Shares in Canadian cannabis stock Canopy Growth (CGC) surged 12% in Friday’s after-hours trading on the news that Constellation Brands (STZ) exercised almost 19 million warrants to purchase CGC shares.
The warrants, which were originally issued on November 2, 2017, were exercised at an exercise price of C$13 per common share for an aggregate of approximately C$245 million.
Upon issuance, the common shares represent approximately 5.1% of the issued and outstanding common shares of Canopy Growth.
In total, beverages giant Constellation Brands now indirectly holds over 142 million CGC common shares- about 39% of the company- as well as a further 140 million warrants to purchase common shares and C$200,000,000 principal amount of senior notes.
This means that if Constellation decides to exercise all its remaining warrants and full conversion of the notes, the company would own over 55% of Canopy Growth shares
"While global legalization of cannabis is still in its infancy, we continue to believe the long-term opportunity in this evolving market is substantial," said Bill Newlands, CEO of Constellation Brands "Canopy is best positioned to win in the emerging cannabis space and we are confident in the strategic direction of the company under David Klein and his team."
David Klein, Canopy Growth CEO, added: "This additional investment validates the work our team has done since attracting the initial investment in 2017.” The additional funds will strengthen CGC’s ability to pursue the ‘immense’ market and product opportunities available to Canopy in Canada, the U.S. and other key global markets, he said.
Overall, analysts have a cautiously optimistic Moderate Buy consensus on CGC, whereas Constellation Brands scores a much more bullish Strong Buy outlook from the Street. Indeed, Canaccord Genuity’s Matt Bottomley recently reiterated his CGC Hold rating, citing the company’s recent wave of operational pullbacks as he reduced his price target from C$28 to C$23.
But there is hope on the horizon: “The company has developed one of the widest breadths in its derivative product portfolio, and once these are brought to market Canopy could be a dominant player in the beverages/edibles space” the analyst concluded. (See Canopy Growth stock analysis on TipRanks).