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Big Alcohol just made another huge bet on the cannabis industry this month.
Constellation started out by picking up a 9.9% share in Canopy, now the largest Canadian cannabis firm, back in October 2017. The beverage giant behind Corona beer, Robert Mondavi wines, Svedka vodka, and a host of other brands saw the potential in the marijuana industry back then… and investors responded. Shares in Canopy soared 19%+ on the news at the time.
Sure enough, Canopy shares again exploded – by about 30% at the opening bell on Aug. 15 – thanks to Constellation's $3.8 billion. Plenty of other pot stocks soared by double digits, too.
Constellation could acquire as much as 50% of Canopy over the next three years, if it decides to exercise its opportunity to buy more Canopy warrants. Plus, it has the option to nominate four directors to Canopy's seven-member board.
"Over the past year, we've come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy's market-leading capabilities in this space," Constellation Brands CEO Rob Sands said in a statement.
Canopy CEO Bruce Linton has already said the company plans on working with Constellation to develop a cannabis-infused beverage for the Canadian market. Indeed, cannabis beverages and other value-added products like sleep aids are the wave of the future… and where marijuana companies will find the higher margins they need to succeed.
Cannabis-infused products like oils, tinctures, candies, snacks, and drinks can earn profit margins as high as 32%, which is significantly higher than similar consumer goods. Wine and spirits typically earn about 19% net margin, while soft drinks producers earn about 11% on average.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.