Beer, pharmaceutical and tobacco firms are under pressure to retune their business models as support to legalize pot gathers momentum.
Nine U.S. states and Washington D.C. now permit their residents to use marijuana without a doctor’s letter, even though federal law still recognizes the drug as illegal. Several more states are predicted to soon follow suit, while neighboring Canada has agreed to let vendors sell the drug for recreational use later this year. Moody’s expects these developments to have huge implications for investors. (See also: Which States Have Legal Pot & Will It Stay Legal?)
Cannabis Drinks Rock Beer Stocks
In a report, the New York-based credit rating agency identified beer stocks as the biggest potential victim of pot legalization. Moody’s claimed that marijuana could be set to replace the popular beverage at parties and other casual occasions. Wine and spirits, the report added, are less at risk because they are often accompanied with food.
Beer, wine and spirits company Constellation Brands Inc. (STZ) appears to already have a strategy in place to tackle this potential change in party habits. The country’s third-biggest beer vendor -- whose brands include Corona and Modelo -- purchased a 9.9% stake in the world’s largest publicly traded cannabis company, Canopy Growth Corp. (WEED.XTSE), last year and is now reportedly developing marijuana-based beverages. (See also: Want To Make Money In Marijuana? Read This First)
The biggest winners at this stage are companies that have already begun investing in marijuana-related businesses. According to the report, they include Alliance One International Inc. (AOI), Scotts Miracle-Gro Co. (SMG) and British biopharmaceutical firm GW Pharmaceuticals Plc (GWPH).
Pharmas Under Pressure
Moody’s also warned that pharmaceutical companies will have to be on their toes to counter the growing popularity of legal cannabis. The credit agency said that stocks that specialize in drugs combating pain, anxiety and depression are most at risk of losing out to marijuana, even though many medicines in this category have already achieved generic trademark status.
"Thus far, large, traditional pharmaceutical companies haven't invested heavily in cannabidiol, but that could change if smaller drug makers develop a market for these products," Moody's noted in its report.
Tobacco Companies Keen to Profit
Tobacco stocks have also displayed an interest in capitalizing on the legalization of pot. At a time when cigarette smoking is in decline, Moody’s believes that Vector Group Ltd. (VGR) and especially Altria Group Inc. (MO) can use their sophisticated distribution systems, storage infrastructures, sprawling sales forces and expertise selling highly-regulated product to make a killing off the growing popularity of cannabis. Tobacco companies entering the marijuana market could pose a risk for Turning Point Brands Inc. (TPB), which produces rolling papers. "However, Turning Point is benefiting from ongoing legalization at the state level and we expect it to benefit from legalization in Canada," the report said.
The credit rating agency warned that tobacco stocks will only press forward with these plans if marijuana becomes federally legal.