We all have vices. They come in all shapes and sizes. It doesn’t matter whether you are a smoker, drinker or just a stress eater. You likely won’t drastically change your habits, no matter how often you decide to.
But even if you are one of the lucky few with the willpower to cut down or even cut out your bad habits, billions others won’t. That’s what makes vice investing so interesting… and lucrative.
If you were to ask what the top vice investments were just five or ten years ago, the answer would have been simpler: tobacco, alcohol, casinos and possibly adult entertainment. Today, that has begun changing.
Now, to add to this list, things like soda companies, confectioneries and marijuana stocks are being classified as vice investments. This last one is the hottest of the bunch recently.
That’s why it’s not surprising that other “vice” plays are scooping up cannabis companies left, right and center. Earlier this week, we discussed a few:
- Constellation Brands (NYSE:STZ), maker of Corona beer, invested a whopping $4 billion into cannabis industry leader Canopy Growth Corp. (NYSE:CGC).
- Molson Coors Brewing Company (NYSE:TAP) recently got into the act too, closing a joint venture with HEXO Corp (TSX:HEXO.TO).
- Even The Coca-Cola Company (NYSE:KO) has been rumored to be in the market for a cannabis investment.
But alcohol companies and even soda behemoths aren’t the only vice investments looking to get in on this fast-growth game. There’s another that many see as a perfect match.
Tobacco sales have fallen through the floor over the past few years. Combustible tobacco, as the industry now calls the traditional kind, has fallen from nearly 6,000 metric tons in volume worldwide in 2013 to less than 5,000 today. And it should continue to free fall for the foreseeable future.
Obviously, much of this is being replaced by vape juices. But that still doesn’t cover all of this decrease. Consumers are either being priced out through the rapidly increasing cost of cigarettes or dying out, in some cases quite literally.
But tobacco has been a big business for centuries. So, you can’t expect them to go silently into the night. And with the emergence of this newest, hottest vice sector, “Big Tobacco” is back.
You might not have ever heard of Alliance One International. But when it comes to tobacco it is a dominant player… or it was. Last month, the company changed its name alongside its strategy. It is now known as Pyxus International (NYSE:PYX).
Pyxus, is what you would call a power broker for tobacco.
You can’t expect companies like Philip Morris to keep track of thousands of different tobacco farmers all over the world. They don’t. Instead, Pyxus handles all of that for them and the other big names.
The company set contracts with and buy from individual farmers around the world — from North Carolina to Brazil, India and China. It then dries the product and mixes it in preparation for its clients. From there, Pyxus ships it off to the big tobacco companies to add their flavors and blends and package the products.
That’s the company’s traditional business, but it has been seeing the writing on the wall for its end product. People just aren’t smoking like they used to… at least not tobacco.
That’s why, in addition to getting a foot in the vape business, Pyxus is turning to cannabis. In May of this year, the company launched its own cannabis brand, FIGR. In August, it expanded this new brand into Canada.
While this could present some much needed growth for the company, that’s not what has us interested. The reason we are bringing all of this up is because of what else Pyxus is doing with cannabis.
You see, as one of the world’s largest middlemen in tobacco — bridging it from farm to product — it has an incredible understanding of logistics and traceability. It has had to keep strict track of every shipment it handles to satisfy the much larger Philip Morris’ and British American Tobacco’s of the world.
Now, it is expanding that deep knowledge into cannabis. That could be huge for any number of different medical marijuana companies or even distributors under strict new rules (think Canada in six days). But it also potentially opens up the floodgates to Big Tobacco.
You see, its no secret tobacco companies have been thinking about getting involved in cannabis. It makes a lot of sense. They are familiar with vice consumption. Both are crops that can be smoked. Tobacco companies also know how to deal with the red tape and high taxes that accompany a product like cannabis.
The one thing they haven’t been able to navigate yet is how to actually obtain it without overspending.
Like we said, Alliance One — and now Pyxus — has been the main source for Big Tobacco’s supply chain. It doesn’t deal with growers. Now that Pyxus is in this game too, it will only be a matter of time for the likes of R. J. Reynolds and Philip Morris get into cannabis as well.
In fact, as of this writing, there are reports that Altria Group Inc. (NYSE:MO) is in talks with cannabis grower Aphria Inc. (TSX:APH.TO) over a potential acquisition. We’ll continue to monitor this space for anything solid.