Nasdaq+ Exclusive

There ain’t no sin and there ain’t no virtue. There’s just stuff people do.

― John Steinbeck

No judgment here. Just this: There’s money to be made—more than $$400 billion a year, by some estimates—in what many would call the three sisters of sin: Tobacco, alcohol and cannabis.

Smoking hot?

Need proof? Consider: Despite huge declines in smoking over the last five decades, in 2022 the market value of U.S. tobacco was around $105 billion and rising. And to the delight of income-seekers, their investments in cigarette companies have typically paid sizable, consistent dividends.

Yes, tobacco firms are aware that they have a serious image problem. So as more people butt out, several of these enterprises, including Altria Group (MO) are diversifying. They’re trying to mitigate dropping sales volumes for traditional smokes by turning to vaping products.

True, the firm’s purchase of Juul Labs doesn’t seem a smart move in retrospect, since Juul has already spent nearly $3 billion settling lawsuits for purportedly marketing to young people. On the other hand, Altria has raised its dividend 56 times in the past 52 years. It’s just done that again, so it appears to be managing just fine.

One outlier stubbornly sticking with smoking tobacco is the Vector Group (VGR), owner of Ligget brand tobacco. It’s doubling down with a plan to increase its share of the traditional cigarette market as a means of securing long-term profits.

Will that approach work? It’s a hard one to call. After a tough five years, the company’s stock is now gaining momentum. However, some observers point out that the firm has cash flow issues and a shaky dividend performance. Others say Vector shares are undervalued.

A toast to alcohol

As for the alcohol industry, U.S. revenue from booze will top out at about $283 billion this year and is expected to grow annually by well over five percent at least until 2027. What’s more—inflation be damned—people seem to be going for expensive tipples, choosing premium spirits over more plebian wine or beer.

Investors can drink to that. And they are. MGP Ingredients (MGPI), which makes distillery products as well as vodka, gin and whiskey, is experiencing nearly 10 percent growth year-over-year in 2023. The company saw its earnings per common share (EPS) go from $1.15 to $1.44 in the second quarter.

Yet fine wine will always have a strong piece of the market, and judging by recent Willamette Valley Vineyards (WVVI) stock activity, some hedge funds are banking on that. Case in point? Vanguard Group Inc. upped its shares in the winemaker by over four percent in the first quarter. The UBS Group AG also hiked its position in the company by nearly 43 percent in the same time frame.

Wacky tobaccy’s rocky ride

Then there’s cannabis, the new kid on the block. Nearly every state in the union—47, to be exact—has made its peace with weed, decriminalizing it to some extent. Not surprisingly, a few businesses that seized the moment to enter the field have experienced a buzz of their own.

They might be feeling paranoid now, though, with reason. As growing pains shake things up and black market competitors prevail, notably sharp declines in some marijuana stocks have occurred.

The trick is in choosing the winners amid all that volatility. For example, investors in Canopy Growth Corp. (CGC), which grows, distributes and sells pot, briefly enjoyed a contact high last week when the firm’s stock made its biggest-ever one-day gain. Then its shares began swinging wildly and stomachs everywhere were churning.

In the longer term, CGC’s revenue has declined by over one percent each year in the last half decade. Still, at least one forecaster was bullish on the enterprise, predicting a near-11 percent increase in the stock over the next three months.

Another pot purveyor garnering attention is Curaleaf Holdings, Inc. (CURLF), which saw its second-quarter revenue grow by four percent year over year. Yet the firm has faced setbacks, too. Its stock plunged dramatically in April before New Jersey reversed an earlier decision not to renew its license to sell weed throughout the state. And some analysts still believe shares in Curaleaf are over-valued.

Nonetheless, the cannabis industry is poised to enjoy a compound annual growth rate of at least 25 percent through 2030 now that the U.S. is moving to re-schedule weed’s status. So opportunities abound, if you have an appetite for risk.

And do you need an appetite for sin to invest in these vice-driven enterprises? Not really. But as always, take a gut check with your conscience before you do.