Corona beer maker Constellation Brands is to invest a further $4 billion in Canada's top cannabis producer Canopy Growth, doubling down on one of a growing number of bets by the alcohol industry.
Constellation was among the first major alcohol producers to invest in marijuana production when it pumped nearly $200 million into Canopy last year, but the latest announcement makes it by far the biggest investment in the industry.
Canada, where 4.4 million people reported using the drug in the first half of the year, will fully legalise the recreational use of cannabis in October.
Constellation, Molson Coors and Anheuser-Busch are all using the move by the United States' northern neighbour to hedge their bets for the future at a time when beer sales, roughly 60% of Constellation's business, are stagnating, particularly with younger Americans.
Constellation will buy 104.5 million Canopy shares at C$48.60 per share, a 51.2% premium to the stock's Tuesday closing price.
The deal will take Constellation's ownership in Canopy to 38% from the 10% it took last October. Constellation could also increase its ownership to over 50% if it exercises warrants received as part of the deal.
Understanding The Market
"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," Constellation chief executive Rob Sands said in a statement.
Recreational use is also currently permitted in nine US states and the District of Columbia, and sales in US legal markets should nearly triple to $16 billion by 2020 from $5.4 billion in 2015, according to Euromonitor International.
Operating nationwide, however, is more problematic, and Constellation said neither company plans to sell cannabis products in the United States until it is allowed to do so at all government levels.
Other alcohol companies are also eyeing the weed market. Molson Coors Brewing earlier this month said its Canadian arm would make cannabis-infused drinks with Hydropothecary Corp.
U.S.-listed shares of Canopy Growth, whose brands include Tweed and Bedrocan, jumped about 37 % to $36.20 in heavy premarket trading. Canopy had a market value of C$7.1 billion as of Tuesday.
Constellation expects the investment in Canopy to add to earnings in 2021. The deal is expected to close in October.
News by Reuters, edited by Donna Ahern. Click subscribe to sign up for the Checkout print edition.