[Canniseur: Constellation Brands, a giant in the alcoholic beverage industry, invested almost $200M in the nascent cannabis market 2 years ago. They were one of the older companies to bet on expected growth of the Canadian cannabis market. It demonstrates the danger of investing in a market this new. There are too many bad players who are purporting to start companies, but can’t actually run an organization for growth. We see a lot of the CEOs of new companies being forced to resign. Why? Because bad players are everywhere and a gold rush is a gold rush.]
Beverage giant Constellation Brands, Inc. (NYSE: STZ and STZ.B) stock fell over 6% after the company reported a $484 million write-down on its $4 billion Canopy Growth investment. The cut drove its net loss to $525.2 million, or $2.52 a share, for the quarter to Aug. 31, after income of $1.149 billion, or $5.41 a share, in the year-earlier period. Excluding those charges, the company had per-share earnings of $2.72, ahead of the $2.63 FactSet consensus. Overall for Constellation. the company’s sales edged up 2% to $2.344 billion, meeting the FactSet consensus.
Canopy Growth investors didn’t seem to mind. That stock rose almost 2% and was lately trading at $22.38. This was especially comforting to the cannabis community since these stocks have been in a bear market for most of 2019.
The company had signaled this summer that it was losing its warm and fuzzy feeling towards Canopy when it terminated the CEO Bruce Linton. Linton is widely respected within the cannabis community and the termination was seen as a sign that Constellation was flexing against the smaller cannabis company. In a previous analyst call,
“While we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year-end results,” Chief Executive William Newlands told analysts. “However, we continue to aggressively support Canopy on a more focused long-term strategy to win markets and form factors that matter, while paving a clear path to profitability.”
Having said that Constellation said it has been actively developing a range of CBD products and hopes to bring them to the U.S. market by the end of its fiscal year.
Constellation did note that it was planning on going further into the seltzer category by introducing four new flavors of a Corona-brand product planned for Spring 2020. It was described as being “heavily accretive,” but also as a product that could take beer sales. Wine in a can is also turning into a popular product.
