Cronos Group Inc., a well-connected Canadian LP led by CEO Michael Gorenstein, confirmed that it is in discussion with tobacco giant Altria Group Inc. about a potential investment.
When Constellation Brands Inc. first announced its $3.8 billion investment in Canopy Growth Corp. in August, my research team was in Downtown Toronto with some of the most important executives in the cannabis industry.
We knew it was but a taste of the activity that would light up the cannabis industry.
And if you’re still looking for proof points about the ongoing potential of the cannabis industry even amid a temporarily down-trading market, look no further than yesterday.
The lights got really bright for the companies involved.
Cronos Group Inc., a well-connected Canadian LP led by CEO Michael Gorenstein (who we had the chance to catch up with recently in Las Vegas), confirmed that it is in discussion with tobacco giant Altria Group Inc. about a potential investment.
Altria, which is also rumored to have been talking to Tilray (NASDAQ: TLRY) and Aphria (NYSE: APHA), would be making a wise choice going with Cronos. As the above interview reveals, Cronos is one of the most forward-thinking companies in the cannabis industry and even envisions a future when the active ingredients of cannabis are produced by fermentation rather than being extracted directly from the plant.
This news drove Cronos stock up 11% on Monday and continued to rally higher through today.
Details are scarce but if a deal like this were to go through it would be massive news, especially given Cronos’ size and standing as one of the top companies in the industry, since Constellation’s deal with Canopy.
But this too is just the tip of the iceberg…
Big Industry Wants in On the Cannabis Action
The era of consolidation is something we’ve been talking about here at the Institute for months. But it’s getting ready to kick into an even higher gear at any time.
The coming of this era has been a whisper for some time. But this volume has picked up from everything I’ve heard in the halls, lounges, and restaurants at conferences throughout the second half of this year, including at last month’s MJBizCon.
The short version is: giant companies will enter the space through mergers and acquisitions and dominate – this is where most of the market share and market caps will be. Similar to the craft beer industry thriving throughout North America, some well-run smaller producers with elite-level products will be able to carve out a market by going after niche customers, like those who will only buy organic.
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Cannabis companies in the middle will find themselves the targets of lucrative acquisitions, mostly by those leading firms that need a home for all that fresh capital from industry players making a stake in cannabis.
After Constellation’s capital injection, Canopy went on an investment spree, having forged five acquisitions or partnerships since. And Canopy CEO Bruce Linton is not shy about sharing that those moves are just an introduction of what is to come.
There’s simply too much money to be made on legal cannabis for the big conglomerates to stay away any longer, especially in the United States. Even before this November’s election that added new legal cannabis markets, the total value in the 31 states was $10.8 billion. That’s only about 20% of the total market for cannabis in this country.
This means much more space for growth as more states, and eventually, the federal government legalizes cannabis. It’s a reality that is less than five years down the line, according to a number of sources including former U.S. House Speaker John Boehner.
We’ve heard estimates that with full legalization and the wildfire spread of interest in over-the-counter CBD products all baked in, actually push the potential market to $1 trillion.
Cannabis execs like Kushco Holding’s Nick Kovacevic, The Green Organic Dutchman’s Danny Brody, and Cronos‘ own Michael Gorenstein have told the Institute with confidence: “don’t bet the under.”
Cannabis Profits Daily members can now watch the Institute‘s eye-opening June 2018 interview with Cronos CEO Michael Gorenstein free of charge by clicking here. And a brand new interview with Gorenstein – this one from the largest cannabis business conference in the world (MJBizCon) in November – is about the hit the NICInvestors.com website tonight, exclusively for our Cannabis Investor’s Report members. If you’re already a member, click here.
Desperate for Growth
One big reason to not bet the under is that the market shares of mature companies in sectors like tobacco and alcoholic beverage are suffering from years of much lower demand for its products.
Tobacco companies want in because smoking rates continue to collapse. The smoking rate of 14% in 2017 marked a record low, one that was 67% below the adult smoking rate from 1965, according to Centers for Disease Control and Prevention.
Alcoholic beverage makers want in because sales of beer, wine and spirits are growing at most a third of what they were two years ago.
Add to that the continuing emergence of state-legalized cannabis products and hemp-derived CBD that sells over the counter, and you have two more competitors to compound the competitive woes of Big Alcohol and Big Tobacco.
So these companies are desperately struggling to maintain revenues through new sources of growth and desperate investment from cash-rich industries will ultimately propel cannabis stock prices through the stratosphere.
But to truly build generational-level wealth, you want to be there long before the inevitable.
Capital Will Follow Capital
As you can see from the mere acknowledgment that the sides are meeting, these events boost stocks and can happen at any time. As these runs inevitably pick up steam, this can pull in more investment from even bigger investors like institutional money managers. These are the folks who can really move the needle on a stock price.
After the Canopy Growth announcement, the NICI 50 – our proprietary index of the largest cannabis companies in the country — soared 55% over the 30 trading sessions. And a number of marijuana stocks reached record highs during the frenzied investor appetite.
So, we should not be surprised if this potential Cronos-Altria deal sparked similar gains to close the year.
You don’t want to be playing catch up and getting a last-minute buy in while other cannabis investors are racking up the profits.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors