As Constellation Brands, Inc. (STZ) gets serious about Canopy Growth (CGC) with its $4 billion investment, analysts are wondering if this step is paving the way for a takeover.
Canopy Growth and Constellation Brands has been a strong partnership for Canopy Growth shareholders so far, as the company's stock price has more than tripled since their first agreement in October 2017, when the beverage company took a 9.9% stake in Canopy Growth.
With the extension to a 38% stake announced this morning, the company is nearing a 50% threshold, which it could reach if warrants attached to the deal are exercised over the coming years. Per the terms of the deal, the warrants can be executed in two tranches over 3 years after the deal closes. The latest transaction is set for full shareholder approval by the end of October 2018.
"We wouldn't be surprised if STZ eventually acquires all of WEED as its initial investment in October 2017 of $245 million CAD ($190 million) for a 9.9% stake has already more than paid off, with STZ reporting a significant gain of [more than] $700 million since its initial investment," Wells Fargo analyst Bonnie Herzog speculated in a note on August 15.
Canopy Growth CEO Bruce Linton was non-committal during the company's earning presentation this morning.
"I suspect if we do what we're going to do, which is build a global company with massive EBITDA, I think that's a company anyone would like to own," he said in response to an analyst question regarding a possible takeover.
As reported earlier by Real Money, Canopy has worked alongside Constellation in formulating ideas for a cannabis-derived "Red Bull" beverages, which Canopy is planning to launch in the second half of 2019.
"It's going to be similar to sipping a glass of wine for the effect, and it's more similar to giddiness, euphoria, a positive feeling, whereas alcohol is a depressant," CEO Bruce Linton told Real Money at the time.
Without or without takeover, Constellation's partnership with Canopy is just getting started.
