The marijuana industry has had nothing short of a groundbreaking year. In October, following years of promises from Prime Minister Justin Trudeau and months of debate in the Senate, Canada officially opened its doors to recreational marijuana. With nine decades of adult-use prohibition now over, Canadian pot companies are expected to see billions of dollars in added annual sales flow in by the early part of the next decade.
It’s also been a year for record deal-making in the marijuana industry. Pretty much every top-10 deal by market value has occurred since the year began…
Brand-name companies are intrigued by the marijuana industry
More recently, we’ve begun to see real interest by brand-name companies in the beverage, pharmaceutical, and tobacco industries in what’s now a legitimate cannabis industry.
It all began on Aug. 1, when Molson Coors Brewing announced a joint venture with Quebec-based HEXO to develop and market cannabis-infused beverages. What made this partnership so interesting is that infused beverages aren’t yet legal in Canada — Parliament is widely expected to increase weed consumption options next summer — and HEXO wasn’t really on any pundits’ lists as a possible partner. Nevertheless, HEXO’s peak production potential of 108,000 kilograms, along with Molson Coors’ deep pockets and ability to move into new markets, makes this an intriguing pairing.
Just two weeks later, Corona and Modelo beer maker Constellation Brands (NYSE:STZ) made what would be the largest equity investment in marijuana history in Canopy Growth. When it closed, the 104.5 million shares Constellation acquired worked out to a $4 billion investment in Canopy, giving it a 37% stake. Inclusive of the 139.7 million warrants Constellation also received, it could up its stake in the largest publicly traded pot stock by market cap to more than 50% if exercised. The duo will not only work on new products, but it’s expected that Constellation will aid Canopy’s push into overseas markets.
And then, of course, the latest whopper of a deal: Altria (NYSE:MO), the company behind the premium Marlboro cigarette brand in the U.S., announced a $1.8 billion equity investment in Cronos Group (NASDAQ:CRON) this past Friday.
Altria’s smoking-hot deal with Cronos Group
Word of a possible tie-up between Altria and Cronos Group had hit the newswires a few days prior, according to a Bloomberg report. Altria has been looking for ways to reignite its growth engine as demand for traditional tobacco products continues to weaken in the United States. In 2017, adult cigarette-smoking rates had declined to an all-time low of 14%, meaning Altria has had to use price increases, internal cost-cutting, and the addictive aspect of nicotine to drive top-line and bottom-line growth.
For Altria, using some of its operating cash flow to invest in the high-growth marijuana industry looks like a no-brainer. With the electronic-cigarette movement not yielding the growth that the tobacco industry initially expected, alternatives for new sales channels have remained few and far between.
Plus, Altria, like Constellation Brands, received warrants from its equity investment that could allow the company to up its stake in Cronos to more than 55% if exercised.
As for Cronos Group…
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