Canadian Weed!

[Sunblazers]

Corona's Brewer Just Bet $4 Billion on Canadian Pot -- Barron's Blog
BY Dow Jones & Company, Inc.
— 2:02 PM ET 08/15/2018
In the largest bet ever on cannabis, the U.S. beverage firm Constellation Brands ( STZ
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) said this morning that it will plunk down $4 billion to lift its stake in the Canadian cannabis seller Canopy Growth ( CGC ). The $37-a-share deal gives the Corona beer brewer effective control of Canopy, at a very generous premium of 51% above yesterday's closing price for the weed company. Constellation shareholders seemed startled by the news, selling the Fortune 500 firm's shares off 8% to $205, while Canopy's dual-listed stock (CGC, WEED.Canada) jumped 24%. The heady deal suggests as much about Constellation's outlook for alcohol as its outlook for weed.

The big buy lifted other Canada weed stocks like Aurora Cannabis (ACB.Canada) and Aphria (APH.Canada), which had moved sideways since Barron's sampled the sector in a March cover story that described Canada's legalization of adult recreational use as historic, but over-valued in the stock market. As the first developed nation to approve cannabis nationwide, Canadian sales under a tightly-regulated regime are expected to begin in a few months.

In this morning's announcement, the companies said that Constellation would fork over about 5 billion Canadian dollars to lift its ownership position in Canopy to 38% and get the right to appoint four directors to the weed merchant's seven-member board. Constellation also will get warrants to acquire additional shares, and majority control, in the future. The price that Constellation is paying values Canopy at about $12 billion, which is more than 40-times the revenue that the FactSet consensus foresees for Canopy's fiscal year ending March 2019, and 180-times profits for 202- the first year in which analysts expect the unprofitable venture to report earnings.

But Canada's bid to become the world leader in pot is a venture-stage flyer, in which investors are willing to pay up for what they hope will be a dizzying global market. And Constellation has certainly made out nicely on its October 2017 purchase of a 10% Canopy stake -reporting a $700 million gain on that initial $190 million investment. Speaking of ventures, Canopy has a venture arm called Canopy Rivers that it has modeled after similar units at Alphabet (GOOGL), with plans to bring the cannabis venture unit public on the Vancouver exchange later this year.

Canopy chairman and co-CEO Bruce Linton said in a release that the company will use the money from Constellation to accelerate the Canadian company's global expansion. The Smiths Falls, Ontario, outfit said that it has all the growing assets that it needs in Canada and is now looking toward other countries where legalization is advancing, including the United States. Announcing its June-quarter results yesterday, Canopy increased its sales 63% over the year-ago quarter, to a still modest C$ 26 million. More than 25% of revenue came from cannabis oils, in such vehicles as softgel capsules. Anticipating the start of Canadian recreational sales soon, Canopy increased its inventories 130%, year-over-year, to C$ 171 million worth.

Constellation clearly expects that growing pot could bring magic back to its own revenue growth, which was 6% in the June quarter. The company's Corona beer brand is enjoying a moment, but the beer industry is generally flat and Constellation is guiding for growth of about 3% in its wine and spirits sales. No wonder it's stepping out for a smoke.