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Are Tobacco Companies Next to Invest Big In Marijuana?

Are Tobacco Companies Next to Invest Big In Marijuana?
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Economics

Are Tobacco Companies Next to Invest Big In Marijuana?

While the alcohol industry starts to embrace cannabis-infused beverages, the tobacco industry has been slower to invest in the marijuana industry.

It has been said that in order for a nation of cannabis advocates to have their precious herb of all highness unleashed from the confines of prohibition, they must be prepared to turn it over to the gnashing teeth of the capitalistic grind. Because in the United States, the so-called Land of the Free, home of brave, the two are mutually exclusive. Americans can either continue to purchase marijuana from the black market and stop Big Business from swopping in and swallowing it whole or they can legalize it, make it a part of legitimate commerce and open the door to the big bad wolves of Wall Street. But they can’t have it both ways. Unfortunately, there is no longer a choice in the matter. The door to legal weed is wide open and there is a pack of hungry beasts circling, just waiting for the right moment to go for the jugular and feed.

The alcohol industry has already established itself as the alpha. Last week, Constellation Brands, the maker of Corona and Modelo, reportedly invested almost $4 billion in a partnership with Canopy Growth, which will be used to bring a line of cannabis-infused beverages to Canada and beyond.

To put this in perspective, the total pull of the North American cannabis industry is estimated at about $11 billion. This means one of the largest beer makers in the world (but not the largest) has enough financial dangle to chin slap most cannabis companies out of the game if that’s what it wanted to do. Molson Coors and Heineken are also part of the major league brew crew to have claimed a stake in legal marijuana. But while all of these companies have decades of experience creating and marketing beer, they have absolutely none when it comes to cannabis. So, for now, the two industries are working together and playing nice.

But more animals have caught on to the scent of legal marijuana and are moving in for the kill. Companies dealing in pharmaceuticals, tobacco and various other “packaged-goods” are all plotting their entry into the cannabis trade – creating a situation where cannabis could become less of an industry and more of an extension of the Big Three — alcohol, pharmaceuticals and tobacco.

Brendan Kennedy, chief executive officer of the Vancouver-based cannabis company Tilray, recently told Bloomberg that, “Companies that I wouldn’t have imagined were interested in the space are actively looking at it now.” And, according to quotes from Jessica Lukas, vice president of consumer insights at BDS Analytics, “There’s going to be a series of large companies across every consumer category that are going to follow suit.”

The threat of cannabis being gobbled up by the alcohol, tobacco and pharmaceutical companies might sound frightening to some purists of the scene, but the situation could actually be the influence needed to catapult legalization at the federal level. After all, lobbyists connected to these industries have been influencing the controls on Capitol Hill for years, and they have the financial clout to have a real say on whether prohibition lives or die in the United States. So keep an open mind. Marijuana is going big, like it or not.

Tobacco’s Interest in Cannabis Has Been Sluggish

Still, the tobacco companies are not diving into the cannabis culture nearly as fast as alcohol. Many experts initially thought it would be the other way around. The primary hang-up could be because the tobacco industry is still trying to figure its place in this young and budding market.

Cannabis edibles are obviously poised to become one of the most profitable sectors, with analysts predicting that items like candies and beverages will generate in upwards of $15 billion in Canada alone, once the country allows these products to be sold later next year.

Meanwhile, smokeable cannabis, although expected to be a huge seller once Canada officially launches its legal cannabis marketplace in October, will not even come close to competing. Most of the predictions show that this sector will bring in only around $7 billion nationwide. Some industry insiders say this is because smoking marijuana is a dying trend.

“No one does it [smokes] anymore,” Dooma Wendschuh, co-founder of Belleville, Ont.-based Province Brands, a company that will market a cannabis-infused beer, told CBC News. “Smoking has lost, and beverages are how we like to become altered.”

So far, the only tobacco company to enter the ganja game is Imperial Brands, maker of the Kool and Winston cigarette brands. The company is part of an investment with Snoop Dogg’s venture capital firm Case Verde aimed at creating cannabis products like vaporizers and pharmaceutical-grade offerings. Not much more is known about this development. However, Peter Luongo, managing director of Rothmans, Benson & Hedges Inc., which is affiliated with Philip Morris International Inc, told Bloomberg that smoke-free pot products are the most “logical entry point” for tobacco companies. Yet, he says his company doesn’t have any plans to jump in anytime soon.

Interestingly, Shane MacGuill, head of tobacco research at Euromonitor International, believes marijuana could be the catalyst for the tobacco companies to change direction. Rather than being the death machines they have been for decades, the legalization of cannabis could provide an opportunity for Big Tobacco to be “more of a pleasure substance provider than a tobacco and nicotine provider,” he said.

It is likely that all of these industries — alcohol, cannabis, pharmaceutical and tobacco — will continue to team up to make a go of socially acceptable medical and recreational pot products. But you can also guarantee that traditional industries with the deepest pockets are on the prowl to poach talent from the cannabis sector in order to move research and development in-house. Eventually, the Big Three will gain more control of cannabis — and it could be said that they already have. This will eventually drive some of the weaker marijuana operations into the ground, while also creating opportunities for others to grow. Those that make it will see profits beyond their wildest dreams. Those who don’t will be forever haunted by lesson inside the old adage “be careful what you wish for.”

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