What happened
Shares of Tilray (TLRY) are up 10.5% at 11:49 a.m. EDT after fellow marijuana grower Canopy Growth Corporation (CGC -0.44%) got a $4 billion backing from beverage maker Constellation Brands (STZ -0.14%), which upped its stake in Canopy to 38%. Cronos Group (CRON) is also getting a sympathy lift, with shares up 6.3%.
So what
In an established, winner-takes-all market, adding $4 billion to Canopy Growth's coffers would be bad news for Tilray, Cronos' and Canopy's other competitors. But the marijuana market is relatively immature, so Constellation's investment is seen as a major endorsement of the industry. The market is also likely to be large enough for multiple winners, so Constellation's continued backing of Canopy is a sign that other beverage makers might be willing to do similar deals with Tilray, Cronos, and other marijuana producers to develop cannabis-infused beverages.
Canopy might also decide to use some of its newfound cash to make acquisitions, which could result in Tilray or Cronos being bought out at a premium. While investing in the hopes of an acquisition is usually a bad idea, the possibility of a buyout could make a good investment even better.
Image source: Getty Images.
Now what
Long term, Tilray, which IPO'd last month, and Cronos will be valued based on how much marijuana they're able to sell and eventually their profitability. With Canada set to begin recreational marijuana in October, the market seems well poised for growth, but investors should make sure the companies aren't getting ahead of themselves.
