Altria Group Inc. is not the first major tobacco company to officially enter the cannabis sector, but the maker of Marlboro cigarettes is certainly drawing attention. PYXUS International Inc., a multi-billion dollar international tobacco company bought controlling shares of two smaller Canadian based cannabis companies earlier this year, but Altria is another story. Altria Group Inc. (NYSE: MO) has a market cap of $101.8 billion and Marlboro may be the most well known cigarette brand in the world. They invested $2.4 billion into Cronos Group Inc. (Nasdaq: CRON), a Canadian based cannabis company with a $2.28 billion dollar market cap. With what could end up being a 44% stake in Cronos, big tobacco just stepped into the cannabis sector in a big way.

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Less people smoked cigarettes here in the United States than ever before in 2017, with only 14% of our adult population. The distribution and production capacity of Altria makes their entry into the incredibly fast growing cannabis sector financially logical. It has long been believed that along with drug companies and big alcohol, that tobacco would enter into the cannabis sector at some point. There is too much overlap in consumer bases and infrastructure for these huge industries not to be interested in marijuana. Especially now that Canada has legalized adult-use marijuana, there are no real barriers keeping these industries away. Constellation brands, a massive alcohol distributor invested more than $4 billion into Canopy Growth Corporation earlier this year as well.

Rumors are also that Altria may be making a large investment into vaporizing technology by purchasing a large stake in Juul Labs Inc., a large e-cigarette company. Along with the slow progression of marijuana legalization has also come a transition into more environmentally friendly and healthier lifestyles. While vaporizing technology is not perfect, the idea is that by not burning marijuana or tobacco, heating the substances just below combustion reduces the amount of tiny particles, or tar, in our lungs that can lead to health problems such as cancer. The tobacco industry has been suffering from new perspectives on health here in the U.S. and the purchase certainly has to do with the long term survival of Altria as well.

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Altria will be purchasing 146.2 million shares of Cronos at $16.25/share to complete the deal. Cronos stock jumped 33% after the announcement of Altria’s investment, despite the fact the stock market as a whole took a massive hit last week approaching its low on the year set back in April. Altria’s stock has struggled with the rest of the stock market which is likely part of the reasoning behind the move. After hitting all time highs to start the year, the S&P then slid hard and rallied again to hit new highs in September. Due to Chinese tariff trade wars, and a number of other factors, the market has been smacked going into the end of the year. Along with political unrest here in the United States and abroad, many forecasters are suggesting that 2019 could be an economically challenging year. Especially considering we are in buying season right now, a time that is famous in the equity markets for its Santa Clause rally, the drop off is a bad sign. Like alcohol, many people consider marijuana to be a recession proof industry, but that does not mean share prices will not suffer.

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