Altria's Untapped $40 Billion Market: Marijuana in the U.S.

NEW YORK (TheStreet) -- Marlboro cigarette maker Altria (MO) controls 50.9% of the U.S. cigarette market. The company is still gaining market share; one year ago the company controlled 50.7% of the U.S. cigarette market. The U.S. cigarette industry is slowly declining as the negative health consequences of smoking become common knowledge.

Despite onerous taxes and advertising restrictions, selling cigarettes and other tobacco products in the U.S. is highly profitable. Altria has recorded about $24 billion in sales and $4.3 billion in profits over the last 12 months. Altria stock is up almost 40% over the last year, more than twice the gain of the S&P 500.

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In the coming years, Altria may be able to tap into the growing U.S. marijuana market. The similarities between marijuana and tobacco are many. Both products are smoked and consumed repeatedly. Marijuana is not physically addictive like tobacco is, but marijuana is psychologically addictive. It also carries a cool vibe in many subsets of society that cigarettes no longer do. The primary reason Altria has not moved into the marijuana market is because marijuana is still illegal on a federal level in the U.S. Despite this, four states have legalized marijuana for both legal and recreational use (Alaska, Colorado, Oregon, Washington).

Size of the U.S. Marijuana Market

Colorado was the first state to legalize recreational marijuana sales. In August (the most recent month for which data are available), marijuana sales in Colorado, excluding black market sales, totaled $67.5 million. Recreational marijuana sales accounted for $34.1 million, while medical marijuana sales came in at $33.4 million. Colorado has a population of 5.26 million; total marijuana spending per capita in the state was $12.83.

The U.S. has a population of about 316 million. If the entire U.S. legalized marijuana and consumed it at a similar rate as the state of Colorado, the U.S. marijuana market would generate about $48.6 billion per year in sales.

A sizable chunk of Colorado's marijuana revenue was generated by tourists. This likely inflates marijuana sales numbers in the state. This would be partially offset if the entire U.S. legalized marijuana, as "pot tourists" from around the world would come to the U.S. Still, the effect is likely to be less on a percentage basis than what Colorado is experiencing.

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