Did Constellation Brands Waste $4 Billion On Canopy Growth?

Posted: Feb 03, 2020

The marijuana producer has been more anchor than sail for the alcoholic beverages distributor.

Constellation Brands' (NYSE:STZ) $190 million investment in Canopy Growth (NYSE:CGC) in 2017 for a 10% stake in the marijuana producer altered the landscape for the legal weed industry. Because it was the first major company to put money into pot, it bestowed much-needed legitimacy on the industry.

Yet as Canopy Growth stumbles over yet another seemingly unforced error, investors may begin questioning whether Constellation wasted the $4 billion it eventually poured into the pot producer, and so far, the record isn't very encouraging.

Lurching forward
Canopy Growth's latest snafu is its delay in introducing its so-called Cannabis 2.0 lineup of marijuana-infused beverages. Instead of the January 2020 launch date it originally promised, Canopy pushed it back to some indefinite time in the future to give it the chance to scale up its production facility.

"In order to deliver products that meet our customer's high standards we are electing to revise the launch date while we work through the final details," CEO David Klein said in a statement.

Considering Constellation is one of the premier beer and wine distributors in the U.S. and its investment in Canopy was predicated not on how much dried cannabis flower or leaf the pot grower could sell but on the drinks it could produce, being ready to hit the ground running when it got the green light should have been a priority.

Canopy submitted its application for a beverage facility last June, and Canada's regulations for Cannabis 2.0 went into effect in October. Canada Health issued Canopy a license in November and the marijuana producer announced the following month it was launching its beverages in January. And then it said it wasn't.

While Canopy says the delay shouldn't have a material impact on its revenue this year, suggesting it may not be too big of a deal over the long term, it is ceding the early ground to other companies that are prepared to move forward with cannabis-infused beverages of their own. For example, Truss Beverages, the joint venture of HEXO and Molson Coors, and Fluent Beverage, the partnership between Tilray and Anheuser-Busch, also have a full lineup of drinks ready to go.

By Rich Duprey
February 3, 2020
Source: Fool.com

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