Cannabis vs. Tobacco: The Battle For Market Share And Public Health

A recent poll showed that Americans prefer legal cannabis over legal tobacco. This societal shift comes as no surprise, given the regulatory changes and widespread acceptance of marijuana.

According to Pew Research, 59% of American adults believe marijuana should be legal for both medical and recreational use. That data builds on an August 2022 Gallup poll that found more Americans (16%) said they smoke marijuana than had smoked a tobacco cigarette (11%) in the past week.

Among those aged between 18 and 29, 26% said they smoke cannabis, up from 17% in 2015, more than double the number of young adults who smoke cigarettes, which decreased from 35% in 2003 to 25% a decade ago to 12% nowadays.

Cannabis Vs. Tobacco

Enacted over two decades ago when bans on indoor cigarette smoking kicked off, the shift in the marijuana vs. tobacco usage trends resulted in the increased market competition among cannabis, tobacco, alcohol and pharmaceutical companies – a topic often tackled by industry experts. The public perception of both the tobacco and cannabis industries has been in favor of the latter over the past few decades.

At last year's Beniznga event, which returns this spring in Miami Beach, one area of concern for the cannabis market was discussed: the entry of big tobacco companies into cannabis as more states legalize.

"If you're big tobacco, you want to blow up the dispensary model," Nick Kovacevich, former CEO and current chief corporate development officer of Greenlane Holdings, Inc. GNLN, a provider of ancillary cannabis products and accessories, told the crowd.  

He explained that the cannabis licensing model and regulatory issues could potentially create hurdles for big tobacco and alcohol companies to disrupt the cannabis market. To address the possible challenges, tobacco and alcohol companies would need to make acquisitions and buy into the market instead of launching new operations, Kovacevich said.

Big Tobacco Players Are Eyeing Cannabis

With the tobacco industry at a turning point due to a global exodus of consumers from the tobacco market as a result of issues voiced by health experts, Philip Morris International Inc. PM CEO Jacek Olczak comes to mind. The head of the tobacco giant called on the UK government in 2021 to prohibit cigarettes within a decade – a move that would kill his own Marlboro brand, reported The Guardian.

Although paradoxical, Olczak's statement gives a clearer picture of the current state of the tobacco industry, which is searching for other business alternatives, often turning to cannabis.

To that end, a number of companies have already ventured into the burgeoning marijuana space. Companies like Altria Group, Inc. MO, Imperial Brands PLC and British American Tobacco BTI to name a few, are paving the way for others.

Altria, the company behind Virginia Slims and Parliament cigarettes, invested $1.8 billion in Cronos Group Inc. CRON CRON in 2019.

The venture arm of Imperial Brands, which produces Kool and Winstons, took part in an investment round for Oxford Cannabinoid Technologies. Snoop Dogg's Casa Verde also invested in the same venture. In 2019, Imperial Brands also invested CA$123 million ($92.8 million) in Auxly Cannabis Group Inc. XLY CBWTF.

BAT invested CA$221 million ($175.7 million) in OrganiGram Holdings Inc. OGI OGI in 2021, controlling a 19.9% equity interest in its subsidiary. The idea behind the deal was to establish a "Center of Excellence" dedicated to the development of cannabis products with a focus on CBD.

Last but not least, tobacco retailer and distributor Alliance One International, now Pyxus International Inc PYYX, gained a majority stake in two Canadian weed producers, including Goldleaf Pharm and Canada's Island Garden.

But why cannabis?

Prohibition Partners' Barbara Pastori answered that question by giving a few points on why cannabis is compelling for big tobacco players.

She listed seven factors, including:

• Technological advances
• Diverse products
• Production processes
• Supply chain and distribution
• Market opportunities
• Highly-Regulated Markets
• ESG Rating and Sustainability

"When you consider all these factors together, the relationship between tobacco and cannabis could become more than just a marriage of convenience," Barbara said. "Tobacco corporations have many of the requisite skills and resources needed to succeed in the world of cannabis, while cannabis manufacturers have overseen a process of transformative innovation that tobacco giants would do well to learn from - the relationship could be symbiotic."

Benzinga Cannabis Capital Conference

The most successful cannabis business event in the world, the Benzinga Cannabis Capital Conference, returns to Miami for its 16th edition.
This is the place where DEALS GET DONE, where money is raised, M&A starts, and companies meet investors and key partners. Join us at the Fontainebleau Miami Beach Hotel in Florida on April 11-12. Don’t miss out.
Secure your tickets now. Prices will surge very soon.

Photo: Benzinga edit of images by Shaun Meintjes,  2H Media and  Nick Fewings on Unsplash