Is cannabis the future for Big Tobacco?

By Barbara Pastori, partner in the ban.

A few weeks ago, Philip morris CEO Jacek Olczak made the news with a series of seemingly counter-intuitive remarks. Namely, that the tobacco giant could soon stop selling cigarettes in the UK while urging the government to ban smoking altogether. Olczak said the Marlboro brand will “go away” and “the first choice for consumers is to quit smoking”.

While this may seem like a deliberately provocative stance – to some extent – it is also largely in line with the direction the tobacco industry has taken in recent years. It can also prove to be a good business strategy. Most enduring businesses have to reinvent themselves at some point to survive.

Photo by Mathew MacQuarrie via Unsplash

Technological developments are a common driver of change, but pressures can also come from wider changes in consumer behavior. For example, it is more difficult to find a company that is still selling the same product after over 100 years than to find a company that has successfully changed its line of business. In some cases, rather than comfortably drifting on a sinking ship, the best way to protect shareholders’ interests is to think of other approaches and embrace change.

Tobacco and cannabis: a perfect combination

Due to the worldwide exodus of consumers from the tobacco market, this industry is now at a turning point where alternative or additional product lines are crucial for the future security of their companies. Among the many alternatives the tobacco industry is exploring as part of its major reshaping of its future, cannabis certainly offers an opportunity. Numerous tobacco companies have invested in the cannabis industry in recent years, including Altria, Imperial brands, and last British-American tobacco.

But why does cannabis seem particularly attractive to Big Tobacco? The first association that comes to mind is smoking, but there’s a lot more to the story. Here are a few key points that I think make cannabis a particularly compelling argument for tobacco companies.

1. Technological advances

The two industries have shared the benefits of certain technological advances. Whenever a breakthrough is made to facilitate the consumption of incinerated organic matter in safer and more efficient ways – as is the case with vaporization and e-liquids – both industries can benefit.

2. Various products

Big Tobacco’s interests can also extend far beyond tobacco products. Investments are still at an early stage, but from our point of view we are seeing interest in products across the cannabis range. Tobacco wants to offer consumers an alternative to smoking; The evolution of the cannabis industry, which has brought a wide variety of products to market – such as foods, oils, and topical products – can serve as a reference point. At Prohibition Partners, we are seeing increasing interest in these alternatives. This is remarkable for an industry that has lived on a relatively limited range of products for so many decades.

3. Production processes

Cannabis and tobacco are dependent on similar production processes (i.e. cultivation of a warm climate plant and subsequent processing). This explains the interest in cannabis from countries like Andorra or Malawi, which in the past relied heavily on tobacco growing as their main agricultural product.

Photo by Jamie Grill / Getty Images

4. Supply chain and distribution

Both industries share similar distribution channels as the products are typically sold in brick and mortar stores that sell regulated products such as tobacco shops, without licenses and pharmacies. In all of these outlets, retailers require special permits and are bound by strict codes of conduct.

RELATED: Marlboro Maker is watching the cannabis industry whether you like it or not

Likewise, the marketing of cannabis and tobacco products is severely restricted as countries and states have specific rules as to where (i.e. print, radio, digital communication, television) and how (i.e. health claims, restrictions on free samples, sponsorship) companies can advertise. So it would be pretty easy for Big Tobacco with prior experience with highly regulated products to enter the retail cannabis market.

5. Marketing opportunities

Investing in cannabis could also be a great marketing opportunity for tobacco brands. After all, basic product differentiation in the tobacco industry is low, so wealth has been built primarily on iconic advertising. In recent years, however, regulatory crackdowns and changing consumer perceptions have made it increasingly difficult to promote tobacco brands. Not only would investing in cannabis be a way to spend some marketing budget in a less regulated environment, but the mere association with cannabis could help the industry improve its reputation in some key strategic segments of its target audience, especially younger people.

6. Heavily regulated markets

The tobacco industry knows how to operate in a complex and highly regulated environment. Because of this, it has been forced to develop strong public relations and lobbying skills – and by applying that influence to cannabis, tobacco could have a significant impact on shaping a regulatory framework that is still in the making. Altria activism in the US is a clear example of this.

7. ESG rating and sustainability

Finally, a transition to the cannabis market has its advantages for public tobacco companies as it would allow them to improve their environmental, social and corporate governance (ESG) ratings. ESG ratings are becoming increasingly important for public companies as investors and analysts use these ratings when determining the long-term risk of a company stock. Adding products such as CBD made from outdoor hemp (a carbon negative crop) to their range could improve Big Tobacco’s ESG ratings and allow them to help shape the advancement of the emerging industry towards more positive environmental and social outcomes.

Photo of a Dooley over Unsplash

Invest for the long term

When all these factors are taken together, the relationship between tobacco and cannabis could become more than just a marriage of convenience. Tobacco companies have many of the skills and resources necessary to thrive in the world of cannabis, while cannabis makers have overseen a process of transformative innovation that tobacco giants would learn well from – the relationship could be symbiotic.

RELATED: Is It Bad For Big Alcohol and Big Tobacco To Help Shape Marijuana Legalization?

Cannabis cannot and will not be a substitute for tobacco. However, this is not what the tobacco industry needs. New products are urgently needed to diversify its business, so introducing legal cannabis for tobacco companies seems like a logical step.

Tobacco lasts long enough to remain extremely profitable for some time. Cannabis is not a quick fix to short-term declining earnings, but an opportunity in the long term. It could be a critical forward-looking investment for an industry that wants to remain the lifestyle staple that has existed – for better or worse – for the last 100 years or more, rather than becoming the next great empire to go up in smoke.

This article originally appeared on Benzinga and was republished with permission.