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Big Tobacco Is Already Eyeing Pot

Cigarette manufacturers seem to be poised to get into the marijuana industry — as soon as it’s federally OK

A commercial cannabis grow in Colorado could be the kind of thing cigarette companies invest in, if marijuana becomes federally legal.

Photo by Vince Chandler / The Denver Post

According to cannabis industry experts, it’s very likely that the country’s largest tobacco companies will get into the marijuana business, in some way, when it is possible. The question becomes how much control these corporate giants will have over the industry, what they will do to marijuana products and how these changes will occur.

For decades, companies like Phillip Morris have wanted to get in on the marijuana action. According to once-secret documents obtained through a lawsuit from tobacco industry leaders in 2014, Phillip Morris, British American Tobacco and other large tobacco companies were making plans to enter the marijuana industry as far back as the 1970s. This was shortly before cannabis became illegal on the federal level, and for a moment there, some tobacco company heads thought it might be legalized.

“While I am opposed to its use, I recognize that it may be legalized in the near future,” then-Philip Morris President George Weissman wrote in a memo in 1970. “Thus, with these great auspices, we should be in a position to examine: 1. A potential competition, 2. A possible product, 3. At this time, cooperate with the government.”

Forty years later, nine states and the District of Columbia have fully legalized cannabis, and the tobacco companies have been aware of how the industry is taking shape. However, the tobacco industry is risk-averse because of its history with battling the U.S. government, according to Stanton Glantz, a professor of medicine at the University of California, San Francisco, who helped release the tobacco industry documents that were published in 2014. Back in 1998, the U.S. government and five major tobacco companies signed onto what was called the Master Settlement Agreement, which meant the tobacco companies had to pay states billions of dollars a year to cover costs related to the health effects of smoking, because the public had been misled about them.

“The last thing they need is to get in trouble with Jeff Sessions and the Justice Department,” says Glantz. “The tobacco industry, more than most other industries, is highly political. They really depend on political protections.”

That said, large tobacco companies that operate inside the U.S. are making investments in cannabis outside of the country. Britain’s Imperial Brands, one of the world’s largest tobacco companies, recently invested in a company called Oxford Cannabinoid Technologies. Oxford is a cannabis-focused biotech company that is researching how compounds in cannabis can be turned into medicine. An Imperial press release that came out when this investment was announced indicates the company is interested in researching medical marijuana further.

In 2016, Philip Morris International invested $20 million into an Israeli medical cannabis company called Syqe Medical. Syque is currently developing a medical cannabis inhaler, which could administer more exact doses of cannabis than other products. When asked, Philip Morris International said the company has “no plans to enter the cannabis business.” Whether that will change soon remains to be seen.

Turning Point Brands (TPM), a tobacco company that also makes products like Zig Zag rolling papers, have been closely eyeing the market.  Brittani Cushman, vice president of external affairs at TPM, says that there could be a “potentially large and profitable market opportunity” for TPM if cannabis is legalized, because many people like to use Zig Zags to roll their joints. “We believe we will be well positioned to capitalize on the growth in this category should federal law advance,” Cushman says. “We are pleased to see that these conversations are growing at the federal level.”

A Canadian subsidiary of Alliance One, another leading tobacco brand, purchased a 75 percent stake in Canada’s Island Garden Inc. and an 80 percent stake in Goldleaf Pharm Inc. in February. Both are Canadian companies that produce cannabis, and they could be poised to make large profits once the country fully legalizes marijuana in October.

Experts say that Canada could very well become a playing ground for these companies once marijuana is legalized there, giving them time to prepare for legalization in the United States. “Canada is the petri dish out there,” says Kenneth Shea, a senior equity analyst at Bloomberg Intelligence who focuses on the food, beverage and cannabis sectors. “Beverage companies, tobacco companies and maybe even food companies may learn there how to cater to that market.”

Once Canada starts recreational sales in October, these large companies may directly and indirectly experiment with how to game the cannabis market and change the direction of the industry. Then all they have to do once the U.S. legalizes is apply what they learned in Canada to our new market.

“I think it’ll end up looking a lot like the cigarette market or the beer market,” Glantz says. “There are still tobacconists out there, you still have these craft beers and things like that, but the big sales are from the Budweisers. The big sales are in the national brands.”

Vivien Azer, a senior research analyst at the investment banking firm Cowen Inc. who specializes in the beverage, tobacco and cannabis sectors, agrees. She says that the cannabis industry will likely look like the alcohol industry, where there is “a large but organized oligopoly with a tail of smaller, craft, artisanal producers.” You’ll be able to get cheap, mass-produced cannabis that’s always consistent, but you’ll also be able to spend a little more money to get the craft products that are made by more artisanal producers.

Glantz says the tobacco companies are “best positioned” to dominate the industry when legalization happens, partially because it won’t be a major change from what they’re already doing. “They could be in the marijuana business in a second, and they certainly know how to make the products,” he says. Specialized vapes, rolled cigarettes and other popular products will be easy for these companies to produce.

The marijuana industry will never look the same once these kinds of companies get involved, Glantz says, because they will be able to utilize technology in ways that no one has really tried yet. “There’s a whole lot you can do, in terms of going from the raw plant to the product that is actually consumed, that are much more sophisticated than what’s happened so far,” he says. He warns that might include making products that are more addictive.

Multiple experts talked about how tobacco companies have already been in the vaporizer market for years now, so they could easily start producing vapes that use cannabis oil once they’re allowed to. “An obvious way to get in there is to simply be a producer of what is now liquid nicotine and then just incorporate CBD and THC oils to use in a vaporizer,” Shea says.

Based on the investments these companies have made and what experts are saying, it seems that tobacco companies will be getting into cannabis vaping products, cannabis cigarettes, the medical cannabis sector, producing raw cannabis and more. On one end of the scale, these companies will likely be involved in the production of cheap cannabis cigarettes that may resemble something like a pack of Marlboros. On the other end, they’ll likely also be making the fanciest, most expensive medical marijuana consumption devices. It’s clear their fingerprints will be all over the industry.

While tobacco companies are being cautious so far, they’re already investing in the cannabis space, positioning themselves to grab hold of the market as soon as they’re allowed to. It seems major changes are ahead — once legalization finally occurs.

“The kind of things that happen when you have a product being taken over by corporate interests are quite dramatic,” Glantz says.

In This Article: Cannabis, marijuana

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