Big Tobacco invests in Canadian marijuana, leaving B.C.’s craft-cannabis producers uneasy

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A midsize U.S. company has bought majority stakes in two Canadian businesses to prepare for the medicinal-marijuana trade, marking the entry of the tobacco industry into legal pot here

Earlier this month, an unremarkable sentence appeared in a quarterly report published by Alliance One International, a tobacco company headquartered in North Carolina.

“In January, we successfully acquired majority stakes in two new joint ventures,” it reads.

Further into the document, it is announced that an Alliance One subsidiary called Canadian Cultivated Products had secured a 75-percent equity position in Canada’s Island Garden Inc. and an 80-percent stake in Goldleaf Pharm Inc.

The former is located in Charlottetown, Prince Edward Island, and the latter just south of Hamilton, Ontario.

Island Garden and Goldleaf Pharm are medicinal-cannabis companies.

“The combined Canadian cannabis acquisitions are anticipated, subject to regulatory approvals, to have approximately 1 million square feet of production space within a three year period and with the opportunity to become a truly international cannabis company, expanding into international markets as anticipated legalization of medicinal and recreational cannabis use progresses around the world,” reads Alliance One’s quarterly report.

Alliance One’s revenue for the three months covered in the report was $477.8 million. The tobacco industry has officially taken an interest in Canada’s legal-cannabis market.

Shane MacGuill is head of tobacco research at Euromonitor International, a data-and-analysis firm with staff in more than 100 countries. He told the Straight that the move could signal the beginning of a trend but not one that will happen overnight.

“From the Alliance One point of view, they’re seeing declining demand for the tobacco leaf and another adjacent industry…where the opposite trajectory is happening,” MacGuill said on the phone from London, England. “But it is much less straightforward a question for the brand owners.”

He explained that Alliance One is a leaf merchant, a midsize company holding a specific position in the tobacco industry’s supply chain. It’s not Philip Morris International (2016 revenue: $75 billion), for example, whose considerations would be much more complex.

International corporations place a premium on certainty and make decisions on factors larger than one country with just 36 million people, MacGuill continued. “If this was a very predictable process of legalization that was going to happen worldwide, I think they would be involved in the Canadian market,” he said. “But there’s uncertainty about what’s going to happen. They could get stuck having moved into the cannabis market in Canada and then legalization elsewhere in the world doesn’t happen as fast as they had expected.

“And they’re waiting for cannabis to become a little bit more respectable, perhaps for there to be a little more scientific consensus around the harms of cannabis, and so on,” MacGuill added.

Once that happens—a situation that’s beginning to look inevitable—corporate calculations will change.

“It’s not to say that, eventually, the big tobacco companies won’t end up being involved in cannabis,” MacGuill said. “But the idea that they’ll come in and launch Marlboro Marijuana and blow everyone out of the water, I think, is farfetched.”

So what are their plans?

Alliance One did not respond to an interview request. The largest tobacco companies in Canada are Rothmans, Benson & Hedges (a subsidiary of Philip Morris International); JTI-Macdonald Corp. (a subsidiary of Japan Tobacco International); and Imperial Tobacco Canada (a subsidiary of British American Tobacco). Rothmans, Benson & Hedges and JTI-Macdonald did not respond to interview requests. A spokesperson for Imperial Tobacco declined the Straight’s request but said the company has “no plans to enter the marijuana market in Canada”.

Sarah Campbell, director of the Craft Cannabis Association of B.C. (CCABC), told the Straight that local producers have long anticipated the arrival of the tobacco industry.

“Their involvement was inevitable,” she said in a telephone interview. “It’s a hedge to protect their shareholders. Cannabis has huge potential to displace alcohol and tobacco use amongst consumers.”

Campbell said there might be a market for corporate cannabis, like there is a market for Budweiser and Labatt Blue in the beer industry. But she’s not worried.

“Craft-cannabis producers and processors are small, independent, artisanal, and sustainable,” Campbell explained. “And with the inclusion of microlicences in the Cannabis Act, we are perfectly poised to do very well in this niche market.”

Jamie Shaw, director of the B.C. Independent Cannabis Association (BCICA) and director of government relations for MMJ Canada, expressed a similar sentiment but said stigma was a concern.

“We’re already in a situation where people equate cannabis smoke with cigarette smoke, even though they are vastly different,” she said.

Shaw also noted tobacco companies are known to treat their crops heavily with herbicides and pesticides, whereas many cannabis companies strive to keep their products as natural as possible. “We would be making a huge mistake to treat cannabis [crops] like tobacco,” Shaw said.

There’s some evidence Big Tobacco’s entry into the cannabis industry has been a long time coming.

In 2014, corporate documents were unearthed to reveal that Philip Morris International, British American Tobacco, and RJ Reynolds Tobacco were holding internal discussions on the issue several decades ago.

“Since at least the 1970s, tobacco companies have been interested in marijuana and marijuana legalization as both a potential and a rival product,” reads a study of the documents by the health-policy journal Milbank Quarterly. “Although the tobacco industry has not visibly supported marijuana legalization, as policymakers discussed decriminalization and potential legalization, the tobacco industry’s corporate planners took into consideration the shifting public opinion and future consumer demand.”

More recently, Ernst and Young surveyed senior executives and board members with licensed-cannabis producers across Canada. The subsequent 2017 report states that 75 percent of them believe “big players” from various industries will move into legal cannabis.

“Established industries such as tobacco, pharmaceuticals and alcohol are expected to enter this space and try to leverage existing competencies and assets,” that report reads.

Hilary Black, director of patient education and advocacy for Canopy Growth Corporation and a founder of the B.C. Compassion Club Society, put it like this: “You can’t stop money.”

She told the Straight it will therefore become increasingly important for cannabis consumers to pay attention to who they’re buying from.

“If they [tobacco companies] are going invest in publicly traded companies, you can’t prevent that,” Black said. “As cannabis enters the mainstream, I hope that there’s a consciousness around corporate social responsibility and sustainability that continues to be important to cannabis consumers.”

In a telephone interview, Jeremy Jacob, president of the Canadian Association of Medical Cannabis Dispensaries (CAMCD) and co-owner and operator of the Village Dispen­sary, suggested that the future of Canada’s cannabis industry could largely depend on forces even more powerful than Big Tobacco.

“In an unrestricted and free-trade environment, it makes sense for the biggest corporations to buy assets in emerging industries,” he said. “How do you stop it?

“We’re the first [country to legalize], and that’s an opportunity for Canada,” Jacobs continued. “But the way that our economy operates, this is only a momentary opportunity for Canada until the right deal comes to the table from the right multinational corporation. And then it’s no longer a Canadian industry.”

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