Altria Group Inc., the American maker of Marlboro cigarettes, made a $1.8 billion investment in Cronos Group Inc. last week amid pressure to find new growth avenues as U.S. smoking rates decline. The partnership, which allows the option for Altria to take majority control in the future, may see the firm’s tobacco suppliers switch to cannabis if the drug is legalized. Reports have predicted that the cannabis industry will overtake the tobacco industry by 2029.
Farmers in parts of the U.S. tobacco belt, such as Kentucky, have already been making the switch to hemp. The U.S. Congress approved the 2018 Farm Bill with a provision that defines industrial hemp as a regular agricultural crop, clarifying the legality of extracts and allowing hemp farmers to buy federally-subsidized crop insurance. The states with the most acreage of industrial hemp, Montana and Colorado, are not located in the tobacco belt.
Cannabis could also be an alternative for U.S. soybean farmers who have been hit by Chinese tariffs. A soybean farmer with an average 444-acre farm and an average yield of 49 bushels has lost an estimated $43,500 in income from the trade war. The difference could be made up from the profit of 16 kilograms of cannabis, which only requires 300 square feet of planting area.
CannTrust Inc., another Canadian cannabis company, is also in talks with farmers in the Niagara region of Ontario, Canada who want to switch their crops to cannabis.
“We have spoken to farmers who are absolutely willing to make that switch,” CEO of CannTrust Peter Aceto said, adding that outsourcing to farmers should help CannTrust reach its goal of reducing its cost of production to below 30 cents per gram from its current level of 83 cents per gram, making it one of the lowest cost producers in the Canadian cannabis industry.