation News, with both Aurora Cannabis Inc. and Aphria Inc. closing at around 20 percent higher.

The deal, which was overseen by Goldman Sachs and funded by Bank of America Merrill Lynch, is expected to be finalized in October with the approval of shareholders and regulators. Under the terms of the agreement, Constellation will appoint four directors to the board of Canopy, the companies said.


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