Is the Best Marijuana Investment a Beer Stock?

Constellation Brands' recent move into this fast-growing industry makes it an appealing long-term play in cannabis.

By  Jeremy Bowman, The Motley Fool

For years, many in the business community believed that tobacco and alcohol companies would eventually break into the marijuana market.

Now it seems that prediction is finally playing out. Constellation Brands (NYSE: STZ), the US distributor of Corona, Modelo, and Svedka Vodka, as well as the world's leading wine company, just announced that it would acquire a minority stake in Canopy Growth Corporation (NASDAQOTH: TWMJF), a leading producer of medicinal cannabis products.

Planting seeds

Constellation paid $191 million for a 9.9% stake in Canopy, in addition to warrants that give it the opportunity to acquire an additional ownership interest. The company explained the decision:

This investment and relationship is consistent with Constellation Brands' long-term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics, while maintaining focus on its core total beverage alcohol business. Constellation has no plans to sell any cannabis products in the U.S. or any other market unless or until it is legally permissible to do so at all government levels.

Calls for marijuana legalization in the U.S. are growing, and north of the border, Prime Minister Justin Trudeau has promised to legalize marijuana in Canada by next July, with legislation already introduced to regulate recreational use.

At home, 29 states and the District of Columbia have legalized marijuana in some form, and recreational marijuana is allowed in eight states, including DC. This list has grown quickly since Colorado and Washington led these efforts in 2014, and a Gallup poll found that a record 64% of Americans, and even a majority of Republicans, now think the Schedule I substance should be legal.  A decade ago, only about 36% of Americans supported legalization.

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