Tobacco, Alcohol Companies Going to Pot

Tobacco, Alcohol Companies Going to Pot

With the counterculture revolution in full swing, public support for legalizing marijuana in the United States hovered around a measly 10 percent of Americans in 1969, according to the Gallup polling firm. Fifty years later, Gallup found that two-thirds of the country were ready to let everyone start lighting up.

Democrats, Republicans, independents – a majority of all political affiliations now support legalization. The same goes for breakdowns by age and region of the country.

Even as some political figures – take ex-U.S. Attorney General Jeff Sessions – continue to fight against allowing the sale and use of cannabis across the country, the investment community is picking up on the smoke signals coming from the broader populace. Thirty-three states currently allow medical use of marijuana, while 10 have legalized recreational use.

Cowen’s Vivien Azer, one of two Wall Street analysts who cover cannabis, projects U.S. marijuana industry sales will exceed $80 billion by 2030. “We expect continued growth in newly established U.S. states, and more robust growth in Canada as more supply comes online and new form factors hit the market,” Azer wrote in a report released this week.

Not surprisingly, some of the major players in cannabis-adjacent sectors are actively exploring ways to break into the marijuana market, using our neighbors to the north as a point of entry. Recreational marijuana use became legal in Canada in October.

Altria Group Inc. has invested nearly $2 billion in Cronos Group, giving the Virginia-based cigarette manufacturer a 45 percent ownership stake in the Canadian pot company. The deal includes an option for Altria to up its stake to 55 percent in the next five years.

Another Canadian cannabis company, Canopy Growth Inc., received a $4 billion capital infusion last year from beverage maker Constellation Brands. The brewer of Corona beer and other spirits now owns roughly 40 percent of Canopy. Meanwhile, the Canadian arm of Molson Coors Brewing Co. is working with Hydropothecary Corp. to produce a non-alcoholic pot-infused beverage line.

The overlap between tobacco and cannabis producers seems natural, but what about beer? There’s a growing body of evidence supporting the idea that pot and alcohol serve as substitutes for one another. For example, research suggests legalized weed would cut into alcohol sales. One study found that monthly alcohol sales fell almost 15 percent in counties within states that gave the OK to medicinal marijuana.

If Piper Jaffray analyst Michael Lavery is right, count on more big names to get involved with pot, high on the prospects of huge growth. Piper Jaffray initiated coverage this week of Canopy Growth and Tilray, another cannabis company from Canada, and slapped overweight tags on each stock. Lavery sees the long-term global marijuana market growing to somewhere between $250 billion and $500 billion.

“We do believe the long-term growth opportunities are significant — both from transitioning illicit trade to legal sales, medical sales, and from transitioning sales in health & wellness categories to CBD-infused products,” Lavery wrote in a note to clients. “While timing of further changes is difficult to predict, the pace of further legalization appears to be accelerating.”

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