We could refer to a matchup between Aphria Inc. (NASDAQOTH: APHQF) and Constellation Brands, Inc. (NYSE: STZ) as marijuana player versus marijuana payer.
Aphria ranks as one of the top Canadian cannabis growers, a pure-play marijuana stock if there ever was one. Big alcoholic beverage maker Constellation Brands dipped its toes in the water of the cannabis industry last year, buying a 9.9% stake in Canopy Growth(NYSE: CGC). And Constellation plunged right on into the water in August with another $4 billion investment in Canopy.
But which of these two stocks is the better buy for long-term investors? Here’s how Aphria and Constellation Brands stack up against each other.
Image source: Getty Images.
The case for Aphria
Why should investors consider Aphria? The global marijuana industry is growing like a weed. It’s punny but true. And Aphria could be one of the primary beneficiaries of that growth.
Aphria claims all the ingredients for success you’d want for winning in the Canadian recreational marijuana market, which opens for business on Oct. 17. The company certainly has ample production capacity, with more on the way. Aphria expects to be able to produce 255,000 kilograms of cannabis annually by next year.
It also has the distribution channels needed to succeed. Aphria has secured supply agreements for the recreational marijuana market with all 10 of Canada’s provinces plus the Yukon Territory to boot. The company selected Great North Distributors, a subsidiary of North America’s largest wine and spirits distributor, Southern Glazer’s, as its distribution partner for its recreational cannabis products.
The even bigger opportunity for Aphria, though, lies in international marijuana markets. Aphria’s acquisition earlier this year of Nuuvera gives it a strong presence in several countries that have legalized medical marijuana. The company has expressed confidence about its prospects in these markets, especially in Germany, which claims the largest marijuana market outside of North America.
For now, Aphria can’t expand into the biggest marijuana market of all — the U.S. The company started to build operations in the U.S. last year but ran afoul of the Toronto Stock Exchange’s listing requirements that prohibit cannabis producers from operating in markets where marijuana is illegal at the federal level. But it’s possible that U.S. federal laws could be revised in a way that allows Aphria to expand into its southern neighbor’s market.
There’s also a real chance that Aphria could partner with a big company outside of the cannabis industry. The most recent rumor is that tobacco giant Altria Group is talking with Aphria about a potential deal. Aphria has also been viewed as a top candidate for a partnership with Guinness beermaker Diageo.
The case for Constellation Brands
Meanwhile, Constellation Brands’ revenue over the last 12 months was more than two times greater than Aphria’s entire market cap. Even better, Constellation’s revenue and earnings continue to grow.
The company reported 10% year-over-year revenue growth in the second quarter. Adjusted earnings per share jumped 16% higher than the prior-year period. Constellation continues to enjoy strong growth from its beer products, especially Corona and Modelo.
Constellation should see more strong results from its beer brands in the future. The launch of Corona Premier has been fantastic. It’s the first major addition to the Corona lineup in nearly three decades and already ranks as the No. 10 brand in the U.S. premium imported beer category.
