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Constellation and Canopy Growth Corp (NYSE: CGC) Bet Big on Global Cannabis

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Canopy Growth Corp (NYSE: CGC) has shot up more than 30% over the last 30 days – albeit most of it on the back of one announcement, but that single bit of news caused a tidal wave across the cannabis industry. CGC received a huge endorsement from Constellation Brands, an alcoholic beverage titan who owns the likes of Corona and other popular brands in the industry. The $4 billion investment, giving the company around 38% ownership of CGC (however, by exercising all existing warrants they could exceed 50% control), is a big bet on the global expansion of cannabis.

The deal is a huge shake-up for the cannabis industry and we assume that Aurora Cannabis will soon look to make a similar deal to not be outpaced by CGC. But, as stated above, this deal is about expanding beyond the borders of Canada and tapping into the 30 or so countries who are toying with legalizing cannabis.

Canopy Growth Corp (NYSE: CGC) is one of the bigger growers in the industry. The company produces and sells medical marijuana in Canada. It offers dry cannabis and oil products primarily under the Tweed and Bedrocan brands. It also sells its products online.

According to company materials, “Tweed is the most recognized marijuana production brand in the world. It has built a large and loyal following by focusing on quality products and meaningful customer relationships. Tweed doesn’t just sell marijuana, it facilitates a conversation about a product we’ve all heard about but haven’t met intimately yet. It is approachable and friendly, yet reliable and trusted. As marijuana laws liberalize around the world, Tweed will expand its leading Canadian position around the globe.”

Also from their materials, “Bedrocan is the epitome of medical-grade cannabis. Bedrocan BV pioneered medical cannabis in Holland through decades of selection and refinement, leading to standardized, whole bud cannabis strains that patients can rely on. Bedrocan Canada supplies the same standardized strains to the Canadian market through exclusive licensing rights to the American continents, an arrangement it will also enjoy for all future genetic advancements. Due to its consistency over time, Bedrocan’s strains have been used in clinical research in seven European countries. That commitment to research didn’t stay on the east side of the Atlantic – Bedrocan Canada recently launched one of the largest clinical cannabis studies in the world, the EQUAL Study, to evaluate quality of life before and after medical cannabis use.”

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“Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner,” said Rob Sands, Chief Executive Officer, Constellation Brands.  “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.  We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space.”

However, and this is a devil’s advocate perspective, cannabis is still a volatile emerging market and CGC is trading at a rather high valuation at the moment. While the market opportunity for marijuana companies is big, CGC has a lot of work to do for this deal to pay off for Constellation Brands. Canopy Growth’s sales grew 63% year over year in the second quarter; however, sales were still only $26 million Canadian in the quarter, and that means shares are trading about 70 times the company’s annualized revenue.

CGC’s also been losing money because of spending in preparation for the opening of Canada’s recreational market later this year and in support of its growing business in Germany. In the quarter, sales in Germany accounted for 14% of total revenue, up from 2% of revenue in the same quarter last year. Overall, the company has landed successful deals from provincial contracts and maybe this deal works out better for Constellation shareholders rather than CGC shareholders as the large beermaker just hedged itself against a growing consumer sin category.

With a capital value in the market of $7.769B, CGC now has the most cash in the industry charging into October. The company has global interests in Germany and Chile, which are important investments in this story that could be the most important factor in the next candle of growth for CGC. We will keep readers updated as more news hits the wire. Sign-up for continuing coverage on shares of $CGC stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $CGC, either long or short, and we have not been compensated for this article.

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