Monsanto-Bayer Merger Could Threaten Marijuana Stocks

Two powerhouses companies—Monsanto Company (NYSE:MON) and Bayer AG (OTCMKTS:BAYRY, ETR:BAYN)—have officially been approved by the U.S. Department of Justice for a merger that is valued at $62.5 billion and brings together one of the most notorious names in agriculture with one of the largest pharmaceutical companies in the world. The Monsanto-Bayer merger has been criticized by a number of groups—from farmers to GMO opponents—but it may have dire implications on the stock market, namely, marijuana stocks.

In order to understand how the Monsanto-Bayer merger may impact marijuana stocks, you have to understand how Monsanto has impacted agribusiness at large.

Monsanto is famous (or infamous) for its pioneering use of genetically modified organisms, or GMOs.

While there is evidence on both sides of the debate as to whether GMOs are harmless benefits to crop growth or impact our health, what is undeniable is that Monsanto was able to use its pesticides and GMOs to dominate the agriculture industry.




The consolidation of power among corporations has pushed the price of seeds up dramatically over the past 20 years, claims Farm Aid. (Source: “Farmers Overwhelmingly Oppose Bayer Monsanto Merger,” Farm Aid, March 8, 2018.)

In fact, Monsanto has gained such notoriety in the farming community that, according to Farm Aid, 93.7% of farmers surveyed are concerned with the Monsanto-Bayer deal, with the same number of people believing that the deal will negatively impact independent farmers and farming communities.

A further 91.9% believe that the merger will lead to paired products being pushed on to farmers and the company’s newfound market share forcing farmers to comply.

Meanwhile, another 89% believe that the Monsanto-Bayer merger will result in increased pressure for chemically dependent farming.

It’s safe to say that farmers are not fond of the Monsanto-Bayer merger.

But how will this affect marijuana stocks?

Will the Merger Affect the Marijuana Industry?

So what does this all mean for marijuana stocks?

Right now, pot stock companies are pretty free in terms of growing their products.

The problem with this merger, however, is that there is growing evidence that it will lead to Monsanto and Bayer entering the marijuana market and using much of the same strategies Monsanto employed in the agriculture industry in order to drive up prices.

Chart courtesy of StockCharts.com

This includes selling specialized GMO cannabis seeds that promise higher yields to farmers, then selling accompanying pesticides and other products that will be necessary to the crop’s growth.

The overall effect will be to create a dependency in the industry on Monsanto products.

The other issue is that—much like we’ve seen in the farming business—seed diversity will be lessened as a result and only increase Monsanto’s market share, leading to even higher prices.

This strategy has led to a strong Monsanto stock history, but a weakening of smaller farming companies and stocks.

The Farmers Business Network has shown that a positive correlation exists between a company’s market share and its seed price. (Source: “The Justice Department Is Going to Let Bayer Buy Monsanto. Here’s Why It Matters,” Fortune, April 10, 2018.)

While Bayer does not do much in the way of direct business in the agriculture industry, its partnering with Monsanto immediately gives the latter far more resources through which to expand its reach.

Not to mention that the R&D capabilities of Bayer will be put to use to help Monsanto become an even bigger agricultural juggernaut than it already was.

The combination of the two companies will put more than a quarter of the world’s seeds and pesticides under a single roof, prompting these fears.

Should the new post-Monsanto-Bayer merger company look to enter the marijuana industry, we’re likely going to see an aggressive play to create GMO marijuana seeds that then need Monsanto pesticides to grow effectively.

Considering that marijuana is an emergent industry with only a few established companies—none of which can hope to match the capital of a Monsanto-Bayer merger—then we have a marijuana market that is quite vulnerable to encroachment from this new company.

Not to mention that as market cap increases for these large companies in the agriculture sector, other products tend to be affected by the knock-on effect as well. So, for example, while the price of soy rose as Monsanto or other huge conglomerates came to dominate that sector, other products that used soy also saw a price increase.

Across the board, the Monsanto-Bayer merger appears to present a looming threat to the marijuana market.

From medical marijuana stocks to cannabidiol producers, if the new company that forms post-merger does indeed intend to enter the marijuana industry, all companies in this sector will feel the effects.

As for those interested in the Bayer stock price—especially considering how it may soon play a huge role in the pot industry—at the moment, the stock value is static.

Over the past two weeks, it fell three percent only to recover most of that by mid-May.

The future of the stock may indeed be bright if it can come to dominate the marijuana market as many fear it will.

Should it find itself in control of cannabis in much the same way other agricultural products have fallen under its heel, then we may see some strong growth in the Bayer forecast, even if it does come at the cost of many other marijuana companies and pot consumers.

Analyst Take

Overall, I believe that this deal will be negative for the marijuana industry if the Monsanto-Bayer merger paves the way for an agriculture giant keen on entering the pot sector.

The problem is that this company may yield strong results for its stock owners over time, but it’s not going to be able to grow nearly as fast as smaller, more nimble companies in the marijuana stock market can.

The merger will create a company too large to compete with the rapidity of marijuana stock growth, all the while putting many of those faster-growing shares either on the back burner or potentially out of the game altogether.

There’s a reason so many farmers and marijuana stock market enthusiasts oppose this deal.

While it could yield strong gains for the new company down the line, it will ultimately hurt the earning potential of the marijuana stock market as a whole.