An analyst with experience overseeing tobacco and alcohol operators thinks there is no doubt that these companies want a piece of the cannabis pie, but told Investment News Network (INN) they are unsure of the best approach after previous blunders.
Shane McGill is the global leader in nicotine and cannabis with Euromonitor International, a strategic market research firm that evaluates European territory, a thriving cannabis arena.
The expert explained that his client base is looking to the company for data-driven reports that are updated periodically. Some of these customers include consumer packaged goods (CPG) and FMCG companies.
When asked if big-name CPG companies are still interested in the opportunity to grow cannabis, MacGuill said their interest has not changed despite the struggles that cannabis has experienced in the past few years.
“I think the short answer is yes … uniformly, there is always interest,” the analyst said. “And there is always a feeling that this is an attractive thing.”
How Do Big CPG Brands Examine the Cannabis Market?
MacGuill explained that while big-brand CPG players have an interest in cannabis ventures, they rarely make it a top priority. This lack of prioritization generally means that at any given time there are only a few people within a corporate entity who are given permission to investigate or track the cannabis market.
Moreover, oftentimes research on cannabis projects is not the first, second, or even third priority for cannabis-focused people at large CPG companies, said the data analyst.
He noted that there is a taboo side to conducting market research on cannabis.
The expert told INN that one of his company’s tobacco customers used a subsidiary to create separate accounts within the Euromonitor research system for employees it assigned to keep up with the cannabis market.
“We can give them access to make sure no one else in that company can see that data. It’s still a cloak and a dagger and it’s still very limited,” McGill said.
Cannabis Appeal Background for Big CPG Brands
Players in industries such as tobacco and alcohol have already taken their first steps toward cannabis.
The cannabis investment market was forever changed in Canopy Growth Day (NASDAQ:CGCTSX: WEED) confirmed an investment deal with Constellation Brands (NYSE:STZ) – a deal that led to the alcohol maker taking a stake in a leading cannabis manufacturer in Canada.
After Constellation Brands, Altria (NYSE:MO) completed a similar deal with its investment in Cronos Group (NASDAQ:kroneTSX: CRON).
Since then, other players have followed suit with smaller deals and partnerships, including Imperial Brands (GBX:IMB), Molson Coors (NYSE:Faucet) and British American Tobacco (NYSE:BTI).
No deals were struck between CPG leaders and US cannabis operators dealing with the plants due to the drug’s federal illegality, and a lack of federal protection for financial activities related to cannabis projects.
Past losses affect new entries?
After the excitement saturated with cannabis, the market was met with a poor financial performance by the leaders in Canada, which led to a serious dip in valuations.
At the same time, investment deals in the cannabis market by CPG players did not produce the results that these giants had hoped for. These findings directly affect the way other tobacco and alcohol companies evaluate their entry plans.
“It got stuck in the minds of a lot of people that what they didn’t want to do was go in and buy production capacity,” McGill said, referring to past deals, notably Constellation Brands and Altria investment plans.
Instead, the analyst told INN that the prize for striking a deal now revolves around added value and a strong portfolio of brands. “They also want to get in on their own terms,” he said.
McGill told INN that he views these companies as wanting to have complete assurance and control over every aspect of their potential cannabis entries — whether it’s through partnerships, acquisitions or organic growth.
CPG players can bridge the industry’s brand experience gap
Among the many challenges facing the cannabis industry, brand awareness continues to plague the market in Canada.
Although cannabis has been legal for adult use in the country since 2018, several reports show that brand engagement is very low across Canada. Since there are limited possibilities for brands to cross from the United States into Canada, international recognition also remains limited.
“This is where CPG companies can, I think, add some value to the industry,” MacGuill told INN. “It doesn’t just come in and be a predator to take control of the entire supply chain or whatever, but it’s actually going to build some of that infrastructure for the brand.”
During a session discussing the current landscape of territorial expansion and the entry of new players into the cannabis market, Deepak Anand, founder of Materia Medica Cannabis, said he is looking forward to the day when more tobacco players step into the cannabis market.
Anand added that these companies will bring a new level of expertise and knowledge to the industry. “I think you’re going to start to see movement from bigger companies like that, they’re taking it very seriously.”
The medical cannabis expert anticipates that these major CPG players will focus primarily on the lifestyle approach to cannabis, rather than heading directly into the adult use segment.
It is clear that interest in cannabis opportunities from the biggest players in CPG has not diminished.
But investors should realize that these players are not eager to see the same mistakes of the past repeated.
“There is potential out there, but it’s about wanting to define the terms of engagement as much as they can themselves before sort of committing,” McGill said.
Securities Disclosure: I, Brian McGovern, do not hold any direct investment interest in any of the companies mentioned in this article.Editorial Disclosure: The Investment News Network does not guarantee the accuracy or accuracy of the information in your interviews. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.