Marijuana producer Canopy Growth (NASDAQ:CGC) swiped a quarter's worth of per-share profits from Constellation Brands (NYSE:STZ), but the beer, wine, and spirits distributor still managed to beat analyst expectations and maintain strong growth across all of its beverages.

Earnings actually fell year over year, and sales crept only 1% higher in the third quarter. But the results remained better than what Wall Street was expecting and led Constellation to raise its outlook for the year.

Woman looking at marijuana leaves

Canopy Growth's negative effect on Constellation Brands was much less than feared. Image source: Getty Images.

Mexican beer can't be beat

Everyone was expecting Constellation's investment in Canopy Growth to be a real drag on performance. Having reported an $839 million decline in the fair value of its investment in the pot producer in the second quarter, the $534 million decrease this quarter was significantly better, even though Canopy's stock lost over 30% of its value in 2019.

Arguably even more surprising was the continued strength of its beer business, which continues to post exceptionally strong growth considering the weakness of craft beer and the declines seen in the overall industry.

Depletions, or sales to distributors and retailers -- an industry proxy for consumer demand -- were up 7.3% in the quarter. The Modelo Especial brand continued to see them rise by nearly 15% as it tightened its grip on being the fourth-biggest beer brand in the entire U.S. beer category.

Return to growth

Constellation also saw a 7% increase in depletions from its Corona family of beer, driven by both Corona Premier and the flavored malt beverage Corona Refresca, which was introduced to tap into the demand for hard seltzers. Constellation will be introducing its own seltzer in the first quarter of fiscal 2021 under the Corona brand. Unlike Anheuser-Busch InBev or Boston Beer, which created new seltzer brands (possibly to hide their brewer roots), Constellation says Corona is such a popular brand that it makes sense to capitalize on it when the seltzer is introduced.

Especially encouraging for Constellation was the return to growth of Corona Extra, which has suffered from falling sales after Premier and Corona Especial were introduced in 2018.

What it could get growing was its Ballast Point Brewing craft beer, which it purchased for $1 billion four years ago. Having written down the value of the brewer, it agreed to sell it to Kings & Convicts Brewing last month for an undisclosed sum, but one that was likely vastly lower than what it paid.

That's the spirit

Constellation Brands also agreed to sell its underperforming, low-end wine and spirits brands to E.J. Gallo Winery, as it seeks to focus on just premium and super premium brands. However, it had to adjust the terms of the sale to address competitive concerns, and the value of the deal was revised downward as certain brands were eliminated from the transaction. Constellation still intends to sell them to a different buyer when it finds one. It also sold its Black Velvet Canadian Whisky business in November.

Organic net sales for the division were down almost 9% for the quarter, with organic shipment volumes tumbling almost 12%, though there were some bright spots. Svedka vodka, for example, continues to gain market share in that spirits space, with the analysts at IRI saying it grew 8% for the period in the channels it monitors.

Toasting future growth

Management now says that excluding the anchor Canopy Growth represents, it forecasts full-year earnings in a range of $9.45 to $9.55 per share, up from its previous guidance of $9.00 to $9.20 per share, but also well ahead of Wall Street, which was forecasting just $8.49 per share at the midpoint.

Constellation Brands stock is up 15% over the past year, but that's less than half the gains of the stock indexes. With its beer brands all seemingly on track and its plan to step up the quality of its wine and spirits portfolio in place, the adult beverage distributor looks primed for better growth this year. And if its marijuana stock investment can also regain its footing, Constellation may have something to really be buzzed about.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.