High Demand

Patrick Basham, founding director of the Democracy Institute, a politically independent think tank, said that when the Canadian government legalized medical marijuana in 2001 and legalized recreational use in 2018, the marijuana industry began to see a change in the types of businesses getting into the fast-growing segment. Speaking at TABEXPO, a vapor and tobacco trade show that was held in Amsterdam in November, Basham gave an overview of the marijuana market, detailing the entrance of major tobacco companies into the rapidly growing cannabis industry. Basham has been involved in the legal cannabis industry for more than 22 years.

Major tobacco companies entered the cannabis industry starting in 2018; however, the mission began much earlier, according to Basham. “Big Tobacco first sought to join the marijuana business in the 1960s. The companies were driven then by the same shift in public attitudes that are now pushing legalization globally,” he said. “Cannabis laws are changing all over the world. In 2013, Uraguay legalized weed. Canada followed suit last year. In America, more than half the population thinks marijuana use should be legalized.”

In December 2018, Altria dove into the cannabis market with a $2.4 billion investment in Cronos Group, a Canadian medical and recreational marijuana company. In July of this year, Imperial Brands made its biggest investment in the cannabis sector with a £75 million deal to take a stake in Canadian company Auxly Cannabis Group. The legal cannabis market in Canada is estimated to be worth $6 billion, according to Ernst & Young, and is forecast to increase to $11 billion by 2025 following regulation in October to legalize edible cannabis products as well as cannabis oils, lotions and vapor products.

The tobacco industry possesses expertise in the production of materials and an agricultural supply chain, controlling costs and driving margins on the finished product, according to Basham. “Legal cannabis legislation will require substantial compliance procedures and efficiency, something that is the cornerstone of the current tobacco business,” he said. “Specific tobacco-related expertise, such as that related to track-and-trace, is likely also to be highly valuable in a cannabis context.”

Basham said tobacco companies have astutely seized a golden opportunity to diversify their business and enrich its shareholders. “Tobacco is in a far, far better position today, in an institutional sense, to enter and to compete in the cannabis market than it would have been in the past,” said Basham. “Five years from now, I think it will even be better placed.”