Constellation Brands, Inc.’s (NYSE:STZ) story dates all the way back to 1945, when its founder was selling bulk wine to bottlers in the eastern part of the United States. Today, the company has a portfolio of over 100 brands that span wine, beer and spirits. It’s the largest beer importer as measured by sales in the country and it also has the third-largest market share of all major beer suppliers.
STZ stays ahead of the curve through its business model, and over the decades the company has been able to grow its business significantly through acquisitions – the largest was in 2013 when it bought the rights to the Corona and Modelo beer brands.
The one thing all of these acquisitions had in common was the fact they were in the alcoholic beverage market. However, management’s most recent move is raising some eyebrows.
STZ Stock Is Venturing Into a New Market
Constellation Brands’ latest acquisition was the $245 million purchase of a 9.9% stake in Canopy Growth Corp (OTCMKTS:TWMJF), the largest grower of marijuana in Canada. Medical marijuana is legal on a national level in Canada, and next year it will also be legal for recreational use.
While the drug remains illegal in the United States at the Federal level, 28 states have approved it for medical use and eight have gone so far as to legalize it for recreational use.
Rob Sands, the CEO of STZ, believes that the legalization of marijuana in the U.S. is “highly likely given what’s happened at the state level.” I have to agree with him, and by STZ getting its foot in the door early in Canada it stands to benefit greatly once the drug is also legalized here.
This may be unknown territory for Constellation, but the important thing to keep in mind is that so far, the company’s business model has been extremely profitable for investors. The stock is up 41% year-to-date, which is more than double the return of the S&P 500. In fact, if you had invested $10,000 into STZ back in December 1990, that investment would now be worth over $4 million. That’s almost a 40,000% return in 27 years.
Now I’m not so sure an investment in STZ today would stand to make you that kind of money over the next 27 years, but what I am sure about is the fact that this stock is a core holding in any portfolio.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
