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Three Conservative Ways to Play Cannabis
05/16/2019 5:00 am EST
Forget the marijuana stocks, as their partners are more of a sure thing, asserts Mark Leibovit, growth stock expert and editor of The VR Cannabis Letter.
Marijuana stocks are all the rage these days as legalized cannabis has hit the scene. Analysts now project that the market for both medical and recreational cannabis use will reach a staggering $200 billion in global sales in just five years. As a result, stocks in the sector have surged on the wave of optimism.
The problem is, marijuana stocks aren’t exactly a slam dunk. Many are fraught with some big-time risks, hefty volatility, zero profits, etc. At this point, many marijuana stocks are just speculative bets.
They could pay off or they could crash and burn. But one thing many of the top cannabis stocks do have is partners. Specifically, major corporate partners that are as far from speculative plays as you can get.
It’s here that more conservative investors can cash in on the marijuana stock mania and benefit from everything it has to offer. Sure, these stocks won’t rise as much as some of the pure marijuana stocks.
But, you know what? They won’t fall as much either and they’ll still be able to reap potential billions in revenues derived from cannabis.
With that, here are the 3 top partners of the marijuana stocks and why you should focus on them.
Constellation Brands (STZ)
Seemingly overnight, Constellation Brands become one of the biggest marijuana stocks out there. That’s thanks to its big partnership with Canopy Growth (CGC). For a cool $4 billion, STZ purchased a 38% stake in Canopy last year. The firm now owns warrants that would allow it own a majority stake in 2021.
The end game STZ is pretty simple. Marijuana would be perfect “fourth leg of a stool” to the company’s beer, wine, and spirits operations. Constellation owns over 100 world class beverage brands including Corona beer, Svedka Vodka, and Robert Mondavi wines.
These are highly regulated consumer products. The end goal is for STZ to do the same with cannabis. Apply its vast branding knowledge and distribution network to get various pot products into the hands of the masses.
Constellation has already started working with Canopy on cannabis-infused drinks. At the same time, it’s looking to parlay is vast marketing knowledge into other cannabis areas such as edibles and other consumable products. These can and will be all major sources of revenues once the switch is flipped and full legalization happens.
In the meantime, STZ is no slouch with regards to what it already generates money on and its recently undergone some moves to shore up its balance sheet and pay for CGC purchase. This allows it to be a safer play than any of the marijuana stocks.
One of the main reasons why marijuana stocks have surged so far has been the growing use of medical marijuana and cannabis treatments. Demand here has already begun to surge and it could grow further as doctors look for alternatives to addictive opioids for pain relief.
International drug giant Novartis saw the writing on the wall and decided that it needed to get into the cannabis game. This prompted it to partner with major grower Tilray (TLRY).
That partnership allows for NVS division Sandoz to develop and distribute TLRY’s medical marijuana in legal jurisdictions around the world.
With the deal, Tilray is able to tap into Novartis vast distribution network and will allow TLRY to help commercialize its non-smokable/noncombustible medical cannabis products. For NVS, it’s able to collect fees and revenues from sales. Moreover, the deal allows it to co-brand some products to help enhance sales further.
For both partners, the deal seems like a win-win. NVS gets its hands-on fast-growing medical marijuana, while Tilray can actually sell its products to more consumers. Given how good the deal is, both firms decided to expand more on those partnerships and look into developing new cannabis-related drugs.
The win for investors by choosing NVS over TLRY is that you get the backing of one of the largest drug manufacturers on the planet.
Big Tobacco has been eyeballing legalized cannabis sales for what seems like decades, so it’s no surprise that cigarette-king Altria would be looking at the marijuana stocks for a partnership. That came from a $1.8 billion investment in pot grower Cronos Group (CRON). MO now has a 45% stake in the firm.
Traditional cigarette sales continue to fall and MO has been looking for ways to expand its portfolio and reduce potential revenue loss. This helps explain its major purchase of vaping specialist Juul Labs. Its CRON buy helps expand on that vaping tech.
Speculation has already begun that Altria could fill Juul Pods with CBD once pot is legal everywhere or add it to its other vaping/e-cigarette brands.
Meanwhile, MO’s huge production facilities could instantly be flipped towards smokable marijuana products. The deal also allows for CRON to co-develop new products that could be sold on Altria’s large network. Together, it gives Altria an instant foothold in a growing business.
And that’s important for the firm. Potentially, it gives Big Tobacco a way to really reduce its multi-year declines. Last quarter again, Altria managed to miss estimates for sales. Meanwhile, investors buying MO over other marijuana stocks gets plenty of stability, profits and hefty 5.93% dividend yield.
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