EDITOR: | September 17th, 2018

How the tobacco industry stands to profit from cannabis.

| September 17, 2018 | No Comments
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The “green rush” has Big Tobacco primed to take on the cannabis industry.

The fight against slumping cigarette sales has forced tobacco companies to develop alternative, reduced-risk devices, such as vapourizers. However, despite weaker-than-anticipated sales, there is renewed hope that these devices will be adopted by users who want to experience cannabis without the associated smell or coughing. Indeed, the Cowen Group estimates that Big Tobacco stands to capture as much as 20 per cent of the cannabis market by 2036, assuming the US federal prohibition is lifted.

To get a sense of how Big Tobacco can roll into the cannabis industry, look no further than California. Demand has rapidly grown for ready-to-use products in the Golden State, where recreational cannabis is legal. A popular cannabis delivery platform, Eaze, attributes this growth to users who “don’t know how to roll a joint, or they don’t have the paraphernalia to consume the flower. So [with] prerolls, they can just consume flower, or even better, a vaporizer.” Indeed, it would seem that Big Tobacco is poised to become Big Cannabis.

It is surprising then, that Big Tobacco has taken a cautious approach to the cannabis industry. Have you heard the story of the tortoise and the hare?

London-based Imperial Brands took the first move from among the Big Tobacco players. Earlier in the year, the owner of Winston and Maverick cigarettes bought a minority stake in Oxford Cannabinoid Technologies, a start-up focused on research into the medical uses of cannabis. The Cowen Group described this investment as “the most significant move among the global tobacco players in the cannabis industry to date.” While that may be, it pales in comparison to investments made by players in the alcohol industry – think Constellation Brands or Molson Coors.

Imperial is not the only tobacco company taking a toke of the cannabis industry. Philip Morris International of Switzerland recently acquired a patent for GMO plants with higher terpenes. It also injected USD $20 million into Syqe Medical, an Israeli-based firm that makes 3D-printed cannabis inhalers. Alliance One International is seeking out potential in the soon-to-be legal Canadian cannabis market. The US-based tobacco company bought an 80 per cent stake in Canadian growing facility, Goldleaf Pharm Inc.

Steady, as she goes…

Big Tobacco has long been sizing up the potential of cannabis. A letter dating back to 1970 from Philip Morris International by then-President George Weissman read, “While I am opposed to its use, I recognize that it may be legalized in the near future…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.”

While tobacco executives missed the mark on legalization by several decades, they are finally presented with the opportunity to capitalize on the blazing cannabis industry. And capitalize they shall… slowly.

Publisher’s note: Special thanks to contributing Senior Editor Fiona Brown, a Partner at Aird & Berlis LLP, and co-editor Gobind Ahuja, an Articling Student at Aird & Berlis LLP for this column.


Fiona Brown

Editor:

Fiona Brown is a partner at Aird & Berlis and a member of the Cannabis Group. Fiona provides a broad range of services to participants ... <Read more about Fiona Brown>


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