By Uday Sampath Kumar
(Reuters) - Corona beer maker Constellation Brands will invest a further $4 billion in Canada's top cannabis producer Canopy Growth, doubling down on one of a growing number of bets by the alcohol industry in legal pot.
Constellation was among the first major alcohol producers to invest in marijuana production when it pumped nearly $200 million into Canopy last year but the latest announcement makes it by far the biggest investment in the industry.
Canada, where 4.4 million people reported using the drug in the first half of the year, will fully legalize the recreational use of cannabis in October.
Constellation, Molson Coors and Anheuser-Busch are all using the move by the United States' northern neighbor to hedge their bets for the future at a time when beer sales, roughly 60 percent of Constellation's business, are stagnating, particularly with younger Americans.
Constellation will buy 104.5 million Canopy shares at C$48.60 per share, a 51.2 percent premium to the stock's Tuesday closing price.
The deal will take Constellation's ownership in Canopy to 38 percent from the 10 percent it took last October. Constellation could also increase its ownership to over 50 percent if it exercises warrants received as part of the deal.
"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 Chief Executive Rob Sands said in a statement.
Recreational use is also currently permitted in nine U.S. states and the District of Columbia, and sales in U.S. legal markets should nearly triple to $16 billion by 2020 from $5.4 billion in 2015, according to Euromonitor International.
Operating nationwide, however, is more problematic, and Constellation said neither company plans to sell cannabis products in the United States until it is allowed to do so at all government levels.
Other alcohol companies are also eyeing the weed market. Molson Coors Brewing earlier this month said its Canadian arm would make cannabis-infused drinks with Hydropothecary Corp.
U.S.-listed shares of Canopy Growth, whose brands include Tweed and Bedrocan, jumped about 37 percent to $36.20 in heavy premarket trading. Canopy had a market value of C$7.1 billion ($5.4 billion) as of Tuesday.
Constellation expects the investment in Canopy to add to earnings in 2021. The deal is expected to close in October.
($1 = 1.3104 Canadian dollars)
(Reporting by Uday Sampath in Bengaluru; Editing by Arun Koyyur and Sai Sachin Ravikumar)
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