Canadian government reviewing Constellation’s deal with marijuana firm Canopy

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The Canadian government will take a closer look at a deal that could give global liquor giant Constellation Brands control over Canadian cannabis leader Canopy Growth, but analysts doubt the pending transaction will be held up for any significant amount of time.

“We can confirm that U.S.-based Constellation Brands Inc.’s proposed investment in Canopy Growth Corporation is subject to review under the Investment Canada Act,” Hans Parmar, spokesman for Innovation, Science and Economic Development Canada, told the Financial Post newspaper.

He said the proposed acquisition will be reviewed on its merits based on the overall economic benefit for Canada, “like all foreign investment transactions.”

It is thought to be the first cannabis-related investment to be scrutinized under the Investment Canada Act.

The Act provides that the acquisition of any Canadian company by a foreign entity is reviewable if the enterprise value is more than 1.5 billion Canadian dollars.

Constellation said last week it planned to significantly increase its ownership in Canopy Growth by investing an industry-record CA$5 billion ($3.8 billion) to make the marijuana titan its exclusive global marijuana partner.

Constellation has an option to increase its ownership in Canopy to more than 50%.

Matt Maurer of Toronto-based Torkin Manes cannabis law group stressed that the government’s review of this transaction has nothing to do with the fact it is a cannabis deal, nor does it have anything to do specifically with Canopy or Constellation.

“With 2½ months to go until the scheduled closing of the transaction, I suspect that it would be unlikely that the government’s review would hold up the transaction,” Maurer said.

“Indeed, both Canopy and Constellation would have been aware that the size and nature of this transaction would trigger the review process and, with that knowledge, still set a closing date for October 2018.”

The planned investment – scheduled to close this fall – also marks the entry of Wall Street giants Goldman Sachs and Bank of America Merrill Lynch into the cannabis industry.

Goldman advised Constellation; Bank of America Merrill Lynch is providing the financing for the transaction.

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