In a stark reminder that the nascent marijuana industry is still thin on profits, Constellation Brands (NYSE: STZ) said Monday it will book a considerable loss on its investment in Canopy Growth (NYSE: CGC).
The alcoholic beverages producer said it stands to lose just over $54 million on a GAAP basis from Canopy Growth in its current second quarter of fiscal 2020, which will end on Aug. 31. The booked loss will derive from Canopy Growth's quarter that stretched from April 1 to June 30.
Image source: Getty Images.
On a six-month basis (i.e., including the previous quarter), the bottom-line deficit will come in at more than $132 million. That shortfall will come from Canopy Growth's performance from Jan. 1 to June 30.
Constellation Brands bought an equity stake of just under 10% in Canopy Growth for $190 million in 2017 in a deal that garnered significant attention for marijuana stocks and gave the sector a shot of legitimacy. Since then, Constellation Brands has added mightily to its stake; according to regulatory filings, it now owns almost 36% of the company.
That was the first high-profile investment of a "legitimate" publicly traded company into a pure-play cannabis peer. Subsequently, other notable stock market names became involved in various ways with corporate marijuana.
In 2018, tobacco giant Altria pumped $1.8 billion into Cronos Group, and Molson Coors Brewing created a joint venture with HEXO to develop cannabis-infused drinks. Other such tie-ups followed.
Constellation Brands offered explanation but almost no commentary on the expected loss from its Canopy Growth investment. It has not yet scheduled a release date for the full results of its current quarter.
Canopy Growth has not been a darling marijuana stock lately. Earlier this month, it reported Q1 net revenue and net loss figures that considerably missed analyst expectations. The bottom-line shortfall in particular was considered grim, being nearly 10 times deeper than the average prediction.
Despite the red numbers, going by stock performance, investors are more or less giving this news a shrug. Constellation Brands' shares closed up nearly 2% on Monday, while those of Canopy Growth ended the day modestly higher.
More From The Motley Fool
- 10 Best Stocks to Buy Today
- The $16,728 Social Security Bonus You Cannot Afford to Miss
- 20 of the Top Stocks to Buy (Including the Two Every Investor Should Own)
- What Is an ETF?
- 5 Recession-Proof Stocks
- How to Beat the Market
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool recommends Constellation Brands and HEXO. The Motley Fool has a disclosure policy.
This article was originally published on Fool.com