Canopy Growth could generate more than $1 billion in revenue by the end of its fiscal year, Constellation Brands CEO Bill Newlands told CNBC Thursday.
Constellation, which makes Corona and Modelo beers, has a 38% stake in the cannabis company, which is the largest medical marijuana producer in Canada.
“If you look at Canada alone, Canada is on a run rate of $5 [billion] to $6 billion in sales, and Canopy is the leading player in that market,” Newlands told “Mad Moneys” Jim Cramer. “Then you add in new form factors later this year in things like beverage and other edibles, we think the skys the limit. This is going to be a big business, and Canopy is going to be the leader.”
While marijuana remains federally illegal, the substance has been legalized in some form in 33 states across the country and the District of Columbia.
Constellation beat expectations in its latest earnings report with the help of beer sales, which were up about 9.3% from the year prior. Wine sales, however, dropped 7.6%. The company is making adjustments to line up with changing consumer tastes.
While Constellation plans to chase growth opportunities in its higher-end wine brands, Canopy is sticking to its plan, Newlands said.
“Canopy is focused on what theyre going to do to build the right form factors and the right markets to win across the globe as necessary and as [marijuana] becomes legal,” he said. “Weve got a very strong team in beer and we got a very strong team in wine. We think were pretty good position to win on all three of those fronts.”
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Stocks generally moved higher on Thursday, with U.S.-China negotiations lifting trade-sensitive stocks in the Dow Jones Industrial Average (DJINDICES:^DJI). The S&P 500 (SNPINDEX:^GSPC) posted a modest gain. Materials and energy sectors moved higher, but technology stocks were a weak spot.
As for individual stocks, Tesla (NASDAQ:TSLA) reported disappointing delivery numbers for the first quarter, and strong beer sales gave Constellation Brands (NYSE:STZ) shares some fizz.
Shares of Tesla fell 8.2% after the company reported that deliveries in the first quarter were down from the last quarter. Vehicle deliveries of 63,000 were up 110% over the quarter a year earlier, but 31% below the figure for Q4. Model 3 deliveries of 50,900 were down 19% from last quarter and deliveries of Model S and Model X fell 52% sequentially to 12,100.
Tesla blamed the shortfall on logistical problems in getting the cars to Europe and China after the company began delivering Model 3s there for the first time in Q1. There were 10,600 vehicles in transit at the end of the quarter, but in last quarters report, the company had said to expect that deliveries would be lower by 10,000 vehicles due to transit times to those markets. Even accounting for vehicles in transit, deliveries were disappointing compared with the 90,700 total last quarter.
Model 3 production in Q1 did increase 2.5% sequentially to 62,950, but that of Model S and X fell 44% to 12,100.
Tesla was also dealing with demand that was pulled forward into Q4 due to a step down in the federal tax credit, but despite the challenges in the quarter, the company maintained its earlier guidance of 360,000 to 400,000 vehicle deliveries in 2019.
Constellation Brands reported fiscal fourth-quarter results that beat expectations and shares rose 6.5%. Net sales grew 2% to $1.8 billion, beating the analyst consensus of $1.73 billion. Earnings per share, excluding gains on its equity investment in marijuana producer Canopy Growth, fell 2.6% to $1.84, well above the Wall Street estimate of $1.72.
As it has in recent quarters, strength in Constellations premium beer brands has been making up for weakness in its wine business. Beer shipments grew 8% and depletion volumes — the sales from distributors to retail locations — were up 8.1%. Wine and spirits sales dropped 9% on a 4% decline in depletion volumes.
The Corona and Modelo beer brands continue to deliver growth for Constellation, but the company is moving to rid itself of lower-priced wine and spirit brands that have been a drag on growth. The company is selling 30 of those brands to E. & J. Gallo for $1.7 billion.