Canopy Growth Investment Results In $1.0 Billion Impairment For Constellation Brands

Canopy Growth Corp (TSX: WEED) continues to cause problems for Constellation Brands (NYSE: STZ). The latter this morning reported its second quarter 2023 financial results, and as we had predicted, was forced to take a significant write-down on the value of its Canopy investment.

The ongoing poor performance of the cannabis company hit a crescendo in the most recent quarter, when the company was forced to record impairments of $1.73 billion in goodwill, which represents all goodwill associated with the firms cannabis operations. The result was a net loss for the quarter of $2.08 billion – which then hit Constellation hard.

Due to the method in which Constellation records its investment in Canopy, referred to as the equity method, that impairment trickled down to Constellation as well. For the three months ended August 31, 2022, Constellation was forced to recognize a $650.7 million loss on its books from Canopy, of which $460.8 million is a direct result of Canopy conducting those impairments.

However, further impairments were also required during the quarter due to the falling share price of Canopy, the uncertainty of the stock price recovering, and what Constellation refers to as the uncertainty of US federal cannabis. The result, is a $1,060.4 million impairment was taken by Constellation in the second quarter of fiscal 2023 – on top of the loss recorded for the firms quarterly performance.

The firms equity method investments as a result have now fallen below the $1.0 billion level, to that of $833.4 million.

In terms of the quarter as a whole, Constellation Brands recognized revenues of $2,864.3 million, and gross profits of $1,325.9 million. After the impairments it was forced to take as a result of its initial $4.4 billion investment in Canopy that is now worth a fraction of that figure, the company recorded a net loss of $1,140.7 million for the second quarter, reflecting a loss per share of $6.30.

Constellation Brands last traded at $235.95 on the NYSE.

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