Canopy Growth Analyst Says Constellation Buyout 'More Likely Than Not'

Constellation Brands, Inc. STZ has cash return commitments to shareholders, but a buyout bid for Canopy Growth Corp CGC WEED remains "more likely than not," according to Cantor Fitzgerald.

The Canopy Growth Analyst 

Analyst Pablo Zuanic maintained a Neutral rating on Canopy Growth with a CA$27 ($20.73) price target. 

The Canopy Growth Thesis 

Constellation owns a 35% stake in Canopy totaling 123 million shares, Zuanic said in a Wednesday note. The company also owns four warrants to purchase an additional 159 million Canopy shares, he said. (See the analyst's track record here.)

If Constellation is planning to buy Canopy, then the alcohol giant is looking to make the purchase now, when it would pay roughly CA$6 billion for the company, he said.

If Constellation were to wait, it might pay $25 billion if the share price were hypothetically to reach the high $70s, Zuanic said. 

The analyst laid out some bid scenarios. 

"If [Constellation] waits for the WEED share price to move to C$77, then it will need to pay C $8Bn to exercise its four sets of warrants (159mn shares), and by then another C$17Bn to own 100% of WEED."

Another option could play out as well, he said. 

"On the other hand, after exercising the Nov'17 warrants (if it does) of 18.9mn at C$12.98, it would need to pay "only" ~C$6-7Bn (taking a premium) to own 100% of WEED." 

Canopy Growth Price Action

The cannabis stock was trading 2.47% higher to $20.29 at the time of publication Wednesday. 

Related Links:

Canopy Growth Analyst Says Constellation Brands Likely To Bid On Cannabis Company's Equity

Constellation Brands Projects 10-Cent Hit To Earnings From Canopy Growth Investment

Photo courtesy of Canopy Growth.