By Ciara Linnane, MarketWatch
Constellation Brands Inc. stock fell 5% Thursday to lead S&P 500 decliners, after the distributor of Corona beer swung to a big loss in its fiscal second quarter as it booked charges related to an investment in a Canadian cannabis company.
Victor, New York-based Constellation Brands /zigman2/quotes/207737284/composite STZ -0.37% , which also owns Modelo beer and Robert Mondavi wines, said its share of equity losses and related activities from its roughly $4 billion investment in Canada’s Canopy Growth Corp. /zigman2/quotes/200603886/composite CGC -5.17% /zigman2/quotes/202205609/delayed CA:WEED -5.33% came to $484.4 million. It also recognized $46 million of charges related to cost cutting.
That pushed its net loss to $525.2 million, or $2.52 a share, for the quarter to Aug. 31, after income of $1.149 billion, or $5.41 a share, in the year-earlier period. Excluding those charges, the company had per-share earnings of $2.72, ahead of the $2.63 FactSet consensus.
Sales edged up 2% to $2.344 billion, matching the FactSet consensus.
Constellation Brands has made no secret of its frustration with its cannabis investment, a move that propelled Canopy to the top of the sector, measured by market capitalization. The company acquired its 35% stake in the company late last year at a time when the cannabis sector was flying high.
But by summer, frustrated by the Smith Falls, Ontario-based company’s mounting losses, Chief Executive William Newlands expressed his impatience on a conference call with analysts.
“While we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year-end results,” Newlands told analysts. “However, we continue to aggressively support Canopy on a more focused long-term strategy to win markets and form factors that matter, while paving a clear path to profitability.”
That displeasure led the company to push out Bruce Linton as co-CEO of Canopy, a move that shocked the industry when it was announced in July. Linton was widely viewed as the face of legal cannabis, given his status as head of the biggest company in the space and his frequent media appearances and interviews.
In May, Constellation Brands appointed Mike Lee, a former senior vice president and chief financial officer, as Canopy’s interim CFO, tasked with overhauling the company’s strategy.
On Thursday’s conference call with analysts, Newlands softened his tone on Canopy.
“Overall, we’re pleased with the progress of the Canopy team and what they have done in the last few months,” he told analysts according to a FactSet transcript. The team is developing a range of CBD products and marketing plans, and is securing the resources to bring them to the U.S.
Newlands welcomed the recent House vote in favor of a bill that would protect banks that serve the cannabis industry from federal enforcement and said he was looking forward to Cannabis 2.0 in Canada, the launch of derivative products that is expected in December.
The CEO said the company is now betting on another relatively new trend, the hard Seltzer, or alcoholic carbonated drink. Constellation is planning to launch a Corona-branded Seltzer, building on that brand’s popularity with Hispanic and other drinkers.