Are Tobacco and Alcohol Firms Still Interested in Cannabis?

Background of cannabis appeal for big CPG brands

Players in industries like tobacco and alcohol have already taken their first steps into cannabis.

The cannabis investment market was changed forever the day Canopy Growth (NASDAQ:CGC,TSX:WEED) confirmed an investment deal with Constellation Brands (NYSE:STZ) — a transaction that resulted in the alcohol-maker gaining a stake in a leading Canadian cannabis operator.

Following Constellation Brands, Altria (NYSE:MO) completed a similar deal with its investment in Cronos Group (NASDAQ:CRON,TSX:CRON).

Since then, other players have followed suit with smaller-scale deals and partnerships, including Imperial Brands (GBX:IMB), Molson Coors (NYSE:TAP) and British American Tobacco (NYSE:BTI).

No deals have been made between CPG leaders and plant-touching US cannabis operators due to the federal illegality of the drug, and a lack of federal protections for financial activities related to cannabis ventures.

CPG players could fill brand expertise gap in industry

Among the cannabis industry's many challenges, branding awareness continues to plague the market in Canada.

Even though cannabis has been legal for adult use in the country since 2018, several reports show brand attachment is extremely low around Canada. And since there are limited possibilities for brands to cross from the US to Canada, international recognition also remains limited.

"That’s where the CPG companies, I think, can really add some value to the industry,” MacGuill told INN. “It’s not just coming in and being predatory around controlling the entire supply chain or whatever, but actually going to build some of that brand infrastructure.”

During a panel discussing the current territory expansion landscape and the entry of new players in the cannabis market, Deepak Anand, founder of medical cannabis company Materia, said he looks forward to the day more tobacco players step foot in the cannabis market.

Anand added that these corporations will bring a new level of expertise and know-how to the industry. “I think you'll start to see movement from bigger companies like that, they're very seriously looking at it.”

The medical cannabis expert expects these large CPG players to focus primarily on a lifestyle approach to cannabis, rather than directly head into the adult-use sector.

Investor takeaway

It’s clear interest in cannabis opportunities from bigger CPG players has not diminished.

But investors must realize that these players are not eager to see the same mistakes of the past repeated.

“There's potential there, but it's around wanting to set the terms of engagement as much as they can themselves before they kind of commit,” MacGuill said.