Big Tobacco Buys Canadian Cannabis Companies

In January, I told a full house of 1,000 investors that we’d see big tobacco jumping into the cannabis business in 2018.
What happened next?
A U.S. tobacco company made headlines with a major acquisition last week. It’s a deal that marks the first Big Tobacco company entering the legal cannabis growth market.
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Alliance One International (NYSE: AOI) is buying two Canadian cannabis companies.
That news sent the stock surging as much as 41% on the New York Stock Exchange.
Most people have never heard of Alliance One, since the company doesn’t make its own branded tobacco products. Instead, the company sources tobacco from farmers and sells it to Big Tobacco companies with major brands, like Altria (NYSE: MO).
It’s a big business, with sales totaling $1.2 billion in the first nine months of 2017. And the Big Tobacco company is now expanding into the cannabis business with two investments.
The first company is called Canada’s Island Garden, which is a licensed producer in Prince Edward Island.
The second company that Alliance One will buy is Goldleaf Pharm. This company is awaiting approval from Health Canada to grow cannabis in Ontario.
Within three years, Alliance One expects the two companies to have cannabis growing greenhouses totaling 1 million square feet.
Alliance One’s CEO commented that the he’s “expanding into international markets as anticipated legalization of medicinal and recreational cannabis use progresses around the world.”
It makes perfect sense, since tobacco use has been in a long-term decline.
Thus far, most alcohol, tobacco and pharmaceutical companies in the U.S. are sitting on the sidelines. They’re waiting for the feds to update antiquated laws that classify cannabis as a schedule 1 narcotic, along with far more dangerous drugs including heroin and LSD.
Smart execs in the alcohol and tobacco sectors KNOW that their existing business will be threatened by the legalization of cannabis.
So, they’re making their moves before the inevitable legalization.
That’s exactly why a Fortune 500 company called Constellation Brands (NYSE: STZ) invested $190 million in a nearly 10% stake Canopy Growth (TSE: WEED).
The value of Constellation’s investment has increased 170% since November.
A wave of consolidation in the sector is starting right now. That means we could see many smaller players get bought out at huge premiums.
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