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Tobacco Stocks: The Best Way To Invest In the Cannabis Sector?

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Tobacco Stocks: The Best Way To Invest In the Cannabis Sector?

So far this year the 18 largest “seed-to-sale” cannabis stocks have declined by 37.4% while the stock prices of the 5 tobacco companies that have invested heavily in the cannabis industry have increased by +7.6% over the same 4-month period – and pay hefty dividends to boot. Perhaps one or more of these less volatile and financially sound major tobacco stocks warrant your consideration.

The YTD stock performance of the 5 tobacco companies are compared below with their associated cannabis stocks, in descending order:

  1. Altria Group (MO) is UP 17.3% YTD and has a Dividend Yield of 6.5%.
    • The company has a 45% stake in Cronos Group Inc. (CRON) which is DOWN 23.0% YTD and pays out no dividend.
  2. Imperial Brands (IMBBY) is DOWN 4.1% YTD and has a Dividend Yield of 12.0%.
    • The company has a 19.9% stake in Auxly Cannabis Group Inc. (CBWTF) which is DOWN 19.2% YTD and pays out no dividend.
  3. Molson Coors (TAP) is UP 16.8% YTD and has a Dividend Yield of 2.8%.
    • The company has a 57.5%/42.5% joint venture, called TRUSS, with Hexo Corp. (HEXO) which is DOWN 41.4% YTD and pays out no dividend.
  4. British American Tobacco (BTI) is UP 11.7% YTD  and has a Dividend Yield of 7.1%. 
    • The company has a C$221M investment and product development partnership with Organigram Holdings Inc. (OGI) which is DOWN 19.4% YTD but pays out no dividend.
  5. Anheuser-Busch (BUD) is DOWN 5.1% YTD and has a Dividend Yield of 0.9%.
    • The company has a $100 million joint venture with Tilray Inc. (TLRY) which is DOWN 29.2% YTD and pays out no dividend.

In Summary

  • Stock Performances:
    • the Tobacco Stocks are UP 7.6% YTD, on average, while
    • their marijuana partners are DOWN 26.7%, on average, YTD.
  • Dividend Yields:
    • the Tobacco Stocks pay dividends ranging from 0.9% to 12.0%, while
    • their marijuana partners pay out no dividends.

So as to cover all the bases, you could also consider investing in the AdvisorsShares VICE (VICE) ETF which moves in the opposite (inverse) direction of its underlying assets. It is an actively managed ETF (net expense ratio of 0.99%) that invests in companies that derive at least 50% of their net revenue from:

  • gambling/casino companies: 36%,
  • restaurant/hospitality industry: 19%,
  • alcoholic beverage companies: 17%,
  • tobacco companies (includes all the tobacco companies mentioned above except Imperial Brands): 10%,
  • video games and eSports sector: 8%,
  • psychedelic compound-based clinical-stage drug companies: 1%,
  • and other sectors: 9%

VICE is DOWN 14.9% YTD reflecting how well the constituents in the ETF have performed so far in 2022.

Caveat

Tobacco producers have watched their stock prices rise (2.4% YTD) but should the U.S. Food & Drug Administration (FDA) move forward with its plan to ban mint-flavored products, such as their cannabis vapes and menthol cigarettes, this policy shift (seen as “the most aggressive action taken by the FDA against the industry since Congress gave the agency the authority to regulate tobacco products in 2009” threatens to significantly reduce the amount of revenue generated from these popular products.

The ban proposal is only in the early stages of review, however, and tobacco lobbyists are likely to fight it at every turn and, even if it does pass, the tobacco companies will likely drag out legal proceedings so a resolution is likely many months away. Nevertheless, Wall Street hates uncertainty and, while there are no guarantees the ban will be carried out, confidence will probably be low among investors moving forward. That being said, if you are interested in a conservative way to invest indirectly in the cannabis sector, then investing in one or more of the less volatile and financially sound major tobacco stocks that pay sizeable dividends, to boot, warrants your serious consideration.

Smoking joint in ashtray

 

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