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Canopy Growth’s stock price drops after Constellation Brands bombshell

Canopy Growth stock price was trading down close to 10% after global alcohol giant Constellation Brands Inc. announced that it no longer plans to inject money into the cannabis producer. Constellation says that it does not plan any further cash contributions to the company as it has sufficiently capitalized Canopy with more than $2.7 billion in cash and marketable securities as of September 30.

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Constellation Brands made a comment in a U.S. regulatory document in which it stated that it expected to record a comparable net loss of $125.4 million over nine months for its investment in Canopy.

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More info about Constellation Brands

Constellation Brands Inc. is a company that produces and markets beer, wine, and spirits. Also, it is the largest beer import company in the United States and has the third-largest market share of all major beer suppliers. Constellation Brands Inc. also invests in the medical cannabis sector.

Constellation Brands Inc. has wine brands, such as Robert Mondavi, Ravenswood Winery, Wild Horse Winery, Clos du Bois, Franciscan Estates, Kim Crawford, Meiomi, Mark West, Ruffino, and The Prisoner. Corona, Modelo Especial, Negra Modelo and Pacifico are among its beer portfolio.

Constellation Brands and Canopy Growth – no future plans

Constellation Brands has indicated that it holds options to purchase shares of Canopy Growth, some of which are priced at less than half the current share price. The company indicated that it would assess whether it would be worthwhile to exchange these vouchers before they expire in May 2020 and November 2023.

In addition to these warrants, Constellation has indicated that it does not plan to inject any further cash into Canopy, as it has sufficiently capitalized the company with over $2.7 billion in cash and marketable securities as of September 30.

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Investing agreement

Constellation Brands Inc. announced in August 2018 that it had reached an agreement to invest $5 billion in Canopy Growth, in order to acquire 38% of it and become its main shareholder.

In June, Constellation stated that they were “not satisfied” with Canopy’s results after the company posted a larger than expected net loss. A week later, the company’s founder and CEO, Bruce Linton, was forced to leave his position and the company.

In August, Constellation recorded an $839 million decrease in the fair value of its investments in Canopy for the quarter ended August 31, as the cannabis industry struggled to meet expectations after legalization.

Canopy’s loss

In the same month, Canopy recorded a loss of $1.28 billion, or $3.70 per share, for the quarter ended June 30, mainly due to a non-cash loss of $1.18 billion related to the termination of warrants held by Constellation.

Since the legalization of recreational cannabis, Canadian companies in this sector have struggled to be profitable and many have failed analysts’ expectations and have seen  their stock prices adjusted.

Canopy’s stock, which reached a high of $70.98 in April, closed Friday down $2.56, or 9.5%, to $24.47 on the Toronto Stock Exchange.

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(Feature image by Drew Taylor via Unsplash)

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First published in LAPRESSE.CA, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Arturo Garcia started out as a political writer for a local newspaper in Peru, before covering big-league sports for national broadsheets. Eventually he began writing about innovative tech and business trends, which let him travel all over North and South America. Currently he is exploring the world of Bitcoin and cannabis, two hot commodities which he believes are poised to change history.

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