- Constellation Brands, the company behind Corona and Modelo beer, posted second quarter earnings that largely beat expectations but revealed a $484 million loss on an investment in Canopy Growth, a cannabis company.
- Shares fell as much as 8% on the news.
- Investors have been watching the relationship between the companies since June, when Constellation CEO Bill Newlands publicly expressed disappointment in Canopy’s earnings, leading to the ousting of former CEO Bruce Linton.
- Watch Constellation Brands trade live on Markets Insider.
A bet on cannabis isn’t paying off yet for Constellation Brands.
Shares of the beverage conglomerate slid as much as 8% Thursday after the company reported second-quarter earnings which mostly beat analyst expectations — but included a roughly $500 million loss on an investment in cannabis producer Canopy Growth.
Here’s what analysts surveyed by Bloomberg expected, versus what the company reported:
- Earnings per share: $2.72 reported versus $2.53 estimate (expected)
- Net sales: $2.34 billion reported versus $2.34 billion (expected)
- Beer depletion growth: 6.2% reported versus 7.7% (expected)
The company known for Modelo, Corona, and Svedka made huge cuts to its expected full-year earnings-per-share after the results — it now expects per share earnings between $0.55 and $0.75, down from $4.95 and $5.25.
It boosted its comparable basis earnings per share outlook to between $9.00 and $9.20 per share on the year, an increase of $0.35, excluding results from Canopy.
Constellation reported that it lost $484.4 million during the quarter on an investment the company made in Canopy Growth, a Canadian cannabis company it bought a 38% stake in for $4 billion in 2018. The move was a strategic play to gain on the cannabis market as soon as it becomes legal in the US.
Canopy reported in its first-quarter earnings that it recorded a $1.28 billion total loss, including a $1.2 billion charge related to warrants from its investor agreement with Constellation Brands. The roughly $500 million loss Constellation just reported includes its share in the June warrant modification, as well as equity losses, the company said.
Constellation’s struggles with Canopy date back further. In June, Constellation CEO Bill Newlands expressed his discontent with the weed company’s earnings during Constellation’s own earnings call — Bruce Linton, the former chief executive officer of Canopy Growth, left the company shortly after. In an interview with CNBC in July, Newlands said the company “needed focus” and a different leader for its “next phase of growth.”
Outside of the investment in cannabis, Constellation reported solid gains in beer. Modelo sales grew 15% during the quarter, and Corona Refresca and Corona Premier also posted strong growth.
Constellation Brands is up 22% year to date.