VIDEO: Canopy Growth CEO Bruce Linton on Selling 10 Per Cent of the Company to Constellation Brands

James West

Canopy Growth Corporation (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) is one of the largest cannabis companies globally. Constellation Brands, which owns Corona beer, recently acquired 9.9% of the company in stock, valued at CAD$245 million. CEO Bruce Linton talks to James about how they landed the deal and why it puts them ahead of everyone else.

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James West:     Bruce, welcome back. Thanks for joining us again.

Bruce Linton:     Not so long since I was here.

James West:     Not so long at all. Bruce, quick question: do you drink Corona?

Bruce Linton:     I love Corona.

James West:     I bet you do!

Bruce Linton:     It’s a terrific beverage.

James West:     Yeah, you bet. So Corona is one of the brands in the brand portfolio of Constellation Brands; $245 million all-stock deal, bought 9.9 percent of the company. How did that deal come together?

Bruce Linton:     It started off, was a strategic discussion. You know, we’ve been working away inside our place, but there’s a lot of things to think about when you think about adult access. So, what are you doing about demographic analysis? What are you doing about price point positioning? How are you making sure your brands speak to the right people in the right way? If we get to make things which can have various methods of being created that could include beverage and flavourings, how do we make sure that works?

So if you do a quick check, there’s only one Constellation. And what I liked about them, and why we reached out to them, is, evidently from their stock chart, which starts at the bottom left and goes quite high in the upper right, over the last three to five years they’ve done a tremendous job in a category that’s had a lot of boring behaviour, not much aggression, not much growth, not much really premiumization [sic].

James West:     Right.

Bruce Linton:     And so we reached out to them.

James West:     You reached out to them?

Bruce Linton:     Yeah!

James West:     Wow, that’s incredible.

Bruce Linton:     And, the interaction, the best part, and you know, I know it’s exciting to talk about the money – the reason I think this deal works and this relationship will work is, they are an aggressive, entrepreneurial-driven environment. Mr. Sands’ father started; Rob has made it amazing. His team gets the culture is, make tomorrow better, don’t just look at today and say ‘how do we repeat it’.

James West:     Sure.

Bruce Linton:     And so we loved the culture, and the way that they work. And so I think the ability to actually create things together isn’t going to be like, you know, maybe a lot of the other guys that people are saying they might get in the sector. I suspect it will take four Board committee meetings and a year or two to even decide how to do this, and then when they work with a smaller start-up company, they’ll hobble them.

So what you really want is, sure it’s a splashy amount – terrific. But you actually want to do something. And there’s lots of ways to have capital in our sector; in the last two months, the number of times people would offer a bought deal or a chunk of change that was pretty huge, was frequent. And so it actually wasn’t about the money – there’s loads of money – it’s about, how do we make sure we’re really way ahead of everybody.

James West:     The whole deal sort of puts the federally illegal status of marijuana in the United States into an irrelevant box, arguably, because if a New York Stock Exchange-listed company can buy 10 percent of the largest cannabis company in the world, what is that saying about the status of the Federal laws?

Bruce Linton:     Right. It says they’re super important in the US, 100percent. I don’t believe you’ll see any liquor, tobacco or pharma company work with anybody that is operating in America. Why? Do they make a lot of money in those sectors? Yes. Do those sectors rely on licensing, cross-border commerce, all the things that you can’t say, well, I’m following all the rules here in Florida but I’m partnered with a bootlegger party that breaks the laws? No.

So a huge part of the consideration on why Canopy, and why I’ve explained several times that I think this transaction validates the Canadian public policy, it validates compliance with laws, so that you operate federally, and it validates Canopy as the best choice for them, even though it was the most costly choice. But for sure, all the people that we interact with, whether it’s Constellation or other sectoral firms, a huge part of it is, are you breaking any Federal laws in America or elsewhere? Because if you are, put an X over that company.

James West:     Right. Okay, so, do you think this is going to catalyze a stampede of interest from Fortune 500s in the food and beverage and possibly pharmaceutical space, into the Canadian sector at this point?

Bruce Linton:     Not a stampede. Most of those companies are not run by entrepreneurs. So this is a very unusual company, Constellation: it’s a Fortune 500 company run by an entrepreneur. So I think you’re going to have a whole lot of committees struck, I think you’re going to have a whole lot of consultants hired, and about a year from now, you might see something else happen. But making a big decision, even if you’re following someone else, isn’t necessarily in the DNA of a lot of the other companies. So I think that this is going to be a much-watched but not soon repeated kind of thing.

James West:     At this point, is it a done deal, or is there any regulatory scrutiny that has to happen, or approvals?

Bruce Linton:     Yeah, so you go to the TMX and you give them a summary of what it’s about, they give you pre-approval, they approve it, you have a closing where it’s an announced definitive agreement, and then the cash comes over. The cash came over last Tuesday, I think.

James West:     Great.

Bruce Linton:     No, it’s done, and we did – what people need to understand is that it is fully legal. 100 percent legal, for any fund in America to invest in Canada, in cannabis. And the reason there’s no stampede of those funds doing that right now is, some of the companies are being allowed by the OSC to disclose right out, “I am breaking a federal law, but now that I told you, it’s okay”. And the problem is, if you’re an American fund who puts their money up to Canada, that’s legal. But you couldn’t put your money from, say, Boston into Florida, because that’s illegal investment – crossing state lines, the RICO Act.

So if you can come to Canada and then we can do for you indirectly what you couldn’t have done directly yourself, that is not going to work, and they’re not going to invest in a sector that’s not governed, because they’re not going to say ‘well, I picked the good company’. Once you’re explaining, you’re losing.

James West:     Right.

Bruce Linton:     And so until the OSC and the CSA actually get over the fact that Obama’s not in power and it is illegal, we’re not going to see capital markets as efficiently operating as they should.

James West:     Okay. Last question: is this deal with Constellation exclusive, or is it conceivable that Canopy could do other deals with major brands around the world or in America?

Bruce Linton:     So this is our best beverage partner; that’s our only beverage partner, and we’re their cannabis partner, and we love that. Now, if you are a terrific tobacco company with vape technologies that you really want to work with the best company, or you’re the best, most interesting pharma play that has a strategy that meshes with what we want to do, terrific. Love to work with you. But we’ve got a beverage partner, and we don’t need two.

James West:     Well, that was a great deal. Congratulations. Thanks for coming back today.

Bruce Linton:     Appreciate it, man. Thank you.





James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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