Canopy Growth Corp Inspired Sector Run Expected To Ensue Today

Canopy Growth Corp Inspired Sector Run Expected To Ensue Today

Canopy Growth Corp Inspired Sector Run Expected To Ensue Today

On Oct. 17, Canada will become the first G7 country to legalize pot for recreational use.

"This is rocket fuel", Canopy Chief Executive Officer Bruce Linton said of the investment of on the company's earnings call on Wednesday. Molson Coors Brewing earlier this month said its Canadian arm would make cannabis-infused drinks with Hydropothecary Corp.

Alcohol giant Constellation Brands will invest $5 billion in Canopy Growth Corp. - the largest strategic investment in the cannabis space to date - which the marijuana producer says will help it scale up and fend off competition from established players in big pharma and booze who are hungrily eyeing the pot industry.

"We view the Canopy/Constellation news as further proof that a global market opportunity awaits, with Canadian-listed companies well positioned to participate given their head start and superior access to capital", he said.

Constellation, among the first big alcohol makers to invest in the marijuana industry, pumped nearly $200 million in Canopy a year ago in a deal to produce a non-alcoholic cannabis-based beverage.

Kevin Murphy, CEO of Acreage Holdings, a cannabis producer that has former US House Speaker John Boehner on its board, said in an email to CNNMoney that he expects more beverage companies - and perhaps even Big Pharma firms - to look more closely at developing cannabis products too. Canopy shares jumped 33 percent to C$42.95 at 9:53 a.m, giving it a market value of C$9.36 billion.

Canopy, based in Smiths Falls, Ontario, doesn't now have any operations south of the border, where marijuana is banned federally.

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Constellation will increase its ownership interest by acquiring 104.5 million shares directly from the company, thereby achieving approximately 38 percent ownership when assuming exercise of the existing Constellation warrants. "There will be nothing federally illegal in what we do", he said.

"Over the past year, we've come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy's market-leading capabilities in this space".

"Canopy Growth remains committed to not entering the USA market in any manner that would contravene US federal laws", the company said in a statement. The company will also receive additional warrants of CGC that, if exercised, could provide an additional $4.5 billion CAD to the company.

Constellation said Merrill Lynch has committed financing for the acquisition.

With Constellation's latest injection of cash, Canopy plans to expand its suite of products to include edible bars, inhalers and pre-rolled items.

Constellation's investment on Wednesday is by far the largest strategic investment seen in the space to date, said Russell Stanley, an analyst with Echelon Wealth Partners in a research note.

Also on Wednesday, Canopy reported a net loss $91-million, or 40 cents a share for its fiscal first quarter of 2019, as it made large investments ahead of Canadian legalization.

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