Constellation Brands – Safe entry into Marijuana?
With constellation’s investment its looks like THC beers and spirits are fast coming to a shelf near you.
Unless you were living under a rock this past week, you would know about Constellation’s 5 billion CAD investment in Canopy Growth Corp, The largest cannabis company in the world. This in addition to their previous investment last October in Canopy, will boost their stake to 38% with warrants to make it over 50%. For many investors, this offers an investment into the cannabis industry of the present and future without much of the risk.
Constellations brands is a 39 billion dollar behemoth and proud producer of Corona, #ronaseason. this is in addition to many other wine and spirit brands. They are a company trading at a relatively modest multiple of 19x earnings, with a growing dividend to appease many investors long term. In the fairly safe business of alcohol, they give investors a good option in the non-cyclical space that so many investors have underweighted.
The investment in Canopy may seem like a very expensive investment at the surface. However, with the backings of a large company like Constellation Brands, It ensures the success of both Canopy and the other prominent companies in the market.
The Canopy Investment
What’s somewhat insane is the market basically priced in this investment as paying for absolutely nothing. As a result, Constellation has shaved off over 3.6 billion in market cap, while paying around 3.8 billion usd. Yes it’s fair to say canopy won’t produce much in earnings for the foreseeable future, but this company will one day down the line become a behemoth. Getting Canopy as a throw in at this price offers investors the chance in a company with a large growth potential with now over 5 billion cad on the balance sheet and leading positions in Canada and many other countries.
A safe play
Constellations is taking an Alphabet like approach to the cannabis industry. like Google, they have their solid underlying business that generates the earnings and cash flow to further grow their business and enter new fields of growth. With a solid management led by Robert Sands and his brother Richard, we think Constellations offers a safe way to invest in the future of cannabis, here and now.