Big Tobacco need not apply for work in the cannabis market
In his article entitled “Big Tobacco’s future as Big Marijuana,” Leonid Bershidsky advises investors that, “Big Tobacco is poised to dominate” the legal cannabis market, and for that reason, “Big Tobacco may be one of the biggest opportunities of a lifetime.” But potential investors beware: As Warren Buffet has said, “never invest in a business you can’t understand.” And it appears that Mr. Bershidsky doesn’t understand the cannabis business.
For starters, his belief that “legalization advocates probably wouldn’t mind Big Tobacco’s participation” is shockingly uninformed. In truth, cannabis advocates and consumers abhor the idea. This resentment has been evident in law reform publications and blogs, podcasts and at industry seminars since California became the first medical cannabis state in 1996. Ethan Nadelmann, executive Director of the Drug Policy Alliance and cannabis law reform guru, has said: “My concern is the Marlboro-ization or Budweiser-ization of marijuana,” adding, “that’s not what I’m fighting for.”
“It’s a cultural thing,” said Keith Stroup, founder of the National Organization for the Reform of Marijuana Laws. “All of us have at least a little bit of discomfort with the corporate stuff.”
In support of his idea that a tobacco industry takeover is imminent, Mr. Bershidsky refers to the work of Rachel Ann Barry, of the Center for Tobacco Control Research & Education. Like Mr. Bershidsky, Ms. Barry’s credibility as a predictor of cannabis market forces is undermined by her apparent lack of understanding of the industry and the culture that created it. She claims “marijuana legalization advocates have not considered the potential effects of the multinational tobacco companies entering the market.” As discussed above, this is a rather unlearned point of view.
Even more perplexing is the paper authored by Ms. Barry and cited by Mr. Bershidsky in which she actually suggests that if we are not careful, reform of current cannabis policies could result in “another public health catastrophe similar to tobacco use, which kills 6 million people worldwide each year.” This statement, which ignores the fact that cannabis is non-toxic and kills no one, is so irrational that it calls into question Ms. Barry’s motivation for claiming that Big Tobacco will come to dominate the legal cannabis industry, and raises the suspicion that she is using fear of Big Tobacco as a bogeyman to scare off any would-be legalizers.
What Mr. Bershidsky and Ms. Barry fail to understand is that cannabis is not just a commodity, it is a well-developed culture that has existed for generations and does not trust big business – especially the tobacco, pharmaceutical and alcohol industries, which are known to have lobbied against cannabis law reform and in favor of the drug war. The belief is that these industries have supported prohibition, and therefore, imprisonment of the very people who have paved the way for the profits those industries now hope to control. Many cannabis consumers will not patronize companies owned by Big Tobacco, and advocates are already calling for boycotts of tobacco-owned companies before tobacco has even admitted to having any interest in the cannabis business. The walls are already going up.
Big Tobacco has another major obstacle to gaining a foothold in the cannabis market: It will not set foot in the industry until cannabis is fully legal at the federal level. There is little chance that any large international industry will attempt to negotiate the current obstacles to cannabusiness, such as operating as an all-cash business, being unable to deduct normal business expenses under Section 280e of the U.S. tax code, and the inability to ship product across state lines. Further, because the tobacco industry is already strictly scrutinized by the federal government, it will be very wary of setting up shop in a quasi-legal industry.
And so Big Tobacco will lie in wait. But being late to the party could be a big problem for Big Tobacco. Although legalization at the federal level is ultimately inevitable, it is not likely to happen anytime soon. In the meantime, local growers, manufacturers and retailers will continue developing crucial brand recognition and gaining a loyal following that Big Tobacco will be hard-pressed to win over with Wal-Mart-like business practices that do not fly in the cannabis culture.
Mr. Bershidsky also believes that the tobacco industry is a good investment because it “boasts the best historical performance of all U.S. industries.” There is a good reason for that success – tobacco is highly addictive. Cannabis, on the other hand, ranks just below caffeine in potential for addiction, so hooking customers will not come as easily as it did with cigarettes.
Tobacco companies were successful in the past – and to a large degree in the present as well – because they were allowed to run wild for decades. Relatively unregulated until the mid-1990s, the industry lied about safety and potential for addiction, advertised in every medium, brazenly targeted kids with cartoon characters, and sold cigarettes out of coin-operated machines in every restaurant, pizza place, bowling alley and supermarket in the United States. None of those sales strategies will be available for cannabis marketers. The cannabis industry is barely out of the gate and already it is regulated more tightly than tobacco ever was, with some states requiring product testing and retailers barely allowed to hang a sign on their storefronts. Tobacco’s historical performance is moot when it comes to legal cannabis.
As an aside, low potential for addiction, strict production regulations and severe marketing restrictions are also the reasons why anti-cannabis crusaders are wrong when they claim that in the future, cannabis companies will repeat the sins of Big Tobacco. They use the term “Big Marijuana” to draw a false association and conjure scary images of the nefarious schemes perpetrated by “Big Tobacco.” But the cannabis industry would never be able to repeat those sins even if it wanted to, and the “Big Marijuana” scare tactic fails as a result.
“Heat-not-burn” vaporizers are another reason why Big Tobacco will dominate, according to Mr. Bershidsky. He claims that these devices are “cutting edge” and notes that tobacco companies hold patents, giving them a technological advantage over other cannabis sellers. This is a rather naïve view. Not only have whole-leaf cannabis vaporizers been in use for many years, they have already fallen out of favor with many cannabis consumers who prefer the ease and efficiency of vaping cannabis oil extracts. As for the supposed advantage of having in place “industrial facilities to make marijuana cigarettes,” Big Tobacco must already know that pre-rolled cigarettes account for a very small percentage of cannabis sales.
So, investors, take heed. Big Tobacco’s success in the cannabis industry is no safe bet, and some of the companies that are truly “poised to dominate” are already up and running at top speed. There is no doubt that some of the first-wave cannabis companies will eventually sell their businesses to large corporations. For example, Colorado’s popular Medicine Man has already admitted that they intend to sell out. But it would be a mistake for investors to underestimate the size and strength of a cannabis culture that will organize to resist the entrance of Big Tobacco into the industry that they worked, and in many cases suffered, to create.
James McNamara is an attorney and drug policy reform advocate doing independent research on the disastrous impact of U.S. drug policy both domestically and throughout Latin America.
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