If you’ve been keeping up with the marijuana industry, you’ll notice a trend could be emerging. It’s all about mergers and acquisitions between tobacco companies and marijuana stocks. The first was Altria acquiring a 45% stake in Cronos Group in 2018. Then just last month, British American Tobacco acquired a 20% stake in OrganiGram Holdings. There is also a consistent interest in the marijuana industry from Big Tobacco.
Is this a good sign for the cannabis industry? Will there be more investment activities tailored around this trend? Read on as we explore the key details surrounding recent mergers and acquisitions between tobacco giants and cannabis companies and what this means for cannabis stocks. We also uncover some of the reasons behind these investments and whether they bode well for the rapidly evolving cannabis sector.
Why is Big Tobacco interested in cannabis?
There are many reasons why Tobacco enterprises would be interested in cannabis companies. Here are highlights of the two general reasons.
Cigarette smoking is on the verge of extinction
Experts as well as the biggest tobacco companies are already predicting that tobacco smoking may become extinct in the U.S. by 2050. Some also believe it could be sooner than that. This development has prompted the biggest industry players to start seeking diversification opportunities. The cannabis industry and investment in cannabis stocks offer this opportunity.
The marijuana industry is rapidly advancing
The marijuana industry is rapidly evolving and on the brink of federal legalization. This makes now the ideal time for investors like Big Tobacco to get involved. Besides federal marijuana legalization, more states are choosing to legalize weed, making the industry more attractive for acquisitions and partnerships.
Some partnerships and acquisitions between cannabis and tobacco companies
Established players from the Tobacco, Pharmaceutical, and Alcohol industry have for long been interested in cannabis stocks. For instance, Constellation Brands, maker of Corona beer, bought a 38% stake in Canopy Growth’s cannabis stocks for $4 billion.
However, the peculiar nature of the tobacco and cannabis industries makes their activities most notable. Here are some partnerships and acquisitions between companies from these two industries.
Altria (NYSE: MO) and Cronos Group (NASDAQ: CRON)
In 2018, Altria purchased a 45% stake in Cronos Group, a deal that will make the cannabis company the largest globally. With warrants available for Altria to extend its stake to 55%, they could well take over Cronos wholly any time soon.
British American Tobacco (BAT) and OrganiGram
Earlier this month, BAT acquired a 20% stake in OrganiGram Holdings for around $175 million. BAT’s willingness to pay the top price was considered a strong and positive sign for the industry at large.
What does this mean for marijuana stocks?
The consistent attention that the weed industry is receiving from other established industries bodes well for marijuana stocks. More interest will translate to increased demand for cannabis stocks. It will also result in improved investors’ interest and confidence in the industry. Consequently, investment and consolidation activities like mergers & acquisitions and strategic partnerships can be expected in the cannabis sector in the coming months and years.
Top marijuana stocks to watch as interest from Big Tobacco rises
Here are the top marijuana stocks to keep an eye on as interest from tobacco giants continues to rise. These stocks have been involved in cross-sector mergers & acquisitions and partnerships recently.
Cronos Group (NASDAQ: CRON)
Cronos Group made headlines in 2018 when Altria acquired 45% of its stocks. Despite falling short on its Q4 profitability forecasts, Cronos is still a great weed stock to watch. As Big Tobacco’s interest continues to pour into the cannabis industry, Cronos is one stock you can expect to perform. Experts however tend to disagree as Cronos has a sell signal on trading platforms. Regardless, this weed stock is up by 42.80% year-to-date.
OrganiGram Holdings (NASDAQ: OGI)
We spoke about OrganiGram earlier this month when BAT acquired a 20% stake in the company. OGI’s low stock price makes this an interesting stock to watch. BAT’s involvement with OGI also has a lot of potentials. Investing in this marijuana stock now could turn out very profitable when the BAT-OGI partnership starts to yield returns.
Tilray (NASDAQ: TLRY)
Tilray’s merger with Aphria is yet to kick-off but it’s expected to bring many positives including reduced cost of operations. If the synergy from the reverse merger between these two cannabis stocks truly works, the company will become unstoppable in the industry.
The weed stock wrap
However you choose to look at it, the fact is that the Tobacco industry is dying. As an act of self-preservation, it seems only natural for tobacco companies to want to diversify into marijuana. There are so many ways in which the cannabis sector could benefit from the Big Tobacco experience. For instance, the tobacco industry seems more experienced in the areas of research, branding, and marketing. Ultimately, the partnership between these two industries is good news for both sides.