Global alcohol and tobacco companies could face losses of $55 billion a year if a fully legal cannabis industry develops in North America, a new report predicts, a key driver for why those sectors are taking early steps into the blooming marijuana market.

“For these two industries in particular, a move into the cannabis business is a necessity as a defensive move, to prevent loss of market share, as much as it is a play for growth, given the later stage these industries find themselves in,” according to a report by Toronto investment bank Altacorp Capital.

David Kideckel, managing director of Altacorp’s life sciences division and author of the report, said alcohol and tobacco will be part of a larger trend of mature industries migrating into the cannabis sector in the coming years.

Read the full report here.

Kideckel told Marijuana Business Daily that more CPG heavyweights will enter the sector as they get clarity over when the U.S. will move to legalize medical or recreational cannabis on a federal level.

This also includes nonalcoholic beverages, nutritional and wellness supplements, personal care and Big Pharma.

“In the U.S., once we have more clarity with how the U.S. government is going to act, how the new attorney general will act, you may see companies be less timid to jump into the space,” he said.

Constellation Brands of New York was the first global liquor giant to go all-in on cannabis, investing an industry-record 5 billion Canadian dollars ($3.8 billion) in Ontario-based Canopy Growth.

More recently, Altria Group made the most significant foray by Big Tobacco into the rapidly growing cannabis industry by agreeing to invest CA$2.4 billion in Ontario-based cannabis producer Cronos Group.

Other deals have been smaller in scale, including Belgium’s AB InBev and Tilray of British Columbia, Tilray and Quebec-based pharmaceutical firm Sandoz AG, and a joint venture between Quebec-based licensed producer Hexo and Molson Coors of Denver.

In the report, Kideckel initiated coverage of Valens GroWorks, Auxly Cannabis Group and GW Pharmaceuticals.

Other key takeaways from the report:

Altacorp forecasts the Canadian recreational cannabis market to reach CA$9.1 billion in annual sales by 2025, with an additional CA$1 billion in medical sales.

However, the uptake of legal demand in Canada is likely to be slower than expected, stemming from bottlenecks with access to legal supply, lack of different product formats and restrictions on branding and marketing.

The market could be oversupplied by late 2020, once licensed producers build out their projects.

The majority of the margin will accrue to firms that focus on value-added activities, particularly those that focus on developing intellectual property around brands and formulations, unique technologies and building share of the retail channels.

Matt Lamers can be reached at [email protected]

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