Constellation Brands Made The Right Move With Early Cannabis Investment, Wells Fargo Says

Businesses are stretching to blend their brands with one of the market’s hottest investment trends: cannabis. Constellation Brands, Inc. STZ seems to prove the strategy’s value.

The Rating

Wells Fargo analyst Bonnie Herzog maintained an Outperform rating on the stock with a $235 price target.

The Thesis

Herzog attended the Aurora Cannabis Inc ACB Investor Day this week, and she detects accelerated development of the competitive cannabis industry.

“We believe in 3-5 years’ time, the operational landscape will be vastly different than what it is today with a much more concentrated set of key players,” Herzog wrote in a note.

Aurora Cannabis could be among the top as a leader in medical cannabis and as the first to market high-margin vape products. However, it’s set to face a significant challenge in the form of Constellation Brands — especially now that the beverage maker has bought into Canopy Growth Corp CGC.

“Bottom line, we believe STZ’s decision to get in cannabis early and with CGC was the right one given the broad upward trajectory of the global opportunity, in our view, which will surely favor some players over others,” Herzog wrote.

With the partnership’s scale and first-mover advantage, it’s slated to seize market share in high-margin consumables. Its anticipated success could attract imitators, though.

“We expect the continued development of regulatory/political frameworks to accelerate M&A and strategic partnerships across multiple sectors (beverage, tobacco, HPC, pharma, food),” Herzog wrote.

Price Action

At time of publication, Constellation Brands shares traded up 2 percent at $175.44.

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