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Constellation Brands (STZ) Thursday left open the possibility of selling non-psychoactive cannabis beverages in the US if lawmakers approve a bill legalizing hemp, and the beer giant said it was "extremely bullish" , if not more "bullish" Cover growth (CCG) since its $ 4 billion investment in the Canadian potato producer.
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These remarks were made while the House and the Senate were trying to finalize the 2018 Farm Bill, which seemed likely to legalize industrial hemp. They also followed the company's results, which beat expectations in the second quarter, beaten by estimates, helped by strong beer sales.
Shares were up 3.9% to 219.04 on the stock market today, but had climbed 7.1%. Canopy growth decreased 1.4%.
The farm bill being smoothed would replace the 2014 Farm Bill, which expired on September 30th. Industrial hemp is a source of CBD, or cannabidiol, which is often touted as a reducer of anxiety and pain. CBD is also a component of marijuana plants.
At the Constellation teleconference, an analyst asked if the company or Canopy could handle the potential sale of CBD-based beverages if this bill was accepted. In response, CEO Rob Sands said, "The answer is both."
He added that Canopy was already one of the largest producers of CBD in the world. And he added that according to the final legislation and import authorization, CBD-based drinks would be distributed to retailers via its sales network. This element, he said, would be reflected in Constellation's activities.
In recent weeks, Coca Cola (KO) said he's "watching closely" the growth of CBD as an ingredient in wellness-themed drinks. PepsiCo (PEP) this week said he had "no plans at this time" to pursue CBD-based alcoholic beverages but would look "very critical" at the space.
Molson Coors (TAP) in August said his Canadian company would join a Canadian cannabis company to test cannabis-based beverages. Other major alcohol companies say they closely monitor the cannabis industry.
"No evidence" of selling hurtful pot beer
With respect to regulatory information, the major liquor companies are concerned that the effect of legitimate weeds may attract the buzz caused by alcohol. But Sands said he saw "no evidence", especially in the US states where marijuana was legal, in any form, that marijuana was cannibalizing alcohol.
At the same time, the company said it has recognized an "unrealized gain" of $ 1.3 billion since its investment in Canopy Growth last year. In August, Constellation agreed to invest nearly $ 4 billion in Canopy, thus expanding its stake in about a third of the marijuana company.
"We continue to be extremely optimistic, if not more, since the announcement of the deal," Sands said.
He said Constellation was "in the best position in the world of companies" to take advantage of the growing cannabis market. Although the United States continues to ban marijuana at the federal level, Sands said the investment in Canopy was solely based on the presence of the company in Canada and elsewhere.
Constellation Brands results
For the second quarter, Constellation reported earnings per share of $ 2.87, up 16%. This beat is estimated at $ 2.58. Revenues increased 10% to $ 2.3 billion, exceeding previous expectations of $ 2.25 billion.
Beer sales increased 10.5% to $ 1.63 billion as shipments increased 8.7%. Wine and spirits sales increased 9.3% to $ 772 million as shipments increased 8.8%.
The company raised its EPS guidance for the full year from $ 9.60 to $ 9.70, up from the previous guidance of $ 9.25 to $ 9.60. This perspective does not, however, include massive investment in Canopy Growth.
Beers like Corona and Corona Premier, a low-calorie beer launched earlier this year, have contributed to its results. Sands said that he saw no reason "why this momentum should not continue for the rest of the year". The company said the Corona Premier advertising will continue during the fall and will target the baseball playoffs and the football season.
Cronos Group (CRON) fell by 5.1%. Tilray (TLRY) lost 6.7% after announcing plans to offer a convertible loan of $ 400 million.
Anheuser-Busch InBev (BUD) decreased by 0.8% and Molson Coors decreased by 0.2%.
Majority control?
The contract between Constellation and Canopy in August gives Constellation a pile of new mandates that, if exercised, would give Constellation control of the majority of Canopy. Bank of America Merrill Lynch Finance Constellation for the transaction. Goldman Sachs (GS) advised the company.
Canopy shareholders approved the deal last month. Following the close of the transaction, scheduled for October 31, two Constellation officers and one board member will become Canopy's directors.
Some analysts this summer wondered if Constellation's debauchery in the cannabis and marijuana stocks was too much, too early.
SunTrust analyst Bill Chappell said there was "little certainty" in the deal. He said he had no problem with Constellation investing in cannabis. But he said he remained concerned about any company's attempt to define the size of the cannabis market and "pick the potential winners".
Mr. Chappell also said that the investment "distracts the attention of investors from the beer portfolio above the performance of the STZ".
During the conference call, Sands emphasized that the investment in Canopy was an offensive and non-defensive game. He also said the company preferred to go on the offensive before the companies move south.
"When things go wrong, it's 900 times more difficult to transform something than to play the offensive from an already strong position," he said.
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