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Tobacco Companies Secure With Legal Marijuana

While the U.S. tobacco industry is still worth more than $90 billion, the declining popularity of its traditional products may push companies to get into the legal marijuana market.

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Tobacco companies have raked in considerable profit over the decades. They continue to do so. As the Center for Disease Control and Prevention (CDC) revealed, “Although U.S. tobacco production has decreased significantly since the 1980s (from nearly 180,000 tobacco-growing farms to about 10,000 in 2012), the United States continues to be a leading producer of tobacco leaves.”

In 2015, U.S. tobacco companies more than 264 billion cigarettes — which is more or less the same amount sold in 2014.

Current Trends

Bloomberg Gadfly columnist Tara Lachapelle observed that while the U.S. tobacco industry is still worth $90 billion-plus, they have to face “the reality that their products — at least the traditional kind, cigarettes — are losing popularity.”

Lachapelle pointed out that apart from producing e-cigarettes, tobacco companies need to have “a more sustainable growth plan.” She then went on to say, “Lucky for them, a gigantic industry will soon be up for grabs: marijuana. There is a potential $45 billion of annual demand for recreational weed in the U.S. More and more states are moving toward allowing its sale, which will only build pressure on the federal government to legalize it. And that will open the door for the big tobacco companies to seize the marijuana market.”

Trevor Hughes — in his USA Today article “Will Big Tobacco become Big Marijuana?” — discussed the apprehensions of the small operators selling legal marijuana. Hughes wrote, “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.”

An Inevitable Move?

While many pundits assert that Big Tobacco companies should set their sights on the legal marijuana market, making the initial move involves some delicate maneuvering and timing.

As Bloomberg View columnist Leonid Bershidsky said, “Tobacco companies have never said publicly that they’d like to get in on the marijuana business. That’s understandable. Selling marijuana is still largely illegal in  U.S. and in Europe…but they have long watched marijuana as a potential market.”

To date, there are 24 states that have legalized the use of medical marijuana. They are the following:

  1. Alaska
  2. Arizona
  3. California
  4. Colorado
  5. Connecticut
  6. Delaware
  7. Hawaii
  8. Illinois
  9. Maine
  10. Maryland
  11. Massachusetts
  12. Michigan
  13. Minnesota
  14. Montana
  15. Nevada
  16. New Hampshire
  17. New Jersey
  18. New Mexico
  19. New York
  20. Oregon
  21. Pennsylvania
  22. Rhode Island
  23. Vermont
  24. Washington

Out of these 24 states, four have likewise legalized recreational marijuana use: Alaska, Colorado, Oregon, and Washington.

Bershidsky had pointed out that tobacco companies already have the capacity to move into the legal marijuana market. “They already have distribution systems, marketing machines, industrial facilities to make marijuana cigarettes and package cannabis for use in vaporizers, patented designs for the vaporizers themselves, research laboratories (and possibly even a head start on commercial product development) and, last but not least, cash resources,” he said.

In fact, he added, “Licensed tobacco sellers already dispense medical marijuana in a number of states.”

Then again, tobacco companies — who are already subjected to strict government regulation and taxes — have to deal with the added scrutiny if they move into the legal marijuana market.

However, that doesn’t mean that these companies will back off the legal marijuana market. They already seem to be going in that direction anyway.
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In “Why Big Tobacco is interested in marijuana,” Oscar Pascual wrote, “Big Tobacco now hopes to bridge the gap between marijuana through buying out e-cigarette vaporizer companies.”

In a USA Today article, Derek Peterson — president and CEO  of Terra Tech, a California-based company that makes hydroponic greenhouse equipment for both traditional and marijuana growers — confirmed Pascual’s assertion, saying, “We’re a mass-produced society, from the food we eat to the television we watch. Ultimately, big alcohol or big tobacco is going to come into this space. I just can’t imagine that won’t happen.”

Projections and Predictions

CNBC.com features editor Heesun Wee, in her article “As legal US cannabis sales soar, start-up reality sets in,” observed that start-up companies in the legal marijuana market are experiencing some difficulties. She revealed, “But entrepreneurs in the weed trade, despite landing in hot markets like Colorado, face a bit of a reality check. That’s due, in part, to a lack of traditional financing tools like banking, and still growing stream of venture capital into the industry.”

These are the kinds of challenges that tobacco companies can easily weather. Wee wrote, “The forecasts for legal U.S. cannabis sales are in the billions.”

Citing the findings of ArcView Market Research and New Frontier, Wee highlighted the fact that “if California voters in November approve adult cannabis use through statewide ballot measures, analysts forecast California’s total marijuana market for both medical and adult use could reach $4 billion by 2018 — more than double the size of the expected $2.5 billion Colorado market.”

In an article published on Slant, “Why the marriage of marijuana and Big Tobacco is inevitable,” Darragh T. Roche stated, “It’s hard to judge the exact market for cannabis, but estimates put its value somewhere between $10 billion and $40 billion, with other estimates claiming the marijuana industry could be worth $100 billion. With numbers like that, it’s no surprise big business wants legalization.”

 

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