Constellation invests CA$5 billion in cannabis giant Canopy in deal financed by BofA Merrill Lynch

Constellation Brands Canopy Growth, Constellation invests CA$5 billion in cannabis giant Canopy in deal financed by BofA Merrill Lynch

Canopy Growth CEO Bruce Linton (Photo by Justin Tang)

Global liquor giant Constellation Brands plans to significantly increase its ownership in Canopy Growth by investing an industry-record 5 billion Canadian dollars ($3.8 billion) to make the marijuana titan its exclusive global MJ partner.

Constellation will acquire 104.5 million shares directly from Canopy Growth for CA$48.60 per share, giving the New York-based company – which owns, distributes and markets 100 beer, wine and spirits brands, including Corona and Robert Mondavi – 38% ownership after existing warrants are exercised.

The move also involves Wall Street giants Goldman Sachs and Bank of America Merrill Lynch. Goldman advised Constellation; Bank of America Merrill Lynch is providing the financing for the transaction.

It is thought to be the first time BofA Merrill Lynch has financed a cannabis deal.

It is also the largest investment in any cannabis company to date and will “immediately” put CA$5 billion in the bank for Ontario-based Canopy after the deal closes, the company said in a statement.

Constellation also will receive 139.7 million new warrants, which, if exercised, would increase its ownership in Canopy to more than 50% and provide at least an additional CA$4.5 billion for the diversified marijuana company.

Canopy said it plans to use the cash to build and acquire key assets to establish global scale in the nearly 30 countries pursuing a federal medical cannabis program.

The money will not be invested in additional cannabis cultivation assets in Canada, Canopy said.

In a conference call Wednesday morning, CEO Bruce Linton called the deal “rocket fuel” for Canopy’s international plans.

Constellation will get four directors on Canopy’s seven-member board.

Constellation – one of the biggest alcohol businesses in the world – first entered into a strategic relationship with Canopy last October with a CA$245 million, 9.9% investment in Smiths Falls-based Canopy.

‘Spiked’ interest in M&As

Analysts expect the latest deal to spur mergers and acquisitions across the sector.

“When Canopy did the original deal with Constellation, that set off a domino effect of others looking to do beverage deals, so it wouldn’t surprise me if this also sets off another round of companies looking for investment outside the LP (licensed producer) sphere, whether it’s beverage, pharma or tobacco,” said Matt Maurer of Toronto-based Torkin Manes’ cannabis law group.

“As the big players get bigger, other players will look to keep pace. Medium size LP will be looking to get together to merge and maintain where they are in the food chain,” he said. 

Flush with cash and easy access to capital, Canadian cannabis companies have gone on a buying spree this year, with 48 deals recorded in the first half for a total disclosed value of CA$5.2 billion, according to a recent report by PwC Canada, which attributes the spike in activity and value to the legalization of adult-use cannabis on Oct. 17.

The latest Canopy-Constellation deal doubles that.

“And while adjacent industries – e.g. alcohol – have been relatively slow to enter the cannabis industry, this news may expedite their entry as it offers something they have never had access to in Ontario—retail sales,” the report states.

Jason Zandberg, analyst at PI Financial in Vancouver, British Columbia, called Canopy’s deal with Constellation “transformational.”

“I believe the involvement (of Goldman Sachs and Bank of America Merrill Lynch) signals more attention to the sector.”

Matt Lamers can be reached at [email protected]

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8 comments on “Constellation invests CA$5 billion in cannabis giant Canopy in deal financed by BofA Merrill Lynch
  1. Al Kingham on

    I work in the merchant servicing credit card processing industry.

    I understand that current FED banking laws prevent the Visa/MasterCard interchange from conducting trastate transfers.
    Should Canada have a more mature system we would love to learn more.
    Best regards

    • Maxcatski on

      All the Legal Providers in Canada accept credit cards. As a matter of fact, they all accept Interac transfers now, too.

      Sadly, the major Canadian banks store credit card info in the US which means that Homeland Security has access. Prepare for a rash of banning of Canadians at the border for their legal purchases in Canada. Screw Prohibition; it’s over in CANADA at least.

  2. Ray Kestone on

    Ray Kestone

    I’m hoping a good liquor company partners with Aurora Cannabis, ACBFF, now that CGC, Canopy Growth, is married. Aurora has been a monumental disappointment for this investor. I’m down 52% since I bought the shares a half year ago. And it crossed my mind that the whole marijuana promotion was a scam. But with Constellation Brands buying $3.8B worth, I’m convinced cannabis stock investments are the real thing. Tally ho!

  3. Eric Geisterfer on

    The US pretty much invented the recreational and medical cannabis market but due to our idiotic Scheduling of cannabis, other countries are taking over the market. Way to go US Congress/President!

  4. Jag Mickard on

    Eric, it is the crooked swamp and the demonic FDA in the USA keeping cannabis and cancer cures at bay all in the name of Big Pharma profits. Big Pharma will take it in the shorts when they lose opioid and chemo therapy sales to cannabis. Congress and the president just might fix that now that this president cannot be paid off like all the previous have been.

  5. Terry on

    To Ray Keystone (above)…I agree with you…I think ACBFF is in a better position for a beverage/tobacco/food company to profit than Canopy…ACBFF is more aggressive and is better diversified in both recreational pot and the cbd industry. ACBFF will be on a major stock exchange in about a month! (Then, it will go up even more, just like canopy did.)
    Above reasons are why Coca-Cola talked to ACBFF as they were/are more interested in the all legal-cbd infusion (for now)…But, since they don’t know the best way to infuse cbd they should talk to Lexaria (symbol LXRP) who are masters in infusion especially cbd…
    Plus, then why not also get stock/symbol HEMP involved who has the largest Hemp mill in the Western Hemisphere and are only at 3 cents per share!!! A merger/acquisition would be a prime time to work with HEMP as they just sustained some damage at their S. Carolina plant because of Hurricane-Florence. They will be fine as HEMP has other plant/operations in other legal states…
    Hemp/cbd and recreational pot will help people recover who are addicted to opioids (this is already proven)!!! Or, even prevent people from ever getting addicted to them in the first place!!!

    • Andre on

      I’m a Biochemist independent private company R&D..and what I see is a major uneducated population focusing on Hemp Cannabis CBD as a potential medicinal approach to wellness… does absolutely nothing alone…as it is only just one of many Phyto-Cannabinoids that work in concert. Maybe psychologically# placebo wise. But I’ve researched, tested,and studied individuals who have testimony that they have noticed no change what so ever post CBD intake..I was almost a convert…There isn’t enough research out there to validate claims by provocateurs…relative to Full spectrum varied ratio Cannabis…”Raphael Mechoulem “.

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