Nothing makes investors more excited than Mergers and Acquisitions. A big M&A has the potential to completely change an
industry and provide a big pay-off for investors. Companies like Altria Group Inc (NYSE: MO) and Constellation Brands Inc. (NYSE: STZ) are looking to enter the cannabis sector via innovative brands like
Canopy Growth Corporation (NYSE: CGC). Other,
lesser known companies, like PotNetwork Holdings, Inc., are also well placed to take advantage of the interest of corporate
giants.
Big brands want to enter the cannabis sector
Canadian legalization was just the beginning. The cannabis sector is beginning to snowball and attitudes in major markets are
rapidly shifting in favor of legalization. In the United States, the Federal Government has already taken steps to legalize CBD
products via the iconic
Farm Bill and attitudes across major European economies continues to
relax. The global legal cannabis market is predicted to be worth $146.4 billion by 2025. Cannabis
legalization represents an opportunity for industries like tobacco and alcohol. Both industries have experienced declining sales,
and recreational marijuana offers a way to reverse this situation. They will have to compete with existing operators and other
entrants interested in the ancillary cannabis sectors, CBD for example. Companies who don’t move now will be forced to pay a
premium and there’s already been a flurry of activity.
Altria Group Inc. is Big Tobacco’s First Mover
Times have never been tougher for Big Tobacco. As public health campaigns take hold, smoking rates in developed economies
have plummeted. The industry has also been
disrupted by the emerging e-cigarette market, which threatens to further cut into their bottom line.
Altria has already taken steps to combat the impact of e-cigarettes with a direct investment of
$12.8 billion in Juul. The investment gives Altria a 35% stake in the largest e-cigarette producer. Altria’s investment in Juul
is a clear attempt to take ownership of a potential threat but they also see real opportunity in the cannabis sector.
In December 2018 Altria made their first foray into the cannabis sector with a $1.8 billion
investment in Cronos group. This secured the tobacco giant an ownership stake of 45% in the group.
The deal was mutually beneficial. Altria gained an ownership stake in a potential rival and Cronos Group gained access to
Altria’s expertise and a significant capital injection. The cannabis firm was particularly interested in Altria’s experience with
vaping and e-cigarettes and saw an opportunity to develop customized vaporizers for their cannabis products.
Cannabis and tobacco companies represents natural partnerships. Tobacco companies have experience in dealing with complicated
regulatory hurdles and have access to vast distribution networks.
Other major tobacco companies, like Philip Morris International, have yet to make their first moves into the marijuana industry.
Philip Morris is more
interested in promoting its IQOS heated-tobacco system but other Big Tobacco companies will soon be forced to follow in
Altria’s footprints or be left behind.
Constellation Brands Is Betting on Cannabis Beverages
Like Big Tobacco, alcohol firms have been struggling with declining demand for their products across developed markets. Health concerns surrounding alcohol have hastened declining
drinking rates.
In the UK, the number of people drinking more than 14 units fell by 6% in 2016 and beer
sales in the United States have fallen for the last 5 years straight. Sales of
non-alcoholic beverages have
skyrocketed in response and many alcohol companies are developing their own alternatives.
Beverage companies are particularly interested in marijuana infused beverages, a market that is predicted to be worth $600 million in the US alone by
2022. In 2016, Constellation brands secured a 38% stake in Canopy growth through a massive
$4 billion investment. This move placed marijuana at the heart of Constellation’s growth strategy.
Constellation’s incoming CEO Bill Newlands stated that he believes the emerging cannabis space represents one of the most
significant global growth opportunities in our lifetime during a speech to investors.
Initially, Constellation will be focusing on the Canadian market as it is not yet legal to sell THC products in the United States,
but that doesn’t mean that the company is not eyeing up opportunities south of the border.
The Farm Bill has opened up incredible opportunities for cannabis companies to claim a stake in the lucrative U.S. market. Canopy
Growth in particular, has secured a Hemp License in New York and plans to make investments of $500 million
or more in the United States Hemp industry.
For its part, Constellation brands has shown interest in creating CBD
infused beverages for the U.S market. Canopy Growth is already one of the world’s largest CBD producers so both companies are in a
good position to take advantage of this emerging market.
PotNetwork Holdings is a Tempting Target After the Farm Bill
The race to identify new acquisition targets is on. New entrants into the cannabis market are looking to take advantage of its
many ancillary industries, in particular CBD. Investors and big companies are likely eyeing small, relatively established, players
like PotNetwork Holdings with growing interest.
PotNetwork are a rapidly expanding operator in the American CBD market. They have been quietly building a loyal customer base,
and the passing of the Farm Bill represents an incredible opportunity for the company. Thanks to its passage, the CBD sector
is predicted to be worth $22.2 billion by 2022 and grow
faster than any other cannabis sub-sector.
PotNetwork is one of the few companies who have an established presence in this emerging market, a fact cited by Harbinger in
their January research
report.
The analyst believes the company is a strong speculative, or potential, buy and gives it a price target of between $0.192 and
$0.337 for the next 12 months. The company has proven itself capable of impressive growth. Its subsidiary, Diamond CBD, had
generated over
$18.1 million in revenue by Q3 2018, surpassing all of its combined revenues in 2017.
POTN has also taken pains to make connections with industries that are likely to be interested in a CBD acquisition. The company
had a strong presence at the Tobacco
Plus Expo in Las Vegas. This show is important in the tobacco industry and is the first real “buying” show of the year for
professionals in the sector.
2019 Will Change the Cannabis Landscape Forever
For investors, the cannabis sector is entering a particularly exciting phase. Not only will we see big players entering the
sector but there will also be a series of consolidations by large cannabis firms seeking to compete with new entrants.
Companies and investors will show increasing interest in ancillary industries, in particular the CBD sector. Cannabis companies
raised $13.8 billion in 2018 four times more in 2017. It is likely that this trend will accelerate during what is sure to be an
exciting year for cannabis operators.
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.