If you are investing online into an ISA or SIPP your interest may well have been piqued by the huge growth opportunity presented by the growing legal cannabis market. With a compound annual growth rate (CAGR) of 34.6% forecast by Grand View Research between now and 2025, investment exposure is certainly an enticing prospect.
However, many analysts are of the opinion that direct legal cannabis stocks, many of which are listed in Canada, are at stretched valuations (‘bubble’ has been mentioned) due to the huge interest in the sector. As such, yesterday’s announcement that NYSE-listed Corona beer parent Constellation Brands has made a new $4 billion (£3.15 billion) investment in Toronto and NYSE dual-listed Canopy Growth, opens up a potentially interesting new play on the sector.
The investment is the fledgling industry’s largest to date and follows on from the much smaller investment of $200 million (£157.35) that Constellation made in Canopy Growth last year. That sum was directly tied to a deal for the production of a non-alcoholic cannabis-based beverage. Canopy Growth is the world’s largest listed pure-play cannabis stock. The 30% boost the share price received yesterday on news of the deal (Constellation’s share price fell 6%) takes the company’s overall market capitalisation towards $9.5 billion (£7.48 billion).
Canopy has the largest production capacity for legal cannabis in the world, including growing the plant and producing products such as cannabis oil and soft gel caps. The investment announcement detailed that the capital injection is earmarked for international expansion into the 30 countries currently pursuing a legal medical cannabis market. The UK has recently taken the first concrete step in that direction with last month’s announcement medical cannabis and derived drugs will be available on prescription within the next few months.
Constellation Brands now represents interesting, diluted exposure to the medical cannabis sector. The company’s share price has been on a bull run for over 6 years now and has gained a massive 600% plus since August 2012. With the company’s core business the production and marketing of beers, wines and spirits, the move into the legal cannabis sector is clearly considered to be one the company hopes will help maintain its recent growth trajectory. For those investing online the stock also offers an alternative to pure cannabis companies by wrapping exposure into a more diversified company that would be expected to show less volatility.