Constellation Brands, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Equity Method Investments

Equity Method Investments

6 Months Ended

Aug. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

Our equity method investments are as follows:


	August 31, 2021				February 28, 2021
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
(in millions)
Canopy Equity Method Investment (1) (2)	$	2,580.2	36.2	%	$	2,578.8	38.1	%
Other equity method investments	238.8		20%-50%		209.6		20%-50%
	$	2,819.0			$	2,788.4

(1)The fair value based on the closing price of the underlying equity security as of August 31, 2021, and February 28, 2021, was $2,448.1 million and $4,679.3 million, respectively.

(2)Includes the following:


	Common Shares	Purchase Price
(in millions)
November 2017 Canopy Investment	18.9	$	130.1
November 2018 Canopy Investment	104.5	2,740.3
May 2020 Canopy Investment	18.9	173.9
	142.3	$	3,044.3

Canopy Equity Method Investment

We complement our beverage alcohol strategy with our investment in Canopy, a leading provider of medicinal and recreational cannabis products. Equity in earnings (losses) from the Canopy Equity Method Investment and related activities (see table below) include, among other items, restructuring and other strategic business development costs, the amortization of the fair value adjustments associated with the definite-lived intangible assets over their estimated useful lives, and unrealized gains (losses) associated with changes in our Canopy ownership percentage resulting from periodic equity issuances made by Canopy. Amounts included in our consolidated results of operations for each period are as follows:


	For the Six Months Ended August 31,				For the Three Months Ended August 31,
	2021		2020		2021		2020
(in millions)
Equity in earnings (losses) from Canopy and related activities	$	(35.3)	$	(408.6)	$	120.5	$	(31.0)

Canopy has various equity and convertible debt securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2018 Canopy Warrants, Canopy Debt Securities, and the Acreage Financial Instrument. As of August 31, 2021, the exercise and/or conversion of certain of these outstanding securities could have a significant effect on our share of Canopy’s reported earnings or losses and our ownership interest in Canopy.

We have evaluated the Canopy Equity Method Investment as of August 31, 2021, and determined that there was not an other-than-temporary-impairment. Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value has been less than the carrying value, (ii) an expectation that Canopy’s results will improve, (iii) an expectation that the Canopy stock price will recover in the near term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review the Canopy Equity Method Investment for an other-than-temporary impairment. There may be a future impairment of our Canopy Equity Method Investment if Canopy’s stock price does not recover in the near term or our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions and the economic impact of COVID-19.

The following table presents summarized financial information for Canopy prepared in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s earnings (losses) for the periods January through June 2021 and January through June 2020 in our six months ended August 31, 2021, and August 31, 2020, results, respectively. We recognized our share of Canopy’s earnings (losses) for the periods April through June 2021 and April through June 2020 in our three months ended August 31, 2021, and August 31, 2020, results, respectively. The amounts shown represent 100% of Canopy’s reported results for the respective periods.


	For the Six Months Ended August 31,				For the Three Months Ended August 31,
	2021		2020		2021		2020
(in millions)
Net sales	$	228.1	$	160.0	$	110.8	$	79.7
Gross profit (loss)	$	29.9	$	(52.6)	$	22.2	$	4.7
Net income (loss)	$	(169.7)	$	(1,066.2)	$	317.4	$	(92.6)
Net income (loss) attributable to Canopy	$	(233.5)	$	(1,031.7)	$	319.4	$	(78.3)

Other equity method investment

My Favorite Neighbor

In April 2020, we invested in My Favorite Neighbor, a super-luxury, DTC focused wine business which we account for under the equity method. We recognize our share of their equity in earnings (losses) in our consolidated financial statements in the Wine and Spirits segment.