CBrands Finds a Way Out of Its Cannabis Buzz

Cannabiz was supposed to give Constellation Brands a financial high, but it has been a disaster for the beer, wine and spirits firm.  Now, CBrands has a way to more-or-less end the pain.

Four years ago, when Canada legalized cannabis, the idea had been that other nations would fall in line and, presto!, weed would become big business.  It hasn't worked out that way, and CBrands and Altria have suffered billions in losses as a result.

Now, Canopy Growth Corp. has found a way to ease their pain.  As it the norm on Wall Street, it's wrapped in talk about growth.  But make no mistake, it's a recognition that the Promised Land is a ways away.  Yesterday, Canopy Growth said it won't wait until federal legalization to buy three U.S. cannabis companies and it will seek "opportunities to benefit from strong growth in state-by-state cannabis sales."

It will consolidate all its assets into a new holding company, Canopy USA.  The goal is to be the leading North American cannabis company, and creation of Canopy USA is seen as a logical next step toward that goal.  Canopy USA will exercise its options to acquire 100% of Acreage, Wana, and Jetty, and is evaluating options for its conditional ownership of TerrAscend Corp.  It currently owns 13.7% of TerrAscend.

CBrands will remain the largest shareholder in Canopy Growth, and won't have direct ownership in Canopy USA.  But Constellation will convert its Canopy Growth common stock into "new exchangeable shares."  

What are "exchangeable shares?"  It's not clear from what the companies have put out, but it sounds pretty much like convertible preferred stock.  The official statement on "exchangeable shares" is that it will allow CBrands to protect its own shareholder value while retaining an interest in Canopy nonvoting and non-participating shares.  

“We believe that the conversion of our ownership interest will maintain Constellation’s ability to realize the potential upside of our investment in Canopy,” said Bill Newlands, Constellation’s President/CEO. “At the same time, this Transaction and the surrender of our warrants are expected to eliminate the impact to our equity in earnings, mitigate risk to our organization, and further reinforce our intent to not deploy additional investment in Canopy aligned with Constellation’s previously stated capital allocation priorities.”