Corona-maker Constellation ups bet on cannabis with $4 billion investment in Canopy Growth

Constellation Brands is upping its bet on the cannabis industry, announcing an additional $4 billion stake in Canopy Growth on Wednesday.

The maker of Corona and Modelo took a 9.9 percent stake in the Canadian cannabis company in Oct. 2017, which included the option for future investments, giving Constellation a first toehold in an industry the brewer said it expects to soon be legalized across the U.S.

With this latest investment and the execution of some warrants, Constellation says its stake will become 38 percent of Canopy.

“Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” Constellation Brands CEO Rob Sands said in a statement.

Shares of Canopy Growth surged 50 percent in premarket trading from Tuesday’s close of $24.62 per share. Constellation said it is acquiring the new stake at average prices which are 51 percent higher than Tuesday’s close.

Canopy Growth is Canada’s largest medical marijuana producer but took a hit after its first earnings report as a public company in the U.S. Chief executive Bruce Linton shrugged off concern from investors that Canadian marijuana is overvalued, saying Canopy Growth is focused more on cannabis as a product, than cannabis as a commodity.

In Canada, “by 2020 or 2021, there will be too much cannabis produced. If I’m still selling primarily an ingredient, I have completely dropped the ball. You want to transform it,” Linton told CNBC on June 28.