Constellation Brands (NYSE: STZ) does not intend to make additional cash infusions to that of Canopy Growth Corp (TSX: WEED) (NYSE: CGC) as per the latest regulatory filing by the alcohol giant. The company cited Canopy’s sizable cash and marketable securities position of $2.3 billion as justification for eliminating speculation on further cash infusions.
While Constellation did identify that it will not be making any further infusions into Canopy, they did leave a single caveat: currently outstanding warrants of Canopy Growth in which it holds. The firm did indicate that it will consider exercising these warrants, stating that they “will evaluate exercise of each of these warrants immediately prior to expiration,” however outside the exercise of currently held warrants the company will be making no further investments.
With respect to current warrants, Constellation owns approximately 18.9 million with an exercise price of C$12.98, as well as additional warrants via an amended agreement entered this past July with Canopy. The $12.98 warrants expire May 1, 2020, and could lead to approximately $245 million being sent over to Canopy should Constellation elect to exercise them. Based on the language from today’s filing, it appears that this will be a last minute exercise if Constellation chooses to proceed.
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Currently outstanding “Tranche A” warrants expire November 1, 2023, leaving Constellation ample time to determine whether or not to proceed with further investment into the cannabis giant.
Whether Constellation elects to exercise its warrants will likely largely be dependent on the current share price of Canopy Growth near the time of expiry, and the potential future Constellation sees with such an investment. It’s likely a touchy subject in the board room currently however, as Constellation will be taking a US$148.5 million hit to its net income line for the twelve months ended February 29, 2020 as a result of the cannabis firms losses.
Constellation Brands last traded at $195.29 on the NYSE.
Information for this briefing was found via Sedar, Constellation Brands and Canopy Growth Corp. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
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