The Motley Fool

$100 Billion Tobacco Giant Altria (NYSE:MO) Just Bet Big on This Cannabis Stock

Image source: Getty Images

The cannabis industry has been hit hard in recent months, with popular marijuana-based ETFs down 50% or more. Yet recent actions from $100 billion tobacco behemoth Altria Group (NYSE:MO) could signal a bottom. On November 20, Altria purchased four million shares of Cronos Group (TSX:CRON)(NASDAQ:CRON), adding to its existing position in the company.

Notably, the purchases follow a steep 70% decline in Cronos’s stock price. In March, shares were trading near the $30 mark. Today, they’re below $10, although the latest purchases from Altria caused the stock price to pop by 10%.

I’ve long been a fan of Cronos, considering it has the backing of one of the largest and most successful companies in the world when it comes to regulated markets. Does Altria’s purchase prove that the cannabis rout is finished? Is now the time to scoop up shares of Cronos?

Just getting started

A bunch of new data has reinforced why cannabis is such a huge investment opportunity. Research firm Prohibition Partners recently projected that the global pot market will reach $100 billion in sales by 2024. Cowen thinks the U.S. alone could be worth $80 billion by the end of the decade. Both forecasts rely on full legalization in the U.S. — something that gained in probability this week when the House Judiciary Committee passed a bill to decriminalize marijuana on the federal level.

No matter how you look at it, legal cannabis sales are just getting started. Cronos is on track to hit US$37 million in sales this year, but in 2020, analysts expect it to reach US$134 million in sales. That’s a 360% increase in 12 months. In 2021, sales could more than triple again.

Long term, the company is bracing to surpass the $1 billion in sales mark. It’ll take some time, but Cronos is clearly putting the right pieces in place for success.

Cronos is ready

Cronos is miles ahead of the competition for one reason: Altria. After its recent purchase, Altria now owns more than 40% of Cronos — a stake worth more than $1 billion. Suffice to say, Altria is highly incentivized to help Cronos succeed.

When it comes to partners, it doesn’t get any better than Altria. In the coming decade, cannabis stocks will live or die based on two factors: their ability to navigate and comply with complex regulations, and their ability to brand their production to avoid the deleterious effects of commoditization.

Cannabis is a highly regulated substance that faces a complex regulatory pathway. Good thing Altria has decades of experience navigating markets like this. In addition to experience, it also has a well-documented history of success. Today, it controls more than half of the U.S. tobacco market.

With world-renowned brands such as Marlboro, Altria has also shown an ability to turn commoditized ingredients into value-added products. As increasing amounts of cannabis floods the market, differentiation will be more important than ever. Altria’s history of success in this department is unrivaled.

There are several smaller Canadian cannabis stocks that could have even more upside, but when it comes to balancing risk with reward, Cronos leads the industry.

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

Fool contributor Ryan Vanzo has no position in any stocks mentioned. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.