Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

Forget Craft Beer: Constellation Brands Wants Drinkers to Get a Different Buzz

One brewer has a plan to combat the notion that legalized marijuana is cutting into beer sales: Constellation Brands (NYSE: STZ) is investing in the world's largest publicly traded cannabis company with an eye toward concocting marijuana-infused beverages.

If you can't beat 'em, join 'em, I guess.

Image source: Getty Images.

Buying into budding growth

In exchange for $245 million Canadian, Constellation is receiving a 9.9% stake in medical-marijuana producer Canopy Growth (NASDAQOTH: TWMJF), which has a market value of $2.2 billion Canadian on the Toronto Stock Exchange, where it trades under the ticker symbol WEED. While the brewer said it wouldn't be selling any marijuana products in the U.S. until it was legal to do so at all levels of government, it wanted to get out in front of what is surely an early-stage consumer trend.

Currently, 29 states and the District of Columbia in the U.S. have legalized marijuana for medical purposes, though only 16 of them allow individuals to grow marijuana at home for medical reasons. Only eight states and D.C. have legalized recreational marijuana use, however.

Constellation says it is looking to keep its "focus on its core total beverage alcohol business," meaning if the federal government does decriminalize marijuana, it will be ready to move forward with drinks-based products, not other items. 

Image source: Getty Images.

Ditching beer for weed

Some suggest people in legal-weed states are opting to smoke marijuana for their daily buzz instead of drinking beer and that's the reason that beer sales are sagging.

Analysts at Cowen & Co. had said legalized marijuana was responsible for the decline in beer sales volumes witnessed in Washington, Oregon, and Colorado, all of which have legalized marijuana and have seen consumption grow. 

Location intelligence outfit Foursquare took a look at the Oregon market since it legalized marijuana in 2015, which gave it a chance to see year-over-year comparisons, and found people were still going to restaurants, bars, and nightclubs at the same rate as the national averages. It did note, however, that traffic to packaged-goods stores only grew at half the rate of the rest of the country. Also, because the Foursquare data only measures visits, not sales, it's unclear whether people were buying beer or not, or if they switched to wine and spirits, which have seen a massive increase in popularity. 

So whether legalized marijuana is cutting into beer sales remains a point of conjecture, but the craft beer market is slowing, which Constellation Brands has even noted following the purchase of craft brewers Ballast Point Brewing and Funky Buddha brewing. Getting in on the ground floor of what may be holding you back is a smart move.

Image source: Getty Images.

A growing line of suds and buds

Of course, brewers have been embracing marijuana for a while now, at least at the craft level.

  • Colorado-based Dad & Dude's Breweria has been successfully selling a cannabis-infused beer for some time.
  • Heineken's (NASDAQOTH: HEINY) Lagunitas earlier this year introduced a limited-edition ale called Supercritical, made with the aromatic oils of the cannabis plant 
  • Oregon's Coalition Brewing previously introduced its infused Two Flowers IPA.
  • Vermont's Long Trail Brewing has made a limited run IPA-like beer made with cannabis compounds.

The common feature of these brews is that they don't come with the psychoactive THC compound found in the plant, but rather its cousin CBD, or cannabidiol -- one of the more than 100 chemical compounds secreted by cannabis flowers that are found in both cannabis and hemp plants.

An appetite for acquisition

What makes the Corona maker's investment different from what's come before is that it is the first major alcoholic beverage producer to take a stake in a legal-marijuana company. Constellation had made a couple of acquisitions in craft beer, purchasing Ballast Point Brewing and Funky Buddha Brewing. Having scaled that wall, it isn't so far afield to expect other brewers and distillers to also now stake a claim. Considering the acquisitiveness of Anheuser-Busch InBev in acquiring craft breweries over the past few years, an investment by it or others in large legal weed makers like MedReleaf or Aphria isn't such a stretch.

Although Constellation Brands has long helped its customers kick back and relax with its portfolio of beer, wines, and spirits, it looks like it's ready to help them catch a different kind of buzz.

10 stocks we like better than Constellation Brands
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Constellation Brands wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.