Hot Primo Pot Stock!

RoboStreet – December 13, 2018

Picking the Next Hot Primo Pot Stock Merger!

While the broad stock market struggles to find its year-end footing, big blue-chip consumer staples companies are wasting no time vaulting into the cannabis space with the announcement of multi-billion dollar M&A deals. The proverbial writing is on the wall and the first-to-market cannabis companies are in the crosshairs of multi-national food, beverage, and tobacco companies seeking an early foothold in what promises to be a fledgling industry for many years to come.

Just a week ago Cronos Group (CRON) announced that tobacco giant Altria (MO) is buying a 45% stake in Cronos for around $1.8 billion (2.4 billion in Canadian dollars). It’s the second-biggest deal in the history of the cannabis industry, trailing only Constellation Brands‘ $4 billion investment in Canopy Growth. Being the second major transaction within the past six months is fueling widespread speculation of who’s next to be the target of big money.

For investors that were long on Cronos Group, the valuation shot higher on the release of the headlines. Altria paid a 33% premium over Cronos Group’s closing price the day before the news crossed the tape and though that seems expensive, Altria is making a long-term bet and didn’t want to get into a protracted set of negotiations that could invite other competitive bids.

The investments provide Cronos with a war chest of capital to ramp up the business exponentially. Cronos Group CEO Mike Gorenstein is already talking about growing the company’s “global infrastructure and distribution footprint.” Additionally, Altria brings a wealth of experience in developing and marketing products in highly regulated markets, not to mention the global distribution network Altria possesses. With more countries legalizing marijuana, the newfound relationship with Altria puts Cronos in an enviable position than most of its peers to capitalize on growth in the global marijuana market.

For Altria, the company is vying to enter into new growth markets to offset the decline in global cigarette consumption and aside from making a massive purchase in alcoholic beverages, the company is taking a stake in medicinal and recreational weed. But $1.8 billion is a small number for Altria that doesn’t preclude a major takeover in the booze, wine and beer space that has been the focus of previous rumors.

Similar to the Constellation deal structure in Canopy Growth, Altria will receive warrants that allow it to increase its ownership in Cronos to 55% for around $1 billion that will likely lead to the eventual full ownership of the company if all goes according to plan. I can see this most recent collaboration sparking other buy-ins to other publicly traded pot companies – Aurora Cannabis (ACB), Aphria Inc. (APHA), GW Pharmaceuticals ADR (GWPH) and Tilray Inc. (TLRY).

The cannabis market is expected to generate more than $10 billion in sales in North America this year, a number expected to grow to about $23 billion by 2021. The North America illicit market, meanwhile, is expected to grow to more than $50 billion, which presents a key opportunity should cannabis ever become legal at the federal level in the U.S. The U.S. cannabis market is estimated to be about 10 times bigger than the Canadian market, which is enjoying first-mover advantage since fully legalizing the substance in October.

What the Altria investment in Cronos Group and the Constellation Brands investment in Canopy Growth make clear is that the opportunities in the global cannabis industry are a big-bucks bet on a trend that is in its early stages. From the reports and updates I’ve provided the past few months regarding the cannabis craze, it’s my feeling that both Aurora Cannabis (ACB)and GW Pharmaceuticals (GWPH)will be next up on the receiving end of either a strategic investment by an S&P 500 company, or be acquired outright in the race to gain market share in booming medicinal, edible, beverage and recreational pot industry.

Both companies are large enough to draw interest with GWPH already having one cannabis therapy approved by the FDA for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS). I’m inclined to think that a big pharma company like Merck, Eli Lilly, Johnson & Johnson Bristol-Myers Squibb, Amgen or any number of global drug giants would be especially attracted to GWPH because the FDA has already deemed their research credible.

Time will tell, but the M&A train among the pot stocks has left the station. After these deals were announced, both stocks of Canopy Growth and Cronos Group shot higher only to see short-term profit-taking set in that has since put downward pressure on those share prices. I haven’t bought into the sector with my own money and have yet to recommend the purchase of any pot stocks yet to RoboInvestor subscribers as these stocks are highly correlated with the market.

While the broad market has been very volatile and trading near the low end of the range, I want to encourage readers of this column to join RoboInvestortoday so you’ll know with the help of my AI tools when I pounce on the top pot stocks in the days and weeks ahead. New issues within a white-hot trend gap higher from their Initial Public Offering date, followed by a lengthy period of consolidation – which is what we are seeing now. This back-and-filling phase will eventually run its course and the best stocks within the space will embark on a bullish trend.

Selecting the winners from the pretenders is what my AI platform does best, and that’s with any sector. Sign up today forRoboInvestor and be ready to make a small fortune in the burgeoning cannabis sector in 2019.