U.S.-based alcohol company Constellation Brands Inc. has suffered a financial blow with regards to its investment in Canadian pot producer Canopy Growth.
The Corona brewer announced this week that it has written down the fair value of its investment in the licensed producers by a whopping $534 million this quarter.
The New York-based beer maker acquired its stake in the cannabis producer via significant share purchases in 2017 and 2018. Although Constellation’s investments in Canopy were originally valued at $4.1 billion, they have since plummeted to $2.6 billion — a 37 per cent decrease.
Constellation CEO Bill Newlands told analysts on the company’s post-earnings conference call that he is still optimistic that the investment will yield a profit.
“We remain bullish on the Canadian cannabis market as the conversion of the illicit market to the legal market continues to strengthen,” Newlands stated during the call.
Despite its cannabis conundrum, Constellation as a whole is still turning a profit and exceeding the predictions of Wall Street analysts. It has been a successful year in beer, which saw an 8 per cent bump — although wine and spirits sales also dropped a significant 10 per cent.
Canopy’s former CEO Mark Zekulin, who departed the company last month, has blamed Canopy’s financial woes on an excess of product and an inadequate number of retailers from which to sell it.
Both companies are now pinning its hopes on incoming CEO David Klein, whose will take the LP’s reins on January 14 after a stint as Constellation’s CFO. Newland said during the conference call this week that Klein would bring “more focus and discipline” to the cannabis producer.
Meanwhile, Canopy is hoping that recent legalization of second-wave cannabis products, such as edibles, beverages, and vape pens, will lead to a boost in sales.
“We couldn’t be more excited to see these products in the marketplace,” Newlands said on the call.
Written by Emma Spears