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babylonsister

(171,050 posts) Mon Dec 17, 2018, 10:20 AM Dec 2018

When Marlboro Man met Mary Jane-A tobacco giant hashes out a deal with a cannabis company

https://www.economist.com/business/2018/12/15/a-tobacco-giant-hashes-out-a-deal-with-a-cannabis-company?fsrc=scn/fb/te/bl/ed/atobaccogianthashesoutadealwithacannabiscompanywhenmarlboromanmetmaryjane

When Marlboro Man met Mary Jane
A tobacco giant hashes out a deal with a cannabis company
Faced with declining smoking rates, Altria moves into the weed business
Print edition | Business
Dec 13th 2018

THOSE WHO fret about America’s health must have rejoiced in November when the Centres for Disease Control and Prevention, a federal agency, announced that smoking rates had fallen to their lowest in recorded history. Just 14% of American adults smoked cigarettes in 2017, compared with around 42% in 1965. The trend is a boon for the public’s health but for tobacco companies it raises existential questions.

On December 7th Altria, a tobacco giant which sells Marlboro in America, pointed to a possible solution. It announced that it was spending $1.8bn to buy a 45% share in Cronos Group, a Canadian cannabis firm, with an option to purchase a further 10% in the future. The news boosted Cronos’ share price by 29%; Altria’s crept up by 2%.

As demand for cigarettes has fizzled, Altria has increased its prices and cut costs to try to drive profits. A move into cannabis, which was recently legalised in Canada, is no quick fix but the long-term prospects for the cannabis market, if and when the drug is more widely legalised in America, are tempting. At present recreational cannabis is legal in just ten states. Some reckon the total market could be worth between $40bn-70bn, equivalent to America’s spending on wine or spirits. Altria’s revenues in 2017 were a little over $25bn.

The success of Altria’s move will in part depend on how people decide to consume cannabis in the future. Most still smoke it the conventional way—in those states where it is legal the market share of the cannabis flower, typically rolled into a joint, is 60-65%. Edible cannabis products and vaping represent around 10-15% each, according to Trevor Stirling, an analyst at Sanford C. Bernstein, a research firm, but vaping pot is on the rise. Flavoured vaporisers can conceal the telltale smell of pot, reducing social stigma. Such products would also mean opportunities for branding, which has in the past been crucial to tobacco firms’ success but which is impossible when selling illegal, loose ganja.

The predicted shift to vaping explains reports that Altria also plans to acquire JUUL, a vaping firm that has captured around 75% of America’s growing e-cigarette market. Altria has said it will stop selling its own MarkTen and Green Smoke e-cigarette products, citing their weak financial performance, and increasingly burdensome regulation. JUUL has in the past been keen to stress its independence from big tobacco. But now it can probably do with Altria’s help in order to navigate an increasingly rocky regulatory landscape.

This year the Food and Drug Administration has announced restrictions on vaping products and mooted a ban on menthol cigarettes (Altria’s minty cigarettes are just under 30% of the menthol market). Cannabis products may face similar rules.

Meanwhile big booze is also eyeing up the potential in cannabis. Constellation Brands, brewer of Corona, invested $4bn in Canopy Growth, another Canadian weed firm, in August, lifting its stake from 9.9% to 38%. The alcohol groups are less vilified than cigarette-peddlers. But cannabis-laced treats are slower to take effect than vaping. Who will claim the pot of gold?