Philip Morris Could Pour Gasoline on the Red-Hot Cannabis Sector

The fact that Philip Morris (NYSE:PM) is wading into cannabis is a great thing for the entire cannabis sector right now.

| More on:

Philip Morris (NYSE:PM) was all over the news following its release of its first-quarter earnings. Accordingly, the buzz managed to push its stock to hit a three-year high.

However, that is not my focus today.

Rather, I will discuss this cigarette maker’s recent decision to hop on the cannabis train.

Here’s what I think entering the pot market could mean for the company and the sector.

Could the beyond nicotine strategy play out well for Philip Morris?

The maker of Marlboro is now open to expanding its portfolio. The company is looking at making a big investment in the cannabis space. Indeed, diversifying the company’s revenue streams away from harmful cigarettes seems like a good idea.

In fact, Philip Morris’ peers have already engaged in similar deals. British American Tobacco recently made a deal with OrganiGram (TSX:OGI)(NASDAQ:OGI) that has taken these stocks on an interesting run of late. Accordingly, Philip Morris’ move seems to be aligned with where this sector is heading.

Indeed, I’m of the belief that this move beyond nicotine could be fruitful for Philip Morris. However, I also think this move could have tertiary effects on Canada’s cannabis sector.

One of the key reasons for the run-up in the stock prices of cannabis companies has been M&A activity in the past. This activity has died down significantly of late. However, as more potential deals come to the table, cannabis stocks could once again regain momentum.

Now, this is all speculation at this point. The cannabis sector remains in its infancy relative to other sectors. However, I think this move could spark further deals on the horizon should a deal come to fruition in the near- to medium-term.

Bottom line

The cannabis sector has shown tremendous growth in the last couple of years thanks to rampant legalization of pot in Canada. Expectations of legalization south of the border have driven an already red-hot market forward.

For companies like Philip Morris looking to make deals, this isn’t necessarily a good thing. However, for cannabis investors, increased interest in the sector could drive valuations on a nice run again.

It’s important to reiterate that most cannabis stocks remain highly speculative investments today. Because of a lack of earnings, these stocks are difficult to value on a fundamental basis. Accordingly, investors need to remain cautious with such investments today. Sizing positions appropriately and keeping a well-diversified portfolio are as important as ever.

However, I think the direction Philip Morris is taking echoes a major shift in how this sector is viewed among the public. That’s a good thing right now for cannabis investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool recommends OrganiGram Holdings.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »