U.S. Tobacco Seller Buys Majority Stakes in PEI and Ontario Cannabis Companies in What May Be First For Industry

Article by Mark Rendell, National Post

U.S. tobacco seller buys majority stakes in PEI and Ontario cannabis companies in what may be first for industry Alliance One appears to be the first big tobacco to enter the Canadian marijuana space. Tobacco is on the decline, but marijuana is on the rise.Canadian Press

U.S. tobacco company Alliance One International Inc. has entered the cannabis market with the acquisition of two Canadian companies, marking what appears to be the first foray by a large publicly traded tobacco company into the Canadian marijuana industry.

Alliance’s wholly owned subsidiary Canadian Cultivated Products, Ltd. has purchased a 75 per cent stake in Prince Edward Island-based Canada’s Island Garden Inc. and an 80 per cent stake in Ontario-based Goldleaf Pharm Inc., the company announced in a press release on Thursday that accompanied its Q2 earnings. The company did not reveal how much it paid for the two Canadian companies.

“We intend to broaden our business portfolio over the next three to four years by focusing on consumer-driven agricultural products, with increased operating margins when compared to our historical leaf processing business,” the company said.

Alliance One, headquartered in Morrisville North Carolina, sells loose tobacco to major cigarette manufacturers. According to Reuters, as of March 31, 2016, the company owned 12 production facilities in eight countries, and processed tobacco in more than 35 facilities worldwide. Its revenue in the most recent quarter was US$477.8 million.

“Our goal is to generate a significantly increasing portion of our profit from new, higher-margin businesses by 2020,” said the company, which used its earnings to announce a new strategy of increased focus on cannabis, industrial hemp and vaping liquids.

The move echoes the $245-million investment that leading U.S. alcohol company Constellation Brands made in Canopy Growth Corp. back in October. That was widely seen as a hedge by Constellation, which owns beer brands like Corona, against the potential for cannabis use to displace alcohol consumption.

Compared with Canopy, Canada’s Island Garden, PEI’s only licensed producer, is tiny. A recently announced 1,000 kilogram supply contract with the PEI government will take up most of the LP’s current crop, said CEO Edwin Jewell.

The company, however, is planning to expand its 20,000-square- foot facility to 250,000 square feet over the next several years. The expansion could cost $25 million to $40 million, Jewell said.

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