Beverage alcohol company Constellation Brands has converted its shares in Canadian cannabis company Canopy Growth Corporation into new exchangeable shares.
Constellation's exchangeable shares may be converted back into Canopy common stock on a 1-for-1 basis, the companies announced Friday.
However, the two Constellation subsidiaries that currently own the exchangeable stock have stated that they will not be able to sell the stock until it can no longer be reasonably expected that the sale of marijuana within the United States would violate the Controlled Substances Act or the Civil Asset Forfeiture Reform Act. There are no plans to convert.” “This involves violations of the Controlled Substances Act) and all related applicable anti-money laundering laws,” Constellation said in a news release.
The three remaining Constellation nominees to Canopy's board of directors have all resigned as part of the transaction, and Constellation “no longer has any governance rights with respect to Canopy Growth,” Canopy said in a release. .
Exemption from promissory notes
Constellation's subsidiary, Greenstar Canada Investments Limited Partnership, also canceled and forgave its promissory note to Canopy worth C$100 million ($72.8 million) and transferred C$81.2 million of the principal amount in equity. The remaining principal and interest were waived.
Smiths Falls, Ont.-based Canopy announced that debt on its balance sheet has been reduced by C$100 million.
“While we continue to support Canopy's strategy, this transaction eliminates any impact on our capital gains,” Constellation President and CEO Bill Newlands said in a statement. “This is expected and is consistent with our intention not to make any additional investments in Canopy.”
Constellation's move comes days after Canopy shareholders approved the creation of exchangeable shares as part of the company's plan to form a mainland U.S. holding company, Canopy USA, aimed at acquiring Canopy's existing U.S. cannabis assets. It was done later.
Canopy said: “This change will enable us to further advance Canopy USA's strategy as we continue to maintain a strong and enduring relationship with (Constellation) as our largest shareholder and as Canopy USA moves forward with its acquisitions of Wana, Jetty and Acreage. We look forward to seeing you,” Canopy said. CEO David Klein, a former Constellation executive, said in a statement:
Constellation Canopy History
Constellation originally invested in Canopy in 2017, taking a 9.9% stake.
The Victor, New York-based alcohol company pumped an unprecedented C$5 billion into Canopy in 2018, acquiring an even larger stake in a deal that saw Constellation gain a board seat and stock subscription rights. There was a possibility that the stake in Canopy could rise to more than 50%.
Constellation exercised a portion of these warrants in 2020.
However, Constellation said it does not plan to invest any more capital in Canadian cannabis operators through 2022.
Constellation granted stock acquisition rights to purchase additional Canopy shares that expired last November.
Canopy's most recent quarterly net loss was C$216.7 million, with net revenue of C$78.5 million.
Canopy stock trades on the Nasdaq as CGC and on the Toronto Stock Exchange as WEED.
Constellation trades on the New York Stock Exchange as STZ.
