Big Tobacco Finally Wakes Up and Smells the Pot

(Bloomberg Opinion) -- Big Tobacco is finally ready to say, pass that dutch. 

Altria Group Inc., the biggest U.S. cigarette company, is reportedly in talks to buy a stake in Aphria Inc., one of a growing number of Canadian cannabis producers that’s attracted the attention of investors this year. The discussions were reported by the Globe & Mail on Wednesday, sending Aphria’s stock soaring 12 percent and giving it a market value of $3.5 billion. Altria, Aphria — it even sounds meant to be. 

Big Tobacco Finally Wakes Up and Smells the Pot
Not only does this signal that Big Tobacco does, in fact, plan to stake a claim to the nascent cannabis industry, it also brings legitimacy to a hot space that some feared might turn out to be a bubble. With Altria seemingly in the game, two things are now clear: The cannabis industry is real, and the same major companies that dominate our consumer vices and fads now plan to do so in the future. Cigarettes, booze, energy drinks, kombucha — cannabis will be as normal as any of them.
What is surprising is that Altria waited this long. As cigarette smoking becomes less popular among Americans, it’s seemed only natural that the industry would turn its attention to cannabis, which Canada is set to legalize next week. As controversial as the topic remains in the U.S., legalization here is more likely a matter of when, not if. And there is no industry, for better or worse, as skilled at navigating contentious regulation and lobbying in Washington. 
Big Tobacco Finally Wakes Up and Smells the Pot

Despite this, Big Tobacco have been relatively slow movers, as I noted in August. Meanwhile, alcoholic-beverage makers such as Constellation Brands Inc., Diageo Plc and Molson Coors Brewing Co. are seizing cannabis-related investments. The most eye-popping so far was Constellation’s $3.8 billion deal in August to more than triple its stake in Canopy Growth Corp. Even Coca-Cola Co. is interested in drinks infused with CBD, an ingredient in marijuana that can ease pain without the euphoric high. 

Like its growing list of peers, Aphria still has much to prove. In an interview last month with CBC News, Aphria chairman and CEO Vic Neufeld said that the company currently has about 30,000 kilos of harvest per year split between what goes into its dry bud and oils. As the company ramps up its expansion, it will be capable of harvesting 20,000 kilos a month by next May or June, he said. Neufeld also talked about five types of consumers Aphria will target, with “novices” hesitant about trying cannabis on one end of the spectrum and “the enthusiast” at the other. 

The industry will be messy for a while, and the big consumer brands tip-toeing into the space need to work out how they envision the marketing. Is it a wellness product, or for recreational use, like alcohol? It will be interesting to learn what Altria envisions. The company must have a strategy — after all, this is a $119 billion giant that’s made only one purchase over $100 million in the last decade, according to data compiled by Bloomberg.

Altria’s seal of approval validating the chase for cannabis investments makes it a welcome presence in the industry, for now. But once the market is off the ground, it will be one heckuva competitor to contend with. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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