Constellation Brands (STZ) went public in July of 1986 for just under $2 per share. Today, a single share of Constellation Brands will set you back about $200. As soon as the company’s stock price reached the $20 mark in June of 2012, it took off like a rocket, hitting a whopping $150 by January of 2017.
If paying $200 per share for ownership in a beverage-maker is not too rich for your blood, you should take a serious look at this success story in American capitalism.
Headquartered in Victor, New York, Constellation Brands sells beer, wine, spirits and marijuana-infused products. The company’s marijuana sales are currently limited to the Canadian market. Constellation Brands has the third-most market share of the world’s top beer suppliers. The question is whether the company will continue its stratospheric momentum, stagnate or possibly even lose market share to the competition in the years to come.
It appears a though Constellation Brands is willing to take some risks to enhance company growth across posterity, as evidenced by its strategic investment in marijuana through Canopy Growth. If the risk pays off, Constellation Brands will have a share of Canada’s alcohol and marijuana markets. This is a prudent strategy as the widely coveted millennial age cohort seems to enjoy marijuana just as much as alcohol.
Constellation’s quarterly beer sales are up nearly 10 percent. The company’s growth rate has hovered around this level for about a year with the exception of the third quarter of 2018 when net sales for beer climbed 16 percent. Company executives anticipate beer sales will jump another 8 percent in the year ahead. Constellation’s investment in marketing will rise to just under 10 percent of net sales in an effort to ramp up momentum as quickly as possible. Even if the company’s beer sales level off at a growth rate of 7 to 10 percent, it would still be quite the accomplishment. Constellation Brands has a long history of continued sales growth.
Though the craft beer market has suffered a downturn, Constellation Brands’ import beer sales jumped to more than 35 million barrels in 2018, representing a 3.6 percent increase. All in all, the company has captured about 19 percent of the beer industry’s total production. It is interesting to note Mexican beer is one of Constellation Brands’ primary sales growth drivers. Mexican beer imports represent nearly one-quarter of the beer category yet comprise nearly three-quarters of Constellation’s aggregate import sales. Industry analysts insist this segment will continue to grow for another half-decade.
Instead of attempting to bolster its low-margin products, Constellation is zeroing in on what it does best. The company reached an agreement to sell parts of its spirits and wine businesses for $1.7 billion to E&J Gallo. This strategic business move will empower Constellation to enhance its leading brands that have comparably high margins. If all goes as planned, Constellation’s top line growth across the entirety of its offerings will reach the high single digits within a couple years.
Marijuana sales will likely reach $75 billion in yearly sales within the next decade. Though marijuana is still an illegal Schedule 1 drug in the United States, the momentum for the legalization of recreational and medicinal marijuana is building from coast-to-coast. Though most informed investors do not consider Constellation Brands to be a budding marijuana business, it is possible the company’s $4 billion investment in this emerging industry will eventually prove more valuable than its Modelo and Corona beers. Constellation currently owns 38 percent of Canopy Growth, a marijuana producer based in Canada.
Canopy’s sales are currently limited to the Canadian market. However, it is only a matter of time until marijuana goes mainstream throughout the entirety of North America. Canopy and Constellation stand to benefit from this far-reaching social and legal change. It would be a mistake to assume the rapidly growing cannabis market is limited to flowers burned in pipes and baked in vaporizers; Canopy and Constellation will soon provide Canadians with marijuana-infused beverages and edibles. It is possible this corporate tandem will eventually become a cannabis power player that provides the masses with pain relief in the form of marijuana tinctures, ointments, sprays, beverages and edibles.
Though it is currently illegal for companies that market cannabis products to have shares publicly listed on stock exchanges in the United States, legislation is pending to alter these laws. If marijuana is legalized in the United States in the next couple years, Constellation could very easily suffer a decline in beer, wine and spirit sales while making up the difference and then some with its marijuana business. Though some investors are staunchly against the legalization of recreational marijuana, it makes financial sense to own shares of Constellation Brands. Get ahead of the curve by investing in STZ today. Hold this stock for at least a couple years and you will likely be rewarded for your patience with quite the handsome profit.
Regards,
Ethan Warrick
Editor
Wealth Authority
