At the National Institute for Cannabis Investors, we talk a lot about how the rapidly expanding legal cannabis market will disrupt many long-established industries.
It's already underway - like the Big Pharma player I mentioned the other day, where they're terrified of a simple hemp extract.
Tobacco companies know their traditional market is declining rapidly and they must find aggressive sources of growth.
We saw this play out when Altria Group Inc. (NYSE: MO) announced its intent to invest $1.8 billion in Canadian cannabis company Cronos Group Inc. And that $1.8 billion was just a start. Altria stands prepared to toss in another $1.1 billion if everything goes as planned. (Given the excellent leadership at Cronos, it will.)
Elsewhere, alcoholic beverage companies Molson Coors Canada and giant Constellation Brands Inc. (NYSE: STZ) have also both committed to cannabis - the latter making a $4 billion commitment to cannabis cultivation behemoth Canopy Growth Corp. Sales growth for alcohol is way down, and these companies are all too cognizant of the fact that cannabis legalization threatens their sales even more.
And based on some brand-new data that my team at the Institute just reviewed, these industry players have even more reason to pour truckloads of cash into cannabis companies.
Here's what's causing the panic...
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Conglomerates' Cannabis Investments Will Heat Up in 2019
When a company in an established industry buys in and invests in cannabis, it's really establishing a beachhead.
These beachheads put the buyers in position to participate in the growth of a new industry that would otherwise take away from their existing products' revenue and profitability.
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In short, their investments give these giants a position in an industry that's horning in on its traditional turf. And this outside investment drives cannabis company stock prices into the stratosphere.
For instance, in the month following the announcement of Constellation's investment in Canopy, one of the five largest cannabis stocks as measured by our proprietary NICI 50 Index, Constellation rose 45%. But that paled in comparison with Canopy Growth's stock, which soared 92%. In the two days after Cronos confirmed Altria's interest, Cronos jumped 22% - and that's after already rallying on the rumor.
These investments are really just a preview of the main event to come.
That's because the opportunities that cannabis presents are becoming more and more evident to companies around the world, and you want to be invested before everyone else gets into the act.
Fresh research released by analytics firm New Frontier Data illustrates that sales patterns in states where cannabis has been legalized change drastically after prohibition has ended.
Alcoholic beverage companies are among those most challenged and disrupted.
Across all cannabis users, 65% would prefer to consume cannabis over alcohol if given a chance. What's more, in states where cannabis is still illegal for any purpose, that preference increases to 69%, and just over half say they would go so far as to replace some their alcohol consumption with cannabis.
That is a giant red flag to those in the industry. For early movers like Constellation Brands, this preference is a big opportunity to define what will be consumed - particularly when it comes to cannabis-infused beverages.
But buried deep in New Frontier's latest report was an industry in even more trouble than Big Alcohol.
Data Shows Big Pharma May Be in Big Trouble
There's compelling proof that clearly lays out the potential for cannabis products to displace over-the-counter and prescription medicines.
For starters, the overwhelming reason people consume cannabis is for health and wellness. Of the top 10 reasons survey participants indicated why they used cannabis, six were for reasons related to health and wellness.
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Whether to relax, relieve stress or anxiety, sleep better, or manage pain, people don't primarily consume cannabis to party. Rather, they just want to improve how they feel. This perhaps indicates "recreational use" is a misnomer.
In fact, medical use is expected to grow at an even faster rate than recreational use. Over the next five years, sales for medical use are predicted to increase at nearly 16% per year, while recreational use sales are expected to advance at a pace just shy of 14%. Both are impressive, but the edge to medical reinforces why you don't want to sleep on medical cannabis.
Regardless, of the people who consume cannabis for medical reasons, 94% state that cannabis improved their condition, and two-thirds rated that improvement as significant.
Interestingly, that 94% isn't limited to people who bought cannabis with a prescription. It includes all consumers who say they buy cannabis primarily for medical reasons - with or without a prescription or medical card.
And that's the threat to traditional pharmaceutical products. Research continues to demonstrate that cannabis is an effective treatment for a range of conditions and can be consumed in a form that doesn't require a prescription - or even a doctor's guidance.
How effective is it? According to the survey, among people using cannabis for pain, about 70% reported significant improvement in the treatment of conditions such as chronic or intractable pain, migraines, neuropathy, and fibromyalgia.
The improvement was so compelling that 65% of these patients have replaced their pain meds with cannabis. Moreover, across all medical cannabis users, nearly three-quarters have replaced their prescription or over-the-counter drugs.
Sales of traditional pharmaceutical products, opioids being the most obvious example, could be displaced by non-patentable cannabis, which is why pharmaceutical companies will be looking to invest in cannabis companies and establish their beachhead.
It all points to a dramatic sea change, one that investors can take full advantage of if they get in early. Those waiting on the sidelines until everything seems safe will miss the biggest wave of gains while trying to play catch-up.
How You Can Join "the Perfect Pot Stock Portfolio"
Utah and Missouri just legalized medical marijuana.
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About the Author
Greg Miller started working on Wall Street in September, 1987, just a month before the “Black Monday” stock market crash.
During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.
After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies. He’s always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.