It was just a matter of time before a big tobacco company got interested in the legal marijuana business. That time has come.
Altria, the maker of Marlboro cigarettes among other brands, has put up $1.8 billion to buy a 45 percent stake in Toronto marijuana producer Cronos Group, Inc. It’s the first such investment by a major tobacco company. Expect more to come.
According to Bloomberg:
With U.S. smoking rates falling fast, Richmond, Virginia-based Altria is under pressure to find new avenues to expand. Marijuana is now allowed in an increasing number of states but is still illegal on the federal level in the U.S. That makes Canada, which legalized recreational use in October, a large laboratory for the nascent industry.
“We believe cannabis is an excellent strategic fit for tobacco,” Jefferies analyst Owen Bennett said in a research note earlier this week. It’s a logical fit, because “big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods,” he said.
The Wall Street Journal, though, cautions that marijuana won’t make the issues faced by the traditional cigarette maker go away. The Journal points out that Altria needs to invest in alternative nicotine delivery at least as much as it needs to diversify into legal cannabis.
According to the Journal:
A minority stake in Juul, the San Francisco-based group which was valued at $16 billion in its latest funding round and has cornered 70% of the U.S. vape market, looks like Altria’s best option. That would allow the company to watch how an FDA crackdown on youth vaping impacts Juul’s top line before committing fully. Cannabis is fine for the weekends, but Altria needs a proper tobacco substitute if it is to save its day job.