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Why Constellation Brands' new CEO pulled the trigger on the massive cannabis deal

Brian Sozzi
Corona beers are pictured at a BevMo! store in Pasadena, California U.S., October 4, 2016. REUTERS/Mario Anzuoni

The world’s largest alcohol maker has a new CEO who also happens to understand the budding business of cannabis.

Constellation Brands (STZ) said Wednesday that chief operating officer Bill Newlands will take over for long-time CEO Rob Sands on March 1. Sands will move to the executive chairman role. Newlands — a liquor industry veteran with a long-time stint at Beam Suntory — will be the first outsider to lead the company.

The Wall Street Journal first reported the CEO transition.

Newlands will be tasked with maximizing the value of one of Constellation’s boldest bets ever: a major stake in cannabis seller Canopy Growth (CGC).

A bet on the future health and wellness

In August, Constellation plunked another $4 billion into Canopy Growth. The investment valued Canopy Growth at a hefty 51% premium. Constellation Brands’ ownership stake jumped to 38% from the 10% it bought back in October 2017.

Investors may feel somewhat encouraged that Newlands understands the need to branch out beyond the slow growth wine and beer business and into a hot area like cannabis.

“We were skeptical, too [of the cannabis industry],” Newlands told TheStreet at an Oct. 13 conference. “The thing that stood out for us [in our research] is that today’s consumer is looking for total mood modulation.”

Newlands said the investment in Canopy Growth reflects a bet on the future of health and wellness.

Sounds fancy. But hopefully profitable in the case of Constellation Brands and its new CEO.

A worker weighs a package of dried marijuana at the Canopy Growth Corporation facility in Smiths Falls, Ontario, Canada, January 4, 2018. REUTERS/Chris Wattie

Sands was the third family member to run Constellation Brands. He has led the company since 2007. Sands’ father Marvin purchased what went onto become Constellation Brands in 1945.

Today, Constellation Brands does more than $7.5 billion in sales a year. Top brands include Corona beer and Robert Mondavi wine. Constellation shares have surged about 682% under Sands’ leadership, according to Yahoo Finance data.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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