Ontario-based diversified cannabis company Canopy Growth Corp. (TSX: WEED) is gaining early Monday morning on news of a new partnership with alcohol beverage giant Constellation Brands (NYSE: STZ). Through an affiliate, Constellation, whose product bag includes the likes of Corona, Modelo, Robert Mondavi, Svedka Vodka, Paul Masson and more, is making an investment of approximately C$245 million ($190.83 million U.S.) in exchange for about 9.9% of the common stock of Canopy Growth.
The equity stake makes Constellation the first major beer, wine and spirits company to invest in the legal cannabis industry. Constellation has been looking into the legal marijuana space for over one year now, as it seeks market share in a new and exploding market forecast to grow from about $6 billion in 2015 to $50 billion by 2026, according to data from Cowen & Co.
Speculation is that legal pot could hurt alcohol makers in so much as consumers choosing to get their buzz through marijuana rather than beer, wine, etc. No one knows for certain, though, just exactly how it will play out, but Constellation is being proactive about taking a first mover status to address the market opportunity.
Constellation will bring its expertise in consumer analytics, market trend and brand development as part of a broader plan that involves collaborating to develop cannabis-based beverages for adults use where legal.
In a statement, the Victor, New York beverage company said it doesn’t have any plans to sell any cannabis products in the United State or any other market until it is legal on all government levels. In the U.S., cannabis is still a Schedule I drug at the federal level, although it has been legalized either for medical and/or recreational use is 29 states and the District of Columbia.
In Canada, medical marijuana is legal nationwide, with the Liberal government led by Prime Minister Justin Trudeau expected to legalize recreational marijuana countrywide as early as 2018 amongst a growing choir of supporters.
The nuts and bolts of the deal show Canopy Growth giving up 18.88 million shares at a price of $12.98 each and an equal number of warrants issued at the same price that expire in 30 months.
Shares of Canopy Growth are trading ahead 13.2% at $14.48 less than one hour into the trading session following the news. The stock looks like it could be on its way to a record closing high, although still well off its intraday high of $17.86 hit last November. Shares of STZ are up 0.5% at $212.98, just off its all-time intraday high of $214.53 printed on October 17
