Based on some brand new data that my team at the Institute just reviewed, these industry players have even more reason to pour money furiously into cannabis companies.
At the National Institute for Cannabis Investors, we talk a lot about how the rapidly expanding legal cannabis market will disrupt many established industries.
Just the other day, I explained how Big Pharma is shaking in its boots over a simple hemp extract.
As recently as last Friday, tobacco giant Altria Group Inc., announced its intent to invest US$1.8 billion in Canadian cannabis company Cronos Group Inc. And that $1.8 billion was just a start. Altria stands prepared to toss in another US$1.1 billion if everything goes as planned. Given the excellent leadership at Cronos, it will.
Tobacco companies know their traditional market is declining rapidly and they must find aggressive sources of growth.
Alcoholic beverage companies Molson Coors Canada and giant Constellation Brands have also both committed to cannabis – the latter making a $4 billion commitment to cannabis cultivation behemoth Canopy Growth Corp. Sales growth for alcohol is way down, and these companies know that cannabis legalization threatens its sales even more.
And based on some brand new data that my team at the Institute just reviewed, these industry players have even more reason to pour money furiously into cannabis companies.
Here’s what’s causing the panic…
Conglomerates’ Cannabis Investments Will Heat Up in 2019
By investing in cannabis, companies in established industries establish beachheads. These beachheads create a position to participate in the growth of a new industry that would otherwise take away from their existing products’ revenues and profitability.
In short, their investments give these giants a taste of the industry that’s taking away from its core, more traditional area focus. And this outside investment drives cannabis company stock prices into the stratosphere.
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For instance, in the month following the announcement of Constellation’s investment in Canopy, one of the five largest cannabis stocks as measured by our NICI 50 Index that tracks how the industry is doing, Constellation rose 45%. And that paled in comparison with Canopy Growth’s stock, which soared 92%. In the two days after Cronos confirmed Altria’s interest, Cronos jumped 22% – and that’s after already rallying on the rumor.
That’s because the opportunities that cannabis present are becoming more and more evident to companies around the world, and you want to be invested before everyone else gets into the act.
Threats to Established Core Business Are Imminent
Fresh research released by analytics firm New Frontier Data illustrates that sales patterns in states where cannabis has been legalized change drastically after prohibition is ended.
Alcoholic beverage companies are among those most challenged and disrupted.
Across all cannabis users, 65% would prefer to consume cannabis over alcohol if given a chance. What’s more, in states where cannabis is still illegal for any purpose, that preference increases to 69% and just over half state they would go so far as to replace some their alcohol consumption with cannabis.
That is a giant red flag to those in the industry. For early movers like Constellation Brands, this preference is a big opportunity to define what will be consumed – particularly when it comes to cannabis-infused beverages.
But buried deep in New Frontier’s latest report was an industry in even more trouble than Big Alcohol. There’s compelling proof that clearly lays out the potential for cannabis products to displace over-the-counter and prescription medicines.
For starters, the overwhelming reason people consume cannabis is for health and wellness. Of the top 10 reasons survey participants indicated why they used cannabis, six were for reasons related to health and wellness.
Whether to relax, relieve stress or anxiety, sleep better, or manage pain, people don’t primarily consume cannabis to party. Rather, they just wanted to improve how they feel. This perhaps indicates “recreational-use” is a misnomer.
In fact, medical use is expected to grow at an even faster rate than recreational use. Over the next five years, sales for medical use are predicted to increase at nearly 16% per year while recreational use sales are expected to advance at a pace just shy of 14%. Both are impressive, but the edge to medical reinforces why you don’t want to sleep on medical cannabis.
Regardless, of the people who consume cannabis for medical reasons, 94% state that cannabis improved their condition, and two-thirds rated that improvement as significant.
As a quick aside, that 94% isn’t limited to people who bought cannabis with a prescription. It includes all consumers who say they buy cannabis primarily for medical reasons – with or without a prescription or medical card.
And that’s the threat to traditional pharmaceutical products. Research continues to demonstrate that cannabis is an effective treatment for a range of conditions and consumed in a form that doesn’t require a prescription – or even a doctor’s guidance.
How effective is it? According to the survey, among people using cannabis for pain, about 70% reported significant improvement in the treatment of conditions such as chronic or intractable pain, migraines, neuropathy, and fibromyalgia.
The improvement was so compelling that 65% of these patients have replaced their pain meds with cannabis. Moreover, across all medical cannabis users, nearly three-quarters have replaced their prescription or over-the-counter drugs.
Sales of traditional pharmaceutical products, opioids being the most obvious example, could be displaced by non-patentable cannabis, which is why pharmaceutical companies will be looking to invest in cannabis companies and establish their beachhead.
It all points to a dramatic sea change, one that investors can take full advantage of if they get in early. Those waiting on the sidelines until everything seems safe will miss the biggest wave of gains while trying to play catchup.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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