Beer, wine and spirits marketer Constellation Brands wrote down more than a billion dollars of its equity investment in Canadian cannabis company Canopy Growth, it was revealed in the American company’s second-quarter SEC filing and earnings call.
Constellation’s 40% stake in the Canopy had a carrying value of $1.695 billion, but that was written down to an estimated fair value of $634.8 million, “resulting in an impairment of $1,060.3 million,” Constellation CFO Garth Hankinson told investors and financial analysts in the Oct. 6 call.
Constellation had considered the sagging value of its investment temporary, but “As of August 31, 2022, we evaluated the Canopy Equity Method Investment and determined there was an other-than-temporary impairment based on several contributing factors, including: (i) the period of time for which the fair value had been less than the carrying value and the uncertainty surrounding Canopy’s stock price recovering in the near-term, (ii) Canopy recording a significant impairment of goodwill related to its cannabis operations during its three months ended June 30, 2022, and (iii) the uncertainty of U.S. federal cannabis permissibility.”
One cause is a stall in sentiment and efforts to legalize marijuana nationally in the U.S. Constellation officials said they still believe in the potential for nationwide legalization in the U.S. and in Canopy’s approach to “premiumizing its cannabis branded portfolio.” Cannabis is legal across Canada.
Otherwise, Constellation reported handsome increases in sales and operating profit. But the Canopy write-down will mean a $1.151 billion loss for the second quarter ending Aug. 31. Constellation is on a March 1 fiscal year.