The Musical Chairs marathon at Constellation Brands (STZ) shows no signs of abating. The spirits titan scaled back Ballast Brewing last week and then dove even deeper into the world of marijuana this Monday (4.23).
A Complex Transaction
As readers may recall, back in October 2017, Constellation dropped a cool $191 million (US) to pick up a minority stake in Canopy Growth (CGC), a large, Canadian marijuana provider. Then, in August 2018, Constellation spent another $4 billion (US) to increase their existing stake in Canopy from 9.9% to 38%.Specifically, Constellation purchased 104.5 million shares directly from Canopy Growth at a price of C$48.60 per share. In addition, Constellation exercised previously some held warrants and received new warrants that would allow the company to purchase a 50% share moving forward.
The warrants (sort of like stock options) are at the center of the new deal. Canopy holds warrants in Constellation and vice verse. In the new deal, the two corporations mutually agreed to change the terms on those warrants as well as some rights.
Why? The big driver is Canopy’s proposed deal to buy Acreage Holdings Inc (ACRGF). Acreage is a player in the American marijuana cultivation, processing, and dispensing sectors. Of course, unlike Canada, in the US, marijuana is still illegal on a federal level…Canopy, being intelligent, inserted a clause into their acquisition deal: they will not consulate the buyout until marijuana is federally legalized. So, you can imagine how that might throw a big wildcard into stock value and subsequently warrants.
Beer Going Flat?
As originally reported by BrewBound, Constellation is shuttering Ballast Point Brewing’s 80,000 sq. ft. “Trade Street” sour beer and barrel-aging plant in San Diego along with a brewpub in Temecula, California.
“I can confirm [the] closure of these two facilities due to right-sizing our cost structure based on recent craft trends,” spokeswoman Stephanie McGuane told BrewBound.
In addition, the company 86’d plans to open a new brewpub in San Francisco’s bev mecca in the Mission District.
The shifting strategy is nothing new for Constellation these days. Earlier in April, the corporation announced a deal to sell 30 low-end wine and spirits brands and six wineries to E. & J. Gallo for $1.7 billion.
In October, the company announced that its chief executive of 11 years, Rob Sands, will conclude his tenure in March, with Newlands taking the helm. Likewise, the summer re-up on cannabis was accompanied by layoffs of entire craft beer sales team. There is even precedent for the wine sales; in 2016, the conglomerate’s Canadian wine portfolio was sold to the Ontario Teachers’ Pension Plan for about C$1.03 billion ($775 million).