Constellation Brands moves itself further away from cannabis grower Canopy Growth's business

By Bill Peters

Alcoholic-beverage giant Constellation Brands Inc. on Thursday announced a number of moves intended to further distance itself from struggling Canadian cannabis producer Canopy Growth Corp., following a multibillion-dollar investment in the pot company several years ago.

Constellation (STZ), best known for selling the Corona beer brand in the U.S., said Thursday that two of its cannabis-focused subsidiaries - Greenstar Canada and CBG Holdings - converted their common shares in Canopy (CGC) into non-voting and non-participating exchangeable shares of Canopy.

In doing so, Constellation backed out of deals that gave it influence over Canopy's board and other agreements, including the vast majority of commercial arrangements. Three Constellation-backed Canopy board members - Garth Hankinson, Judy Schmeling and James Sabia - gave notice that they would resign immediately.

One of Constellation's subsidiaries, Greenstar, also forgave accrued but unpaid interest and the remaining principal amount on a payment, helping Canopy reduce its debt burden by around 100 million Canadian dollars ($72.6 million).

The two subsidiaries now hold around 26.2 million exchangeable shares of Canopy, and no other shares or securities of Canopy.

"While we remain supportive of Canopy's strategy, this transaction is expected to eliminate the impact to our equity in earnings and is aligned to our intent to not deploy additional investment in Canopy as we've previously stated in our capital-allocation priorities," Constellation Brands Chief Executive Bill Newlands said in a statement.

Shares of Canopy were down 6.4% after hours on Thursday, after shooting 20.7% higher in regular trading.

Constellation invested $3.7 billion in Canopy Growth in 2018, following an earlier stake it took in the cannabis producer. But Canopy and other high-profile industry players in Canada, where cannabis is legal, have suffered from steep losses and overexpansion, and Constellation more recently has begun to back away from any deeper commitments to Canopy.

Meanwhile, the cannabis industry in Canada continues to wait for federal legalization in the U.S. as the next big driver for growth. Legislation has stalled in recent years, though shares of Canopy recently rallied after Germany - a much smaller market - voted to ease some restrictions on possession and cultivation.

The creation of the exchangeable shares was approved by Canopy's shareholders at a special meeting last week. Those shares don't carry voting rights, rights to receive dividends or other rights, Canopy said, but they can be converted into common shares.

On Monday, Canopy said that the decision would hasten its move into the U.S., where it hopes to eventually sell cannabis products containing THC via Canopy USA, a U.S.-based holding company it created that holds Canopy's U.S. investments.

Canopy intends to use the U.S. holding company to carry out agreements to acquire cannabis companies Acreage Holdings, Wana Brands and Jetty Extracts.

"We look forward to maintaining an enduring positive relationship with [Constellation] as our largest shareholder, and to the further advancement of the Canopy USA strategy that this change enables as Canopy USA moves forward with the acquisitions of Wana, Jetty and Acreage," Canopy Chief Executive David Klein said in a statement on Thursday.

-Bill Peters

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04-18-24 1959ET

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