The global cannabis market is poised for explosive growth between 2024 and 2030, as more countries legalize marijuana for medical and recreational use. According to a report by Grand View Research, the global legal marijuana market is expected to reach $102.2 billion by 2030, representing a compound annual growth rate (CAGR) of 25.7% over this six-year period.
As the industry matures and legalization spreads, companies with the right infrastructure, financial resources, and know-how should be able to consolidate market share and emerge as top dogs in the industry.
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In the U..S., the potential for federal legalization of marijuana in the next 10 years presents a massive opportunity for companies that can quickly adapt and scale their operations. Once the U.S. fully legalizes marijuana, the market is expected to experience rapid growth, with some estimates suggesting that the U.S. cannabis market alone could reach $358.4 billion by 2040.
This projection indicates a healthy CAGR of approximately 20% during 2023 to 2040, making cannabis one of the fastest-growing industries on the planet right now.
An underappreciated cannabis business
One company that stands out as perhaps the best cannabis stock for long-term investors is Altria(NYSE: MO). The maker of Marlboro cigarettes has been wrestling with the secular decline in smoking rates and the need to diversify its business for decades.
In 2018, the company made a strategic investment in Canadian cannabis company Cronos Group(NASDAQ: CRON), marking its first entry into the cannabis industry. Although the investment can only be described as a calamity in light of the modest progress in the global legalization of marijuana and Cronos' corresponding share-price decline of 89% since the deal closed, it demonstrates Altria's recognition of cannabis' superb growth potential.
CRON Total Return Level data by YCharts.
Altria's vast infrastructure and distribution network, built over decades in the tobacco industry, should be able to be adapted to the cannabis market upon federal legalization. The company's experience in navigating complex regulatory environments, along with its strong brand portfolio and deep financial resources put it in a unique position to gain market share rapidly. Its expertise in product development, marketing, and supply-chain management will also be invaluable in the highly competitive cannabis industry.
In addition to its growth potential in the cannabis market, Altria offers investors a compelling dividend yield and a history of consistent dividend increases. The tobacco giant's dividend yield stands at a mouthwatering 8.8%, and its payout ratio comes in at around 81%.
Despite its elevated payout ratio, Altria has increased its dividend for 54 consecutive years, underscoring its commitment to rewarding loyal shareholders. This lengthy record of dividend growth also underscores the company's ability to generate strong free cash flow over an extended period.
Put simply, Altria's sky-high dividend is probably a safe bet, despite the secular declines in smoking and its relatively high payout ratio.
Final thoughts
Altria is a proven winner. Since the turn of the century, the company's stock has clobbered the S&P 500 in terms of total returns (assuming the dividend was reinvested), thanks in no small part to its generous shareholder rewards (see graph below).
As Altria navigates the transition from tobacco to cannabis, investors who hold the stock for the long haul could benefit enormously from the company's expansion into the cannabis industry, while also enjoying a steady flow of dividend payments. Its sprawling infrastructure, vast financial resources, and regulatory expertise give it a sizable competitive advantage over most, if not all, of the current U.S. multistate operators and Canadian-licensed producers.
Even though the company's initial foray into cannabis hasn't gone according to plan and Altria hasn't said a whole lot about cannabis lately, the company still stands as one of the most compelling long-term cannabis investments in the market today.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Cronos Group. The Motley Fool has a disclosure policy.
