Diamonds and Dogs

8/15/18

Canopy Growth Corporation (CGC) surging higher.  The global cannabis company is surging 28% to new highs following a big investment from alcoholic beverage maker Constellation Brands. Constellation is buying 104.5 million additional shares of Canopy for $4 billion -- roughly 5 billion in Canadian dollars. The two companies are also expanding their relationship to make Canopy the exclusive global cannabis partner for Constellation. Canopy Growth now has ample cash to develop and market more cannabis-based products and move into more International markets.

Good news for Canopy Growth is bad news for Constellation Brands shareholders (STZ). Constellation is down 15% not far from a 52 week low after investing $4 to $5 billion into a company losing money and only generating $200 million in sales. Also, there are concerns of a potential for a supply glut of marijuana in Canada so for the deal to work, Canopy Growth needs to expand internationally. The CEO for Constellations is certainly sticking his neck out. An investment of $4 to $5 billion is 10% of the company's market cap and a couple years of cash flow. That money may have been served better elsewhere.