Constellation Brands Converts $100M Canopy Growth Promissory Note

The TDR Three Key Takeaways regarding Constellation Brands and Canopy Growth:

  1. Constellation Brands converts $100M note, boosting Canopy Growth’s US plan.
  2. Constellation keeps a supportive role post equity conversion in Canopy.
  3. Canopy Growth’s board is adjusted as Constellation Brands former board appointees step down.

Canopy Growth (NASDAQ: CGC, TSX: WEED) has significantly advanced its US market strategy, notably with the conversion of a $100 million promissory note held by Constellation Brands into exchangeable shares. This arrangement was announced yesterday, shortly after Canopy received shareholder approval for its US market engagement plan earlier this week. Constellation Brands, the largest shareholder in Canopy Growth, has chosen this path to solidify its support, although clarifying its position of not injecting further capital into Canopy. The structural adjustment also led to the resignation of Constellation-appointed directors from Canopy’s board.

Constellation Brands’ conversion of debt into equity underscores its strategic decision to reshape its involvement without additional capital infusion. According to David Klein, Chief Executive Officer of Canopy Growth, this development not only strengthens Canopy’s balance sheet but also paves the way for its US expansion through acquisitions like Wana, Jetty, and Acreage. Klein emphasized the importance of this change, stating, “We look forward to maintaining an enduring positive relationship with CBI as our largest shareholder, and to the further advancement of the Canopy USA strategy that this change enables as Canopy USA moves forward with the acquisitions of Wana, Jetty, and Acreage.”

On the other hand, Constellation Brands has been adjusting its involvement to focus more on its core priorities while maintaining a supportive stance towards Canopy Growth. “While we remain supportive of Canopy’s strategy, this transaction is expected to eliminate the impact to our equity in earnings and is aligned with our intent to not deploy additional investment in Canopy as we’ve previously stated in our capital-allocation priorities,” commented Bill Newlands, Chief Executive Officer of Constellation Brands.

Following the termination of an Investor Rights Agreement and a Note Exchange, Garth Hankinson, Judy Schmeling, and James Sabia, nominees from Constellation Brands, resigned immediately from Canopy Growth’s board. These resignations occurred without disputes over company operations, policies, or practices. Post-resignations, the Canopy board includes David Lazzarato as Chair, Willy Kruh, Theresa Yanofsky, Luc Mongeau, and CEO David Klein.

This financial rearrangement is part of a broader strategic recalibration by Constellation Brands, aimed at optimizing its investment portfolio and mitigating risk exposure to the fluctuating cannabis market. Meanwhile, Canopy Growth views this move as an opportunity to expedite its plans within the growing U.S. cannabis industry, leveraging the flexibility gained from improved financial health and reduced direct oversight by Constellation. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.

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