Constellation Brands betting big on marijuana legalization

April 18, 2019 06:28 PM

NEW YORK, N.Y. (WHEC) -- One of the area's largest employers is making moves in the marijuana business.

Late last year, Constellation Brands invested billions in a Canadian-based marijuana company and now it wants to make sure it gets first dibs to take a bigger stake in it as that company grows.

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Last fall, News10NBC Investigative Reporter Jennifer Lewke traveled to Canopy Growth in Ontario, Canada, to tour the facility.

Canopy had just received a $4 billion investment from Victor-based Constellation Brands. CEO Bruce Linton said he and Constellation Brands Chairman Rob Sands have big plans. 

"He was the only person that we encountered who was in the consumer package good category of alcohol who said maybe we should be in the cannabis space. Everybody else globally said maybe cannabis space should be put into a vault and hidden."

Since then, the pair have been making moves.

On Thursday, Constellation announced it had extended its option to buy more of Canopy Growth pending Canopy's intentions to acquire Acreage Holdings, Inc., a U.S. based, multi-state cannabis operator, if and when marijuana becomes legal federally.

Alicia Nestle, a spokeswoman for Constellation tells News10NBC, "It's important to note that neither Constellation nor Canopy plan to produce, market or sell cannabis products in the U.S. until it is deemed federally legal to do so. That said, once cannabis becomes legal at the federal level and this deal is exercised, Canopy will assume an instant leadership position in the U.S. via Acreage's established infrastructure and operations."

In laymen's terms, here's what the deal means, "This is Constellation's way to have a side door entry to the US cannabis market when it becomes legal…Constellation will have a major stake in Canopy, Canopy will have a major stake in a U.S. grower so indirectly it's Constellation's way of having a large stake in a U.S. cannabis grower that currently has operations in 20 U.S. states…the expectation is that Constellation Brands which currently sells alcohol in all 50 U.S. states is well positioned to deal with different state regulators that will be in place when the time comes that cannabis is legal nationwide," explains Brighton Securities Chairman George Conboy. 

The restructuring of Constellation's investor rights agreement extends the exercise period for warrants from three years to five to seven years which allows Constellation more flexibility to leverage its cash flow and helps control costs by establishing price targets for certain warrants.

The company will also gain the ability to purchase shares of Canopy Growth on the open market which could allow it to increase its ownership to 50 percent or more in the future, and it gives Constellation control of four of seven Canopy Growth Board seats.   

"We believe the emerging cannabis market represents one of the most significant growth opportunities of our lifetime. Canopy Growth is well-positioned to establish a strong leadership position in this fast-evolving category, leveraging Constellation's recent investment in the company. With this deal, Canopy has set the stage to establish a leading position in the U.S., the largest cannabis market in the world, once cannabis becomes federally legal. Most importantly, Canopy is committed to bringing cannabis products to market in a responsible way. Our team at Constellation looks forward to continuing to work with them to help make this a reality," Nestle says.


Jennifer Lewke

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