Two Companies Are Joining Forces to Build a Fire in the Marijuana Stocks Market

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When an investor performs proper due diligence into a stock of interest, it’s important to see the potential or lack thereof in business ventures such as adjustments in management, new products, and mergers of varying levels of commitment. The enormous investment of one company lately into a marijuana growing business raised some eyebrows, but, the strategy is worth a closer look.

After their $4 billion investment, what is in store for Constellation Brands’ (NYSE:STZ) and their new asset in Canadian marijuana stock company Canopy Growth Corporation (NYSE:CGC)?

If you’re unfamiliar with the name Constellation Brands, they are most widely recognized under the names of their most popular products like Corona and Modelo. Just last week, they issued a statement regarding their massive investment in Canopy Growth which follows a “smaller” investment (a mere $200 million) the company made for a 9.9% equity position in Canopy Growth last fall.

Constellation CEO Rob Sands was noted as having said about this historically grand investment in the cannabis market, “Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner. 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. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space.”

Shares in Constellation dropped about 6.1% following the announcement and some believe the price tag is as much to blame as anything else. For the hit Constellation took following the issuance of the statement, Canopy Growth stock rose an impressive 30%; this was aided in part by Constellation agreeing to pay a 37.9% premium of the volume-weighted average price over a five day period for the shares listed on the Toronto Stock Exchange.

Considering other beer companies moving in on the marijuana stocks scene, this deal with Canopy Growth gives Constellation Brands the first-mover advantage and gives Canopy Growth the funding necessary to expand globally

Part of what justifies the high valuation of the 38% stake in Canopy Growth was the company’s early decision to engage in the international marijuana market. This tactic rushed Canopy to the head of the line in its field and made it an attractive choice for companies looking to invest in marijuana for medical and/or recreational use.

Several countries around the world are relaxing their stance on medicinal weed to include Argentina, Austria, Australia, Brazil, Denmark, Columbia, Germany, Greece, Israel, Italy, Jamaica, Lesotho, Mexico, Poland, Puerto Rico, and Switzerland. Add to this list countries developing legalization policies for medical marijuana, such as Ireland, England, France, Portugal, and Spain, there’s a lot of room for Canopy Growth to move overseas with its product. The money received from Constellation Brands will help position Canopy Growth to network with countries seeking medical cannabis as well as further develop their edible product line which is expected to be highly profitable when the recreational Canadian marijuana market opens potentially in October. The presence Constellation Brands has in the consumer goods industry will lend itself well to gathering critical data for Canopy Growth.

Legalization is a factor in the success of Constellation Brands investing in marijuana stocks.

While on the state level, recreational pot is currently legal in nine states and the District of Columbia, federal law is still prohibitive in the United States of a thriving marijuana market.  Even with medical marijuana’s legalization in another 21 states, there are significant obstacles between marijuana businesses and the federal government. Although the DEA still classifies marijuana as a Schedule I drug, the regulations around growing pot for research purposes have relaxed.

Just over half of the American adult population believes marijuana should be legalized, a whopping 61% as surveyed by the Pew Research Center. When looking at specific populations, 70% of millennials and 66% of Generation Xers support marijuana legalization. Perhaps surprisingly, a poll collected by Gallup discovered a rising level of support from Republicans to legalize marijuana. If the legalization effort in Canada goes well, pressure on the States will increase and efforts to avoid a black market and highly increased tourism to Canada to smoke or partake of weed in peace.

All over the country, the wheels are in motion to help get marijuana legalization into action. In New York City, there is a decriminalization effort likely as a reaction to the high enforcement and incarcerations of African-Americans and Hispanics. The number of arrests for marijuana possession are higher than violent crimes.

While it’s impossible to say when legalization will occur, the effects on marijuana stocks will be grandly beneficial; Constellation Brands and Canopy Growth are pre-positioning themselves for the potential boom in the marijuana market.

The market for marijuana is largely taken for granted. The Acrview Market Research data on illegal marijuana sales during 2016 indicates a spending amount of at least $46.4 billion. This astronomical figure means about $150 would be spent by every American to fly so high (last year, Colorado weed sales alone amounted to $1.5 billion). Alcohol sales the same year, a legal substance, rounded out at $223 billion and tobacco landed in the neighborhood of $93.4 billion.

On a national scale, the marijuana market is anticipated to bring in approximately $85 billion yearly which is similar to cigarette sales. Some believe the advent of marijuana cafes or smoke bars would raise the bar to profits resembling the alcohol industry.

Projected profits are, of course, speculative; however, the numbers demonstrate the sheer potential of Constellation Brands and marijuana stocks company Canopy Growth launching ahead of the game.

Alcohol, though a money maker, for certain, is a low-growth market. In spite of this, Constellation Brands’ stock rose over 800% during the last 10 years. Part of this success is due to the acquisition of the Modelo Group beers in addition to portfolio rearrangement to promote further growth.

It’s a win-win set with Canopy Growth benefiting from Constellation Brands’ marketing smarts and Constellation Brands’ gets a leg-up with a successful grower in an effort to provide new products to a public with a growing interest in marijuana products to include marijuana infused beverages and edibles.

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