Constellation marks down cannabis investment by $839m
Constellation Brands has marked down the value of its investment in Canada-based cannabis company Canopy Growth by US$839.1 million in the second quarter, with share prices falling by 5% as a result.
The company has also absorbed losses from Canopy amounting to $484.4m in the second fiscal quarter (three months ending 31 August 2019). Constellation wrote down the value of its unconsolidated investments by $1.3 billion in the same period, and by a total of $2.26bn in the six months to the end of August 2019.
The company’s net losses fell to $525.2m in second quarter, compared to a profit of $1.15bn in the same period in 2018. Net sales, however, were up 2% to $2.3bn.
Chief financial officer David Klein, said in a statement following publication of the results that: “Canopy’s business is rapidly evolving and their financial results will probably be volatile as they continue to focus on their paths to profitability.”
In October 2017, Constellation Brands announced it was to purchase a 9.9% stake in Canopy Growth Corp for £141 million, with plans to make cannabis-infused drinks. In August the following year, the owner of Corona, Kim Crawford Wines and Ballast Point announced it was upping its stake in the company, investing US$4 billion to acquire a 38% share of the business.
In January this year, the drinks giant announced that it would be building a hemp extraction and product manufacturing facility in New York.
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In July, Canopy Growth parted ways with its founder and co-CEO, Bruce Linton, a week after Constellation expressed disappointment over its financial losses.
Aside from the volatility of the cannabis investment, the company’s beer business is performing well. Sales rose by 7.4% to total $1.64bn in the three months to August, compared to $1.53bn in the previous year, with growth especially driven by Modelo. Its wine and spirits operation, which include brands such as Kim Crawford, Robert Mondavi, Prisoner and Svedka, lost ground, with sales falling 8.9% on last year to hit $703.6m.
Constellation also revealed plans for a Corona seltzer brand that will launch next spring. The brand will be comprised of four different flavour variants including tropical lime, mango, cherry, and blackberry and lime.
Constellation stated that its $1.7bn deal with E&J Gallo would be completed by the end of the 2020 fiscal year. Its $266m sale of Black Velvet Canadian Whisky to Heaven Hill Brands is expected to be completed in the fourth quarter of the 2019 calendar year, with the money used to reduce outstanding borrowings.
The $4B investment looked nuts at the time. There are probably further write-downs to come.