Canopy-Constellation Deal Gets Bigger
Marijuana stocks were hurt this week by delays in the rollout of Ontario’s private-sector legal weed market, which will only allow brick-and-mortar retailers to sell cannabis starting in April 2019 (instead of October 2018).
However, there was some good news as well, namely the flurry of Big Alcohol-marijuana partnerships.
Investors can make big bucks on this trend.
For instance, shares of Canopy Growth Corp (NYSE:CGC) surged by 30% when alcohol company Constellation Brands, Inc. (NYSE:STZ) increased the size of their joint venture.
The beverage giant agreed to invest an additional $3.8 billion into Canopy Growth, raising its ownership stake of the company to 38%. Some are calling the deal the biggest marijuana investment to date. (Source: “‘This is rocket fuel’: Constellation Brands spending $5 billion to boost stake in Canopy Growth,” Financial Post, August 15, 2018.)
“This is rocket fuel,” said Canopy Growth CEO Bruce Linton about the infusion of capital. “We’re going to be way more global.”
A similar deal was struck earlier in the month between Molson Coors Brewing Co (NYSE:TAP) and Hydropothecary Corp (OTCMKTS:HYYDF, TSE:HEXO).
And then, most recently, Heineken N.V. (OTCMKTS:HEINY, EPA:HEIA) unveiled a cannabis-infused beer it had been working on in secret.
These deals are just the tip of the iceberg.
Everyone who is watching the cannabis industry knows that Big Alcohol and marijuana are a match made in heaven. So, in order to capitalize on this emerging trend, we put together a list of three stocks for your consideration.
Beverage and Marijuana Stocks Riding the Big Alcohol Wave
Mergers often have winners and losers. But in the case of Big Alcohol-marijuana partnerships, there is a chance for both sides to gain something.
Alcohol companies add a new revenue stream (and possibly reverse their sliding stock prices), while weed companies add a financial backer with deep pockets. It is a win-win scenario.
As such, our stock ideas run the gamut from marijuana penny stocks to blue-chip alcohol giants. You decide what is right for you, given the parameters of your risk profile. After all, I do not know you personally, nor am I a financial advisor.
But without further ado…
Anheuser-Busch InBev SA/NV
Molson and Heineken look like 800-pound sharks when they are swimming in the same pond as marijuana stocks, but they are small fish compared to Anheuser Busch Inbev NV (NYSE:BUD). Anheuser is far and away the market leader.
So, let’s imagine for a moment that Molson and Heineken start raking in cash from cannabis operations. Will Anheuser happily concede that growth opportunity? Or will it swoop in to eat their lunch? I’m guessing the latter is more likely.
It is also important to note that BUD stock is trading at a discount. Shares are down 21.7% from their 52-week high, in part because Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) downgraded the stock—and in part from falling alcohol consumption rates.
One way to boost the stock price is by giving customers an alternative to alcohol. Cannabis is clearly the option. So, if you’re looking to gain exposure on the alcohol side of these bets, this might be the stock you’re looking for.
At the other end of the spectrum—in terms of market size and industry power—is Lexaria Bioscience Corp (OTCMKTS:LXRP, CNSX:LXX). This marijuana penny stock is virtually unknown, but its specialty is food science.
Using the patented “DehydraTECH,” Lexaria turns cannabinoids into ingredients that won’t destroy the flavor of snacks and beverages.
After all, no one wants to have a marijuana-infused beer that tastes like marijuana. The point is to have it taste like regular beer while providing the effects of cannabis.
If you’re skeptical about a stock built on consumers’ taste buds, then maybe you should ask yourself what makes The Coca-Cola Co (NYSE:KO) and PepsiCo, Inc. (NASDAQ:PEP) such dependable powerhouses.
The truth is that secret recipes are essentially intellectual property. They are extremely difficult to imitate, meaning the companies’ stock prices are naturally protected from competition.
I believe that Lexaria has tremendous upside potential. It could become the “Pepsi of Pot,” particularly if it partners with a large alcohol company like Anheuser.
The Second Cup
Another marijuana-related stock is The Second Cup Ltd (OTCMKTS:SCUPF, TSE:SCU), which until recently was just a coffee shop chain with hundreds of locations across Canada. The company is branching out, however, in order to capitalize on the legalization of recreational cannabis for adults.
Second Cup shares jumped 17% after the company announced that it may convert some storefronts into cannabis retail operations. Its partner in this plan is National Access Cannabis Corp (OTCMKTS:NACNF, CVE:META), a marijuana firm looking to open 50 to 70 stores by the end of 2018.
Second Cup could also tap into the marijuana beverage market, which would be a logical extension for a coffee company. In fact, the company could find some overlap between its old business and its new one by opening a series of weed cafes. The possibilities are truly endless.
Of course, the company needs to move quickly on securing its licenses, but I think there is significant upside for this stock. Last week, it was nothing more than a mid-sized coffee retailer, now it is poised to become the McDonald’s of marijuana.
I am high (if you’ll pardon the expression) on Big Alcohol-marijuana partnerships.
There are truly exciting changes afoot for this corner of the stock market, and I highly recommend that investors pay attention to what’s happening. Otherwise, they could miss out on big opportunities.