Constellation Brands (STZ) is acquiring a minority stake in Ontario, Canada-based Canopy Growth Corporation (TSX:WEED, OTC: TWMJF), a leading provider of medicinal cannabis products.
The investment is expected to be ~C$245 million, representing an ownership interest of 9.9% of Canopy Growth Corporation, plus warrants which give Constellation Brands the option to purchase an additional ownership interest in the future. In conjunction with this investment, both companies intend to enter into an agreement to exchange knowledge and expertise.
Founded in 2014, Canopy Growth Corporation is one of the earliest commercial players in Canada's legal cannabis market. The company stands to benefit from the expected legalization or recreational weed in Canada next year.
As a seller of wine, beer and spirits, Constellation wants to be early in the cannabis opportunity because the recreational market has huge potential, especially if it ever becomes legal in the United States.
Constellation will have no part of participating in the recreational market in States where it is already approved because it is still illegal at a Federal level.
Constellation is looking to maintain its leadership position in a beverage market that could potentially lose share to cannabis longer-term. STZ has done very well as the company continues to grow market share organically and through acquisitions like Modelo.
Constellation has a ~$42 billion market cap and trades at 24x earnings, which is cheaper than most of its smaller peers.