Tobacco Companies Could Make Cannabis Big Business

Medical marijuana faces supply problems that tobacco companies are well-equipped to solve

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Tobacco Companies Could Make Cannabis Big Business

Big Tobacco

I’m sure there are people out there who can roll joints quickly and efficiently. However, there’s no way they can do so at the pace of the large cigarette companies.

As we’ve already seen in Colorado, there’s a supply issue that could keep the majority of pot sales in the hands of organized crime. The only way to loosen their grip is to increase both the volume and speed of production so more product can get in the hands of legal retailers, allowing natural market forces to lower prices to the point it’s no longer profitable for organized crime.

It’s possible that Colorado’s entrepreneurs can handle this on their own. However, a nationwide push (down the road obviously) is going to require big bucks, and nobody has more of those than the likes of Altria Group (MO), Reynolds American (RAI) and Lorillard (LO). Each of these companies has more than a century of experience with tobacco. You don’t think they’d be able to figure out pot? I believe they’d have a much easier time with cannabis than they’ve had introducing electronic and smokeless cigarette products.

Gerry Sullivan, head of the Vice Fund (VICEX), whose fund I wrote about in December, believes cigarette companies are likely to become the “Budweiser(s) of marijuana.” For this reason he’s maintaining his cigarette positions, which include the three from above plus Philip Morris International (PMI). All are in the fund’s top 10 holdings.

These cigarette companies might not publicly express an interest in the cannabis trade, but it would be far more lucrative than eCigs. Besides, a big push into cannabis would give them the cash flow necessary to make a face-saving exit from tobacco.

Bottom Line

The winner in “Big Cannabis” is America itself. Only the repressed lose out from the legalization of marijuana. The rest can sit back and enjoy the additional freedom the state of Colorado and hopefully many more have conferred upon their residents.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/01/big-cannabis-benefits/.

©2014 InvestorPlace Media, LLC

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