Industry Developments: Cannabis

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Americans are increasingly smoking marijuana than cigarettes

According to a recent Gallup poll1, the percentage of US adults smoking marijuana has surged to 17% (+10pp since 2013) while the percentage of those who have ever tried now stands at 50%. The poll also reveals that 70% of Americans support marijuana legalization: up from 12% in 1969 and 58% in 2012 (when Colorado and Washington became the first states to legalize recreational cannabis use).

According to the latest CDC figures (2021)2, the percentage of US adults smoking cigarettes is down to 11.5% – which is in-line with Gallup’s regular Tobacco & Smoking publication3. Nevertheless, 18.7% US adults (46Mn people) use a tobacco product (cigarettes, e-cigarettes, cigars, pipes & smokeless tobacco) – making nicotine #1 recreational substance of choice among US adults, slightly ahead of THC. However, considering the current trends, THC is set to de-throne nicotine by the end of this decade.

Maybe it already did among the young adults (18-29 years old): more than twice as many young adults say that they smoke marijuana (26%) as smoke cigarettes (12%), even based on outdated data (2019-22)4. However, vaping is the most preferred means of nicotine consumption in this age group: 19% vapes, 12% smokes and 4% does both (adding up to 27%). Moreover, Gallup doesn’t have data for the other nicotine products: we know that nicotine pouches are relatively popular among the young adults. Modernization of the delivery means (NGP/RRPs) is providing some support to the old “nicotine franchise” by offsetting a part of losses incurred by the dying cigarette business. Nevertheless, the trend is clearly in favor of marijuana whose prevalence among young adults up is from 17% in 2013-15 to 26% in 2019-22.

What does this mean for the tobacco business? US is the single most important tobacco market in the world (ex-China) – generating 43% of the operating profit of the 5 Tobacco Majors (PMI, Altria, BAT, Japan Tobacco & Imperial Brands). The US nicotine market is worth more than $150Bn even based on the depressed multiples of the tobacco companies. Meanwhile, all US Cannabis companies combined have less than $10Bn market cap – including Curaleaf ($2.2Bn), Green Thumb Industries ($2.2Bn) and Trulieve ($0.9Bn). As the legalization (federal-level), regulation and enforcement of the marketing rules will still take many years (if not, a decade or two), we are not close to a normalized, fully-functional US (recreational) cannabis industry. Nevertheless, considering the value at stake and the mega trends in place, it is reckless for a tobacco company not to get its foot in the door and establish a LT call option: that is to say, a well-thought-out, meaningful exposure that can be pieced together and scaled up when the time is right.

Further Reading: “Beyond Nicotine” initiatives of the major tobacco companies


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