US-based cannabis sales are projected to reach US$75 billion in 2030 which will outpace the US$60B in wine sales of the $60 billion and almost match the US$77B in cigarette sales. This explosion in the cannabis market has caught the attention of big name brands hailing from other markets who can benefit from the integration of cannabis-based business. This article identifies 9 major consumer and pharmaceutical corporations who have bought into marijuana companies to take full advantage of this rapidly growing market.
By Loriner Wilson, editor of munKNEE.com
MSCI ESG Research has identified 148 publicly traded companies – mostly in the health care (71%), pharmaceuticals and beverages industries (11%) and tobacco business – with ties to the cannabis industry as of June 3, 2019.
Here are the details of the 9 major current partners of marijuana companies:
1. Altria Group, Inc. (NYSE:MO) has made a $2.4 billion Canadian investment in marijuana grower Cronos Group Inc.(NASDAQ:CRON) and now has a 45% stake in the company. If Altria exercises the warrants provided in the deal it will increase their stake to 55%, and pump another $1.4 billion Canadian into the cannabis company. The deal allows for CRON to co-develop new products that could be sold on Altria’s large network giving it an instant foothold in a growing business.
2. Imperial (Tobacco) Brands PLC (LSE:IMB) is investing $123M via a convertible debenture in Auxly Cannabis Group Inc. (TSXV:XLY), a vertically-integrated cannabis company with diverse international operations, for a 19.9% stake in the company. In addition, Imperial Brands will grant Auxly global licences to its vaping technology for cannabis use and access to its vapor innovation business, Nerudia, to develop a portfolio of new and enhanced vapor products and brands, when the sale of edibles and derivatives products becomes legal in Canada this coming October.
3. Pyxus International Inc. (NYSE:PYX), an independent leaf tobacco merchant that serves large multinational cigarette manufacturers, has acquired equity positions in Canadian marijuana producer Canada’s Island Garden Inc. (75%) and Goldleaf Pharm (80%) with a five-year goal to become a leader in CBD production and consumer products. Terms of the transactions were not disclosed.
Interestingly, being of the opinion that companies in the shrinking tobacco market will shift towards the cannabis industry, ETFMG Alternative Harvest (ARCA:MJ) has included a number of tobacco stocks among the constituents of its ETF, albeit in small weightings, even though most of the companies are not (yet) in the cannabis industry.
1. Constellation Brands Inc. (NYSE:STZ) has invested C$5B in Canopy Growth Corporation (TSX:WEED; NYSE:CGC), a vertically-integrated cannabis company with diverse international operations, back in August, 2018 for a ~38% ownership stake in the company. The warrants granted in the transaction will increase the stake to over 50% if they are exercised. For more information on this transaction go here and go here for how things are working out and here regarding the firing of founder and co-CEO Bruce Linton.
2. Molson Coors Brewing Company (TSX: TPX; NYSE:TAP) has entered into a 57.5%/42.5% joint venture known as TRUSS with HEXO Corp. (TSX:HEXO; NYSE:HEXO) to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market. See details in the press release here.
3. Anheuser-Busch InBev SA (NYSE: BUD) which owns the iconic Budweiser brand and Stella Artois, to name a few, has formed a $100 million joint venture with Canadian grower Tilray Inc. (NASDAQ:TLRY), that will see each company provide $50 million in funding. The duo will research and develop a line of nonalcoholic cannabis-infused beverages for the Canadian market.
Consumer Edible Processor/Edible Companies
1. The Second Cup Ltd. (TSX:SCU), a coffee-oriented retail stock, has established a strategic alliance with National Access Cannabis Corp. (TSXV:META) to convert select Second Cup locations into NAC-branded recreational dispensaries initially across Western Canada, with plans to expand to additional provinces where legally permissible.
2. Alimentation Couche-Tard Inc. (TSX:ATD.B; TSX:ATD.A), one of the world’s largest convenience shop retailers with 16,000 stores in 25 countries, is investing C$380M in aggregate in Fire & Flower Holdings Corp. (TSXV:FAF). The initial tranche of the agreement is a convertible debenture for a 9.9% ownership with a stake in the company rising to 50.1% on a fully diluted basis if the three series of warrants it will receive from FAF are exercised in full.
1. Novartis AG (NYSE:NVS), one of the world’s largest drug manufacturers, has entered into a global agreement with major grower Tilray Inc. (NASDAQ:TLRY), through its Sandoz division, which allows Tilray to use the Sandoz supply chain, sales force and global distribution network to distribute Tilray medical cannabis products to legal jurisdictions around the world.
Taking a look at the performance of the above companies one could conclude that it is more prudent to own stock in the above mentioned consumer products/pharmaceutical companies than in their associated marijuana companies.
- the 9 consumer products/pharmaceutical companies are up 16.4% YTD on average compared to the marijuana companies which are DOWN 18.0% YTD on average,
- the 9 consumer products/pharmaceutical companies have a very low average beta of only 0.47 compared to a very high 2.9 for the marijuana companies on average and
- 7 of the 9 consumer products/pharmaceutical companies have dividends that yield 3.3% on average while none of the marijuana companies have dividends.
Conservative investors who want to invest in marijuana stocks might be better served by investing in the above mentioned major corporations than in any individual cannabis company.