Is a Big Tobacco-Marijuana Marriage on the Horizon?

The marijuana industry has had a pretty big year, and everyone has taken notice.

Even though pot stocks haven’t performed as well as they have in recent years, the cannabis industry gained something far more important in 2018: validation. On Oct. 17, Canada lifted its nine-decade prohibition of recreational marijuana and opened the door to legal adult-use sales. Taking into account that it’ll take a few years for the industry to expand its production capacity and lay the foundation for its international sales channels, we’re likely looking at $5 billion or more in added annual sales in Canada by sometime in the early part of the next decade.

This sales potential is what’s driven marijuana stocks notably higher since 2016, and it’s what’s recently caught the attention of a number of brand-name companies.

Beverage companies are drunk on marijuana’s growth prospects

In August, the beverage industry announced two big-time deals with marijuana stocks. It began on Aug. 1, which is when Molson Coors Brewing Co. (NYSE:TAP) announced a 57.5%-to-42.5% joint venture with HEXO Corp. that will see the duo develop cannabis-infused beverages. Interestingly enough, most alternative forms of consumption aren’t currently legal in Canada, with the exception of cannabis oils. Molson Coors and HEXO expect that to change in the summer of 2019, with Canada’s Parliament set to discuss and (hopefully) approve new consumption options, including infused beverages and edibles.

An even grander deal was struck two weeks later, when the maker of Modelo and Corona beer, Constellation Brands (NYSE:STZ), agreed to purchase 104.5 million shares of Canopy Growth‘s (NYSE:CGC) stock at a greater-than-50% premium to its prior-day closing price. When the $4 billion deal closed, Constellation had taken a 37% stake in Canopy Growth. This was actually Constellation’s third such investment in Canopy Growth, and it can eventually up its stake in the company to more than 50%. That makes this “partnership” about way more than just developing infused beverages. It’s about Constellation’s belief that the marijuana industry is a valid business model that would nicely complement its existing beverage portfolio.

Now it would appear that big tobacco has its sights set on the pot industry…

Continue reading at THE MOTLEY FOOL

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