Canopy Growth exchange notes (STZ)
Constellation Brands announced that through its wholly-owned subsidiary it agreed to exchange C$100M of principal notes due in 2023 for common shares of Canopy. The transaction is part of a C$255M notes exchange for common shares. The share price will be based on the ten day volume-weighted average trading price of the shares between $2.50 and $3.50 per share. Depending upon the share price Constellation Brands will receive between 5.4% and 7.6% of the outstanding shares of Canopy Growth. For the C$200M principal amount of notes Canopy Growth will only be able to convert any note with cash settlement. As a result of the exchange, Constellation Brands will own ~35.8% of the shares or assuming full exercise of the warrants between 50.3-50.7% of Canopy Growth shares. The exchange comes on the heels of the credit downgrade for Canopy.
Canopy Growth is becoming more like a deadbeat brother who keeps needing money rather than an investment in a rapidly growing sector to create a fourth category for Constellation Brands. It is more important than ever for shareholders to gain voting control over the company to prevent further capital mismanagement. One could argue the notes may not be worth that much anyway, but they are worth more than the common stock.
Cannabis in Canada.
The last few weeks have showcased many systemic issues facing the cannabis market. The Canadian government was supposed to reappraise the laws put into place in 2018 that legalized recreational cannabis in the country over 8 months ago, but today they still do not have a timeline on when this review will begin. This is a market that is in dire need of regulatory reform, but it doesn’t look to be coming anytime soon. A legal review of their regulation could take up to 18 months once it starts.
LOUNGES COMING TO NEVADA.
Nevada lawmakers finalized rules to open up 60-65 cannabis consumption lounges in the state. This is a big deal for the cannabis market because now these companies can tap into the tourist market more efficiently. These lounges should be able to open by year-end 2022. There will be 40-45 lounge licenses issued to existing stores and another 20 issued to independent lounges. An applicant for these licenses must prove that they have $200k in liquid assets to be considered for a license.
