The Post-Roll: Bull Market for Vice (Booze, Smokes and Pot)

Grizzle

 

 

In this weeks episode, we’re talking about vice stocks.

With much of the global population stuck indoors, we are already seeing indications of spiking consumption and demand for pot, booze and smokes.

Historically the stocks in these sectors outperform the market during recessions, will this time be any different?

We went digging to find out.

Beer

To determine the durability of the the beer sector we looked at revenue growth for Anheuser-Busch (NYSE:  BUD) and Sam Adams (Boston Beer) (NYSE: SAM) during the 08/09 recession.

Both companies sales grew during the depths of the Great Recession and continued to accelerate through the recovery.

Source: ycharts.com

The respective stock prices of BUD and SAM reflected these strong fundamentals through their share prices outperforming the S&P 500 significantly in the 4 years following the bottom.

source: ycharts.com

Smokes

Tobacco companies also displayed the same fundamental sales dynamics as the beer sector, sales grew through the depth of the recession.

Philip Morris (NYSE: PM) and British America Tobacco (NYSE: BTI) grew revenue 51% and 33% from the start of the Great Recession.

source: ycharts.com

Both companies also significantly outperformed the S&P 500 from the depths of the recession, the safety trade of vice stocks were a powerful source of returns in the early stage of the recovery.

source: ycharts.com

Pot

Since the last recession a new category of vice was introduced to investors: cannabis stocks.  We created proxies for cannabis with 2 stocks each:

  1. Canadian Cannabis: Village Farms (NYSE: VFF) and Aphria (NYSE: APHA)
  2. US Cannabis: Trulieve (CSE: TRUL) and Curaleaf (CSE: CURA)

We compared the performance of these cannabis stocks versus the our Beer proxy (SAM & BUD), Tobacco (BTI & PM) and the S&P 500 since the start of the Coronavirus-Crisis (February 20th, 2020).

The traditional vice sectors of beer and tobacco outperformed the S&P 500 through this bear market, cannabis however did not.  The Canadian proxy was a big under-performer while the US proxy under-performed the market modestly (-2%).  Trulieve was the stand-out in cannabis down -8% vs. -17% for the S&P 500.

Source: ycharts.com

Pot Stock Valuations

Ticker 2020 Price/Sales 2020 Revenue Growth
TRUL 2.0x 61%
APHA 1.7x 31%
CURA 1.7x 298%
VFF 0.9x 14%

Source: YCharts.com

The Best of the Best

So we know Vice stocks typically beat the market when consumers are either stuck at home, or pinching pennies, but with dozens to choose from, which stocks should be top of your list?

We’ve chosen one stock from each segment that we think represents the best way to play the Vice trend.

Trulieve is the hands down winner in Cannabis, in crisis the strong fundamentals of their business model have insulated the stock versus the general blood bath of the sector.

Source: ycharts.com

 

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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