Tobacco Set to Profit From Emerging Legal Marijuana Trade
Tobacco Set to Profit From Emerging Legal Marijuana Trade
Last fall Washington State and Colorado became the first states in the union to legalize the recreational use of marijuana. Both states are now tasked with the job of figuring out just how they are going to sell the drug over the counter. Concerns are wide reaching. Officials are debating on how the product is to be grown, tested and labeled, as well as what regulations will apply. Adults over 21 will be able to walk into certain stores in both states and purchase up to an ounce of heavily taxed weed. Sales are slated to begin in Washington at the end of the year. Clearly the nation is watching closely to see what type of model these states put in place to ensure everything associated with the new venture is structured properly and safe for potential users. It’s unclear as of now whether medical marijuana growers will be tapped as vendors but it seems likely. Over 18 states condone the use of marijuana for illnesses such as cancer and HIV/AIDS and the number of states that will pass recreational use of the drug is expected to grow by at least 11 this year.
The medical marijuana business was worth an estimated $1.7 billion dollars last year and accounted for thousands of jobs. The segment is growing fast and a host of businesses benefit from trade in medical marijuana. Experts advise that now is a good time to jump on the marijuana train as it is just leaving the station. Speculation is that the drug could become federally sanctioned within the next five years. Speculation also says that the battle on who will bring marijuana to the market will be between tobacco companies and pharmaceuticals. The betting is that tobacco companies will have the edge, in which case there will be plenty of them lining up to get in on what is projected to be a combined $40 billion per year business.
Definitely look to small-cap tobacco companies such as Vector Group (NYSE: VGR) to hop on the train as well as larger companies like Altria Group Inc. (NYSE: MO) and Reynolds American (NYSE: RAI). Vector is a solid performer which consistently turns a profit. It also pays double digit dividends to its shareholders. The company offers 118 combinations of cigarettes branded under the Pyramid, Grand Prix and Eve names. VGR has a $1.3 billion market cap and shares are trading at $15.87.
The bottom line is marijuana is soon to become big business. Look to tobacco companies to market what will be another highly taxed legal vice. Interesting times we live in.
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This article is insightful. This is definitely not something for investors who are looking to invest on a short-term basis. Without this coming, companies like Altria looks solid. This will only make things better. Promising future indeed.
Another vice to add to our portfolios. The good thing is they are usually profitable.
Nice comment Lillie, your voice is appreciable…
I’m for ethical investing. Vice and gambling stocks are not my cup of tea. Could be profitable but not ethical IMHO.
I tend to agree that federal legalization is probably coming a lot sooner than anyone would have thought even five years ago. The bottom line is that while federal law technically trumps state law in this regard, if a bunch of states legalize marijuana the federal government is (1) going to be hard-pressed to do anything about it and (2) will look a little bit silly standing by a law that is unenforceable in practical terms. The real question I have is how this will be treated in the workplace. I’ve dealt with insurance for years, and I guarantee you workers’ comp carriers will have a fit. Alcohol is legal, but you can’t show up at work intoxicated. The difference is that you can test someone on the spot to chemically determine intoxication. If there’s no alcohol in their bloodstream they’re good; if there is, they aren’t. Current marijuana tests can tell you whether someone has used the drug within a given timeframe (usually about two weeks), but how will your supervisor objectively determine whether you’re impaired by marijuana use? For that matter, what will the impairment standard be?
Legalization of marijuana makes me uneasy. I’ve seen first hand its effect. It’s not good for everyone. How do you determine who should use it without harmful consequences? What parameters should be used? How much dose should be applied? These questions may seem basic, but they are really important.
The decision to legalize marijuana is based on soley a commercial motive with no regard to public health. Marijuana should solely be restricted for medicinal puposes and only as recommended by a doctor