With a shrinking marketplace for their products, tobacco companies — unsurprisingly — are looking to adapt to the changing marketplace.
Take, for instance, the maker of Marlboro cigarettes, Altria.
Last month, Altria announced it was abandoning its e-cigarette brands as it eyed “reduced-risk tobacco product opportunities,” including but not limited to a minority ownership stake in Juul, as well as a partnership with Philip Morris on its tobacco vape, pending FDA approval.
Also, you may have heard Altria invested nearly $2 billion in Cronos Group, the Canadian cannabis company, purchasing a 45 percent ownership interest with an option to acquire more.
Altria is the fourth largest tobacco company in the world, with Philip Morris International, British American Tobacco, and Imperial Tobacco taking the top three spots, respectively.
What does this mean for the cannabis industry as a whole?
“In our view, the confluence of legislative momentum toward legalization and the growing interest of traditional companies to enter the space will see major deals between (Management Service Organizations) that offer scale, unique capabilities, and professionalism,” Acreage Holdings CEO Kevin Murphy said. “It could be (mergers and acquisitions) or partnership, but big beverage, pharma, and tobacco companies are circling the wagons.”
Kris Krane, president of 4Front Ventures, said the tobacco industry took note of Constellation Brands’ $4 billion investment in Canopy Growth, so large operators are looking for their own “first mover advantage.”
“Whether this is a good thing for the cannabis industry remains to be seen,” Krane said. “The arrival of large-scale corporate players give the industry more legitimacy and will likely accelerate the timeline of legislative change in the U.S. and abroad. At the same time, cannabis business has traditionally been run by people with a strong belief in the plant and its positive benefits, something that could be at risk if these companies bring with them some of the business ethics that have plagued the tobacco industry.”
“With Altria joining the likes of Constellation Brands, beverage and tobacco companies investing in the cannabis industry is an indication of what we will see a lot more of as we head into 2019,” said MGO-ELLO Alliance CEO Evan Eneman. “As we continue to advise and navigate cannabis businesses through complex financial transactions, we know that one of the questions that is top-of-mind will be how this move will position them for investment targeted by major corporations.”