Brookfield Infrastructure Partners L.P. and Canopy Growth Corp. Should Partner

Canopy Growth Corp. (TSX:WEED) has come a long way, but troubling concerns about production shortfalls suggests increased infrastructure is the solution.

| More on:

Last November, I suggested that Philip Morris International Inc. (NYSE:PM) should buy Canopy Growth Corp. (TSX:WEED).

My rationale was simple.

Big tobacco

Buying Canada’s largest producer of medical marijuana would give the tobacco giant entry into the lucrative cannabis market while also regaining a greater presence in North America — something it lost when it was spun-off from Altria Group Inc. in 2008.

Nothing’s come of my proposal, not even a rumour, but if Canopy wants to be a global player, it could do a lot worse than having a partner with serious experience manufacturing a government-regulated product and $7.2 billion in annual free cash flow.

I’m not the first person to suggest this, and I won’t be the last.

A recent article in The Globe and Mail quoted Matt Shalhoub, managing director of Green Acre Capital, a $25 million investment fund focused on investments in the Canadian cannabis market. Its investors include former Dragon’s Den panelist W. Brett Wilson.

“One of the key attractions is the prospect of consolidation and eventual takeovers of leading cannabis players by Big Pharma and Big Tobacco, as well as the inevitable arrival of Big Finance,” The Globe and Mail’s Brian Milner writes, paraphrasing Shalhoub. “Mr. Shalhoub says he wouldn’t be surprised to see one of the tobacco heavyweights snap up a large Canadian producer in the next year or two and tap its experience to tackle other markets as they open.”

Investors have an alternative

In the same article, Milner discusses alternatives to investing in publicly traded pot producers, which carry the risk of being on the outside looking in once production rises and prices fall.

“Pot isn’t much different from growing parsley,” one investor tells Milner. “You don’t really care who grows it. At the end of the day, it’s going to be about branding.”

First, this investor’s rationale is precisely why Philip Morris makes sense as a buyer of Canopy and other producers. It doesn’t grow its tobacco; it merely markets the finished product.

Second, it highlights the fact the real winners when it comes to the legalization of recreational pot are the various small businesses that will keep the industry growing.

Those are the companies to bet on.

Cannabis infrastructure isn’t cheap

Somebody’s got to own the grow facilities, whether they’re greenhouses, outdoor farms, or large reconfigured manufacturing plants, etc.

It’s far better for Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) to own these properties than the producers themselves, whose capital could and should go toward marketing and R&D and other revenue-generating assets. As real estate owners get better at recognizing when producers are sniffing around for greater production, prices are going to rise dramatically.

Under this scenario, Brookfield would own the production facilities, someone else would manufacture the pot, and Canopy, like Philip Morris, would then buy the pot and turn it into various products, including marijuana cigarettes, oils, edibles, beverages, etc.

And hey, if none of this happens, Brookfield Infrastructure and Canopy Growth are still excellent investments.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned. Brookfield Infrastructure Partners  is a recommendation of Stock Advisor Canada.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »