Will Big Tobacco Buyout The Cannabis Industry?

There is an undercurrent of anxiety in the cannabis industry. Many in the business are predicting that it is only a matter of time before “big tobacco,” with its vast financial and agricultural resources, steps in and takes over.  

The only factor that is currently preventing them from doing so is the fact that marijuana is federally illegal in the United States. But each year it seems more and more likely that, at some point, the feds will back off and let the states do their thing.

If that does happen - federal prohibition ends - depending on how it ends, there will still be the challenge of dealing with state regulations, all of which prevent distributing marijuana out-of-state.

For tobacco conglomerates to be able to glom onto a national market, marijuana regulation will have to go the way of other regulated adult use products such as cigarettes and alcohol which can be produced in one state and sold in another.

It is a hurdle, but not a big enough hurdle to stop them from entering the ring.

The brains of giant tobacco companies are not waiting around for federal permission before making plans to take advantage of the booming cannabis market. One can imagine them wringing their hands, making plans, and salivating at the thought of jumping into the fastest growing market of modern times.

It is important to note that this is not just about vertical growth; it is about stopping losses as well. Cigarette smoking has seen a decline in recent years; some portion of which many experts attribute to legal cannabis sales.

Marijuana is sapping tobacco sales in two ways. First, it is taking market share away from tobacco as some smokers choose to forgo the cancer sticks in favor of cannabis. Second, cannabis has been shown to provide an effective treatment for helping smokers to kick the habit.

Signs of Plotting

There are some definite signals that tobacco companies are gearing up to enter the ring.

Imperial Brands (IMB:LN), formerly Imperial Tobacco, made some changes to their board of directors last year, appointing the chairman of PharmaCielo, a Canadian supplier of cannabis oil extracts.

In 2015 the company changed its name to Imperial Brands. The move is seen as being made in anticipation of their entry into the world of cannabis.

Another tobacco company, Alliance One International Inc. (NYSE:AOI), recently announced the acquisition of a 75 percent equity position in Canadian-licensed producer Island Garden Inc. and an 80 percent stake in another licensed producer, Goldleaf Pharm Inc. The company is also an investor in a North Carolina hemp company.

And, not to be left out of the game, Philip Morris International of Switzerland (PMI:SW), bought a patent on non-GMO strains of cannabis which are endowed with higher levels of terpenes (the sticky oils that give cannabis its distinct flavors and aromas).

As the story in High Times points out, “With [federal] laws gone, they will be ready for the market eager to buy weed. Tobacco companies have always paid close attention to pot, both as a rival and as profit. Now they’re just waiting for the green light. Once weed is legal, they will shift to it as a major money maker. Certainly, buying that mythic pack of marijuana Marlboros or Lucky Strikes sounds more and more possible.”


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