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

9 Months Ended

Nov. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Our equity method investments are as follows:


	November 30, 2023				February 28, 2023
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
(in millions)
Canopy Equity Method Investment (1)	$	73.6	20.7	%	$	485.8	34.7	%
Other equity method investments	159.7		20%-50%		177.5		20%-50%
	$	233.3			$	663.3

(1)The fair value based on the closing price of the underlying equity security as of November 30, 2023, and February 28, 2023, was $94.8 million and $398.4 million, respectively.

Canopy Equity Method Investment

We have an investment in Canopy, a provider of medical and adult-use cannabis products. The Canopy Equity Method Investment consisted of 171.5 million Canopy common shares as of November 30, 2023. In December 2023, Canopy effected a reverse stock split at a ratio of one-for-ten. As a result, our Canopy Equity Method Investment consists of 17.1 million Canopy common shares. Equity in earnings (losses) from the Canopy Equity Method Investment and related activities is determined by recording the effect of basis differences. Amounts included in our consolidated results of operations for each period are as follows:


	For the Nine Months Ended November 30,				For the Three Months Ended November 30,
	2023		2022		2023		2022
(in millions)
Equity in earnings (losses) from Canopy and related activities	$	(288.3)	$	(876.5)	$	(56.5)	$	(60.8)

Plan to convert Canopy common stock ownership

In October 2022, we entered into a Consent Agreement with Canopy pursuant to which we have provided our consent, subject to certain conditions, to the Canopy Transaction. Canopy only holds non-voting and non-participating exchangeable shares of Canopy USA which are convertible into Class B shares of Canopy USA. A third-party investor holds 100% of the common shares of Canopy USA.

In connection with the Canopy Transaction, Canopy has proposed to amend its share capital to (i) create Exchangeable Shares and (ii) restate the rights of Canopy common shares to provide for their conversion into Exchangeable Shares through the Canopy Amendment. Canopy has stated its intention to hold a special meeting of its shareholders to consider the Canopy Amendment. We have entered into a voting support agreement with Canopy to vote in favor of the Canopy Amendment.

If the Canopy Transaction is completed and the Canopy Amendment is authorized by Canopy’s shareholders and adopted by Canopy, we intend, subject to a final decision in our sole discretion, to exercise our right to convert our Canopy common shares into Exchangeable Shares.

Assuming the completion of the Canopy Transaction and the transactions contemplated by the Consent Agreement and that we elect to convert our Canopy common shares into Exchangeable Shares:

•we will only have an interest in Exchangeable Shares, which are non-voting and non-participating securities, and our 2023 Canopy Promissory Note (for which we intend to negotiate an exchange of the principal amount for Exchangeable Shares, although neither we nor Canopy has any binding obligation to do so);

•we intend to terminate all legacy agreements and commercial arrangements between ourselves and Canopy, including the investor rights agreement but excluding the Consent Agreement and certain termination agreements;

•we will have no further governance rights in relation to Canopy, including rights to nominate members to the board of directors of Canopy, or consulting rights related to certain transactions;

•all of our nominees will resign from the board of directors of Canopy; and

•as our investment in Canopy common shares makes up our Canopy Equity Method Investment, we expect to no longer apply the equity method to our investment in Canopy, which we expect to instead be accounted for at fair value with changes reported in income (loss) from unconsolidated investments within our consolidated results.

If we do not convert our Canopy common shares into Exchangeable Shares:

•Canopy and its subsidiaries will not be permitted to exercise any rights to acquire shares and interests in entities carrying on cannabis-related business in the U.S.;

•Canopy USA will be required to exercise its repurchase rights to acquire the interests in Canopy USA held by its third-party investors; and

•we will continue to have all existing rights under our agreements with Canopy that predate the Consent Agreement, including governance rights in respect of Canopy (such as board nomination rights and consulting rights in respect of certain transactions).