When will Big Tobacco enter the Canadian cannabis market?

Liquor companies have already started positioning themselves in the Canadian cannabis sector, will Big Tobacco be the next one to join it?

Tobacco companies will be ‘damned if they miss out’ on the colossal profits that the cannabis industry is promising to start making very soon.

A study published by the health-policy journal Milbank Quarterly says that “tobacco companies have been interested in marijuana and marijuana legalization as both a potential and a rival product ever since the 1970’s”.

Canopy Growth now has a market cap of $11.55 billion, after a significant investment on the side of Constellation Brands, the liquor company which is behind the like of Corona and Svedska Vodka.

Two Canadian marijuana producers have already sold a controlling stake in their companies to a midsized US tobacco leaf trader— Alliance One.

Alliance One International bought a 75% equity position in Canada’s Island Garden and an 80% stake in Goldleaf Pharm this January.

Many thought that this marked the start of tobacco companies entering the cannabis market, however, they would have been wrong as none of the Big Tobacco companies have yet entered the market.

Big Tobacco companies are still not in the cannabis sector

It is important to make the distinction between Big Tobacco companies and midsized leaf merchants such as Alliance One International, which holds a different, but specific position in the US tobacco supply chain.

Alliance One’s quarterly report says that the company had a revenue of $477.8 million US, while Big Tobacco companies such as Phillip Morris (2016 revenue: $75 billion) make much more in comparison.

The prior has a much different role in the US tobacco sector, which just like in Canada is currently seeing a decline in the sales of tobacco.

In 2017, about 249 billion cigarettes were sold in the United States—a 3.5% decrease from the 258 billion sold in 2016.

Of those nearly 250 billion cigarettes, 4 companies made 92% of the sales, and those companies are Philip Morris USA, Reynolds American Inc., ITG Brands, and Liggett.

There are strong reasons why the tobacco companies haven’t yet taken a chunk of the cannabis market in Canada for themselves.

According to Shane MacGuill, head of tobacco research at Euromonitor International, Big Tobacco companies are still not ready to fully commit to cannabis as a legitimate business.

“From the Alliance One point of view, they’re seeing declining demand for the tobacco leaf and another adjacent industry…where the opposite trajectory is happening, but it is much less straightforward a question for the brand owners.”

MacGuill believes that the fact the legalization isn’t going to happen simultaneously worldwide is a big problem for the brand owners, and also one of the reasons why they aren’t getting involved with the Canadian market.

The uncertainty about what’s going to happen in other countries is too much of a risk for such a large investment, according to MacGuill.

He also added that he believes the investors are still waiting on the attitudes towards cannabis to change for the better.

“And they’re waiting for cannabis to become a little bit more respectable, perhaps for there to be a little more scientific consensus around the harms of cannabis, and so on,” MacGuill added.

So, it would appear that Big Tobacco still hasn’t entered Canada’s cannabis market, and possibly won’t be doing so in the next few years.

New industry means new competitors?

It is still unclear whether the cannabis industry will be complementary to the alcohol and tobacco industries, or perhaps their fiercest competitor which will draw away customers from their products.

On one hand, Canadian beer producers have already complained that the recreational marijuana market will cut into its profits and appealed to the government to raise the cannabis tax.

On the other hand, there is scientific proof that cannabis use is associated with increased initiation of, persistence of, and relapse to cigarette smoking.

There is definitely interest on the side of the investors that are currently working in big tobacco and liquor companies.

A recent report by Ernst and Young surveyed senior executives and board members with licensed-cannabis producers across Canada.

This report found out that these senior executives and board members believe that 75% of the “big players” will eventually move into the cannabis market.

However, not everyone is interested in what these big companies and big producers have to offer.

Craft cannabis growers who are tending to their buds in a more organic way, which they see as more fitting to the medical users, have been warning for a long time that the cannabis industry will be under attack by the likes of tobacco and alcohol companies.

Sarah Campbell, director of the Craft Cannabis Association of B.C, says that the arrival of tobacco comapnies will not be a hard hit for B.C. growers.

“Craft-cannabis producers and processors are small, independent, artisanal, and sustainable,” Campbell explained. “And with the inclusion of microlicences in the Cannabis Act, we are perfectly poised to do very well in this niche market.”

The reason why so many cannabis users disassociate cannabis use from smoking cigarettes is that of the difference in the products.

While cigarettes are packed and pre-made in the factory, cannabis flower is ground and rolled on the spot. Also, the way that it is grown, treated and harvested is also hugely important.

Indeed, cannabis users are always looking for a new experience, fun colors and exquisite taste and aroma coming from the bud, something that the mass-produced weed coming from the likes of Canopy Growth and other big brands will most likely never achieve unless they drastically change their growing process.

This is one of the biggest reasons why the craft-growing scene has been working out so well in British Columbia. The growers there take extreme care of their plants and products.

There is no saying how these industries will behave in Canada, however, one thing is certain — Big Tobacco is yet to make it’s first big move on the cannabis market, and it most likely won’t come before the public opinion changes.

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