A few weeks ago, Robin Speziale got bullied on his facebook page for his investment in Canopy Growth (WEED.TO). If my love for Robin wouldn't have been unconditional, I'd probably have participated in this exercice.
Everybody with little investment knowledge knows that these weed stocks are valued like if they would be the next big thing after the Iphone and, more, be very very lucrative businesses.
Two things that pot isn't.
At this moment, Canopy Growth has a market cap of 14,5B$, which is equivalent to the market cap of Carmax (14,1B$). The difference is that Carmax is an established business with great revenues and Canopy Growth is a new name that makes no profit. Or, on a canadian level, Canopy has almost the same market cap as Lassonde + Stella Jones + Metro. That's fucking crazy.
Even if everything that touches weed is crazy, there's probably a safe way to play marijuana. Well, nothing is never entirely safe, but there's a business that has invested a lot of money in WEED.TO but has great revenues even without weed.
The company is Constellation Brands (STN). They sell mostly beers and wines (Corona is one of their products).
These numbers show how great this company is:
Forward PE: 20
Current ROE: 26
Average ROE last 5 years: 25
Annual Sales growth last 5 years: 22%
Annual EPS growth last 5 years: 37%
EPS growth last year: 72%
Debt level: high
Stock performance last 5 years: 257%
Stock performance last 10 years: 896%
The only problem with this stock is the debt level. Everything else looks great. Because that company is not dependant on pot to make money. And people will always drink alcohol and even more in recession times.
Constellation Brands now owns 38% of Canopy Growth via these investments:
In august, 2018, they invested 5B$, buying shares for 48$
In october 2017, they invested 245M$, buying shares for 12,80$.
A share of WEED.TO is currently selling for about 63$.
The history of the stock market is full of companies trying to find growth in crazy ways. I'm not sure that Constellation Brands isn't on thin ice. But, at least, they're not dependant on pot to make money and they're gonna survive even if Canopy Growth goes bankrupt tomorrow.
So, it would be stupid to have a 10% position on that kind of stock, but 2-3% of a portfolio would be a funny ride besides your boring Berkshire Hathaway.