Study Concludes That Multinational Corporations Will Enter Marijuana Market
While federal law makes their entire industry illegal, many marijuana store owners, growers and retailers fear something completely different: Big Tobacco.
Today, most legal recreational marijuana operations are small, limited to a single state and barred from ever getting large by regulators who want to keep a close eye on the fast-growing industry. But those small operators struggle to get bank loans for expansion, often produce an inconsistent product and sometimes have no idea how to balance supply and demand for their crops.
And many fear that tobacco companies, with their deep pockets, longstanding experience dealing with heavy government regulation, and relationships with generations of farmers will jump into the burgeoning marijuana market. At marijuana business conventions and in private conversations, it sometimes seems like everyone has heard a rumor about Big Tobacco getting in.
“I think there’s a ton of paranoia that they’re buying up warehouses and signing secret deals,” said Chris Walsh, the editor of Marijuana Business Daily, an industry publication.
Tobacco companies for generations have talked privately about getting into the weed business.
This past summer, researchers poring through more than 80 million pages of previously secret tobacco industry documents found that Big Tobacco has long had interest in pot.
“Since at least the 1970s, tobacco companies have been interested in marijuana and marijuana legalization as both a potential and a rival product,” researchers Rachel Ann Barry, Heikki Hiilamo and Stanton Glantz wrote in a June 2014 paper published in the Milbank Quarterly, which focuses on population health and health policy. “As public opinion shifted and governments began relaxing laws pertaining to marijuana criminalization, the tobacco companies modified their corporate planning strategies to prepare for future consumer demand.
“In many ways, the marijuana market of 2014 resembles the tobacco market before 1880, before cigarettes were mass produced using mechanization and marketed using national brands and modern mass media,” they wrote. “Legalizing marijuana opens the market to major corporations, including tobacco companies, which have the financial resources, product design technology to optimize puff-by-puff delivery of a psychoactive drug (nicotine), marketing muscle, and political clout to transform the marijuana market.”
The researchers entitled their paper “Waiting for the Opportune Moment: The Tobacco Industry and Marijuana Legalization.”
Today, spokesmen for Altria Group and R.J. Reynolds said their companies have no plans to enter the legal pot marketplace. Altria is the new name for Philip Morris.
“We continually evaluate opportunities for portfolio enhancement but focus our efforts on companies and products designed to meet the preferences of adult tobacco consumers and companies where we feel we could add value,” said Richard Smith of RJR. “None of Reynolds American’s operating companies is evaluating entering the U.S. market with commercial brands of marijuana.”
Jeffrey Friedland, chief executive of the international cannabis investment and development company INTIVA, said it’s unlikely tobacco companies ever seriously considered marijuana as a product. The tobacco documents archive, turned over to the public following the 1998 national tobacco settlement, show that cigarette companies periodically discussed marijuana as both a potential threat and possible product, including combining pot with menthol cigarettes.
“I don’t think they probably got far, maybe just to the in-house legal counsel’s desk,” Friedland said. “They’re not going to do anything until you have an act of Congress and it’s legal.”
Tobacco companies already are facing stiff government regulation and taxation and likely worry that moving into marijuana would bring additional scrutiny when they’re trying to move into e-cigarettes, which aren’t taxed and regulated the same way as traditional cigarettes, he said. Many marijuana stores sell e-cigarettes filled with marijuana oil.
The idea of Big Marijuana runs contrary to the counter-culture attitude of many marijuana industry insiders, especially those who honed their specific strains and growing techniques underground. For them, marijuana is more than a product, and it’s hard to accept that their labor of love could be commoditized, homogenized and sold without the personal grower-to-user relationship many marijuana stores in Colorado strive to maintain.
The reality of the modern world suggests otherwise, said President and CEO Derek Peterson of Terra Tech, a California-based company that makes hydroponic greenhouse equipment for both traditional and marijuana growers and is opening medical marijuana facilities in Nevada. Peterson, a former Wall Street investment banker, also operates a dispensary in California and says the economics ultimately favor large companies.
“We’re a mass-produced society, from the food we eat to the television we watch,” he said. “Ultimately, big alcohol or big tobacco is going to come into this space. I just can’t imagine that won’t happen.”
Because state-legalized marijuana remains a patchwork of rules, few companies are operating in more than a single state. That’s an advantage for the group Smart Approaches to Marijuana, which opposes the mainstreaming of marijuana.
Former Congressman Patrick Kennedy co-founded the group with the message, in part, that Big Tobacco wants in on Big Marijuana. SAM co-founder Kevin Sabet said Americans would be naïve to think tobacco companies won’t try to use the same techniques they long used to market to kids.
“We’re going to see the nightmare repeat,” he said. “It’s one thing to say you don’t want see someone to go to prison for having a joint in their pocket. It’s another thing to have Philip Morris-type tactics.”
Election of a conservative president could alter marijuana legalization efforts radically, Walsh said.President Barack Obama’s administration generally has taken a hands-off approach in states that have legalized recreational marijuana, but that could quickly change.
Also a possibility: Our next president could open to the door even wider to legalization by pushing the Food and Drug Administration to remove marijuana’s listing as a Schedule 1 controlled substance, he said.
Meanwhile, Friedland said tobacco companies likely are taking a wait-and-see approach.
“I think they’re freaked out and they’re not going to touch it because it will bring down the wrath of governments on them until it’s legal,” he said. “And then I think they end up owning the industry.”