The end of 2018 saw the world’s largest tobacco player Altria sign a deal with a Canadian cannabis magnate Cronos Group. The deal which included a payout of $1.8 billion saw the former receive 45% shareholding (with the option of increasing to 55% in the next five years) in the Cronos Group. Altria is the cannabis giant behind the world’s luxurious cigarette brand Marlboro.
The tobacco market has been struggling for the last decade. This is due to aggressive sensitization on the negative health effects associated with tobacco smoking. Consequently, Altria’s stock value has been dwindling and so have their profit margins. Hopefully, the merger will spark a ray of hope among investors who had begun shifting their attention to more promising industries. For Altria, this should open new unexplored opportunities that can help them make a kill, yet again.
Big Pharma Has Dipped A Toe
Altria is not the only big company eyeing the cannabis space, the giant Swiss drug maker Novartis also signed a partnership with cannabis giant Tilray at the close of 2018. The partnership would allow the drug company to work on medical cannabis products in legal markets.
Speaking with CNBC’s Jim Cramer from CNBC in June 2019, the CEO of Novartis clarified that cannabinoids are not an area of focus for the company at the moment. Narasimhan, the CEO, said that he was “ trying to shape Novartis into a company that is “uniquely placed” in the health-care system, balancing between more common ailments such as dry-eye disease or migraines and more rare health concerns like gene diseases, which affects 350 million people worldwide.”
This, however, comes against the background that Novartis is working with Tilray to supply non-smokable and non-combustible medical cannabis products where it is legally allowed. It appears that the Swiss drugmaker is cashing in on every penny it can access from the cannabis market.
Constellation Brands Is Already In The Mix
In August 2018, Constellation Brands bought a 38% stake in the largest Canadian cannabis company, Canopy Growth, for $4 billion. Constellation brands are among the world’s largest beer manufacturers, it is behind Corona and Modelo beer brands. Earlier in the year, they had purchased a 9.9% stake in the cannabis company. The deal also allows the beer company the option for future investments. According to the group CEO, the company does not plan on introducing any cannabis beverages to the US market before cannabis is federally legalized. However, they plan to move in on the Canadian market pretty soon.
Will Coca-Cola-Aurora Deal Materialize?
It’s been over a year since the Coca-Cola-Aurora merger gossip hit the airwaves. What is apparent is that Coca-Cola seems interested in producing cannabis-infused beverages, possibly in partnership with a cannabis company. Time will tell whether this deal between the two business giants will materialize. Should Coca-Cola get cold feet, smaller soft beverage companies are sure to jump at the opportunity.
Cannabis Mergers and Acquisitions Paving Way For Bigger Entrants To Cannabis
Last year we also witnessed the coming together of cannabis businesses in the US through mergers and acquisitions. For example, MedMen and Pharmacann came together as well as iAnthus and MPX. These mergers will help in building larger cannabis businesses that can function more efficiently. Such businesses are more likely to attract investments from larger companies in other sectors once federal cannabis prohibition ends. These companies may include big pharma, big tobacco as well as big alcohol companies. However, these are hardly the only industries set to expand into the growing cannabis economy.
What Do We Expect To See In The Future?
What we are all waiting for is the legalization of cannabis at a federal level. Should this happen, big businesses will have their chance to “come out” and go after the cannabis billions. For now, the majority are afraid of blatantly antagonizing the law.
The pharma industry is arguably the most profitable industry in the United States today. The cannabis industry, on the other hand, is among the fastest-growing industries in the US currently. The merger by Novartis and Tilray is just a drop in the ocean for what may be coming in the next few years, once legalization at fed level happens.
GW Pharmaceuticals, a British-based pharmaceutical company had a breakthrough last year when the FDA approved a CBD-based drug derived from the cannabis plant, for the treatment of intractable childhood seizures. The company’s first product, Sativex, has already been available in pharmacies across Europe and Canada for many years now.
Preliminary evidence suggests that cannabinoids may be useful in the treatment of chemotherapy-induced nausea and vomiting, chronic pain, multiple sclerosis, cancer, glaucoma, IBS, migraines, fibromyalgia, and PTSD among others. We are likely to witness other giant pharma companies cashing in on the cannabis market in the near future.
Big brands in the alcohol and tobacco market are also likely to join the pack. For the cannabis industry as a whole, this will mean extra revenues that will help to further research and development of specialized cannabis products for both the medicinal and recreational market. At the end of the say, it will be a win-win for the industry.
1. CNN Business (2018): Marlboro owner Altria invests $1.8 billion in cannabis company Cronos. Retrieved from https://edition.cnn.com/2018/12/07/investing/altria-cronos-investment-marijuana/index.html
2. CNBC (2019): Novartis CEO says cannabis isn’t a focus despite the Tilray partnership. Retrieved from https://www.cnbc.com/2019/05/21/novartis-ceo-cannabis-not-company-focus-despite-tilray-partnership.html
3. CNBC (2018): Corona beer maker Constellation ups bet on cannabis with $4 billion investment in Canopy Growth. Retrieved from https://www.cnbc.com/2018/08/15/corona-maker-constellation-ups-bet-on-cannabis-with-4-billion-investm.html
4. FDA (2018): FDA approves the first drug comprised of an active ingredient derived from marijuana to treat rare, severe forms of epilepsy. Retrieved from FDA approves the first drug comprised of an active ingredient derived from marijuana to treat rare, severe forms of epilepsy. Retrieved from https://www.fda.gov/news-events/press-announcements/fda-approves-first-drug-comprised-active-ingredient-derived-marijuana-treat-rare-severe-forms