Constellation’s cannabis investment offers $300 million gain

Drinks giant Constellation’s profit margins have shrunk in the first quarter of 2018, but the Corona beer owner said its investment in cannabis business Canopy Growth is already paying off.

Constellation CEO Rob Sands is keen to get in early to the cannabis drinks party.

Constellation Brands’ first quarter sales increased 6% to US$2 billion, but the US group’s wine and spirits sales declined.

Net sales of spirits dropped 8% to $80.2 million, while wine fared better, falling 2%.

Higher shipping costs and an increased investment in marketing reduced operating margins in Constellation’s beer business — which include Corona and Modelo —  to 37.8%, despite unit sales rising by 11% year on year to just under $1.4 billion.

However, executives say the drinks firm’s investment in cannabis producer Canopy Growth is already bearing fruit.

Speaking on a conference call with reporters on Friday, chief financial officer David Eric Klein said that Constellation won roughly $258 million in “pre-tax unrealised gain from the change in fair value of the Canopy Growth investment and warrants,” bringing its net gain up to $700 million.

Chief Executive Robert Sands said the investment “is certainly paying off.”

Constellation acquired a 10% stake in said in Canada’s biggest cannabis producer — Canopy Growth Corp — for £141m back in October 2017, becoming the first major beer and spirits company to invest in legal cannabis.

Rob Sands, CEO of Constellation Brands, said: “Our first quarter results are consistent with our expectations for the business and reflect planned investments in innovation for key brands, digital enablement, emerging opportunities, and operational efficiencies.

“We expect these investments to yield excellent returns well into the future.”

Edibles — including non-alcoholic wine and beers infused with psychoactive compound THC — form a small but fast-growing portion of the burgeoning cannabis market in the US.

Last week, craft beer brand Lagunitas launched a product of its own in the sub-category with Hi-Fi Hops, an “IPA-inspired, THC-infused sparkling water,” making parent company Heineken the first drinks giant to break into the cannabis market.

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