The Constellation-ization of Canopy Growth Corp (NYSE:CGC)

James West
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Canopy Growth Corp (TSX:WEED) (NYSE:CGC) (FRA:11L1) today announced two new additions to the board of directors, both of whom are direct transplants from the board of Constellation Brands Inc. Constellation Brands, Inc. (Constellation Brands, Inc. Class A NYSE:STZ). This is the best case scenario for Canopy investors, as it cements optically the commitment of Constellation to its investment in Canopy.

The vertically integrated brand conglomerate, owners of such global iconic brands as Corona and Modelo beers, Robert Mondavi, Kim Crawford wines and Svedka vodka is obviously very focused on elevating Canopy’s brand portfolio to the forefront of cannabis product shelves throughout North America as legislation progresses toward a more uniform consistency across North America.

With the elevation of Judy Schmelling from head of the audit committee to Chair, and the addition of Jim Sabia, oversight of Canopy has very much become Constellation Brands centric.

Given the A-class pedigree of the board of directors, which is best collectively categorized as some of the world’s top marketers and brand managers, the rest of the Canadian LP’s will likely be quaking in their boots, as Canopy now has the strongest bench-strength in the industry, on top of the deepest pockets.

Midas Letter Chart (CGC:US,STZ:US)

On the other hand, there are now no significant shareholders on the board of directors of Canopy, which means that what is good for a Canopy shareholder might not necessarily be the same as what is good for a Constellation shareholder over the long term. There are myriad scenarios where that could become a threat to share price performance, but for the time being, Canopy’s share price is starting to reflect very well on Constellation’s, and so the threat is theoretical only.

We can’t help but imagine that Constellation management has had a serious “Doh!” moment by making its acquisition of its ownership stake in Canopy too soon. The fact that they bought when they did, and paid what they paid, will ultimately constitute a windfall for the likes Bruce Linton and Mark Zekulin, each of who still own substantial positions. The largest reported insider holding is by David Klein, who received 1,618,122 options for signing on as CEO.

No matter how you look at it, Constellation now has 55% control over Canopy Growth, and Canopy is a subsidiary of Constellation Brands effectively. Who wouldn’t raise a glass to that?

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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