Pubdate: Tue, 14 Apr 2015
Source: USA Today (US)
Copyright: 2015 USA TODAY, a division of Gannett Co. Inc
Author: Trevor Hughes


DENVER - While federal law makes their entire industry illegal, many
marijuana store owners, growers and retailers fear something
completely different: Big Tobacco.

Today, most legal recreational marijuana operations are small, limited
to a single state and barred from ever getting large by regulators who
want to keep a close eye on the fast-growing industry. But those small
operators struggle to get bank loans for expansion, often produce an
inconsistent product and sometimes have no idea how to balance supply
and demand for their crops.

And many fear that tobacco companies, with their deep pockets,
longstanding experience dealing with heavy government regulation, and
relationships with generations of farmers will jump into the
burgeoning marijuana market. At marijuana business conventions and in
private conversations, it sometimes seems like everyone has heard a
rumor about Big Tobacco getting in.

"I think there's a ton of paranoia that they're buying up warehouses
and signing secret deals," said Chris Walsh, the editor of Marijuana
Business Daily, an industry publication.

t's not just paranoia: Tobacco companies for generations have talked
privately about getting into the weed business.

This past summer, researchers poring through more than 80 million
pages of previously secret tobacco industry documents found that Big
Tobacco has long had interest in pot.

"Since at least the 1970s, tobacco companies have been interested in
marijuana and marijuana legalization as both a potential and a rival
product," researchers Rachel Ann Barry, Heikki Hiilamo and Stanton
Glantz wrote in a June 2014 paper published in the Milbank Quarterly,
which focuses on population health and health policy. "As public
opinion shifted and governments began relaxing laws pertaining to
marijuana criminalization, the tobacco companies modified their
corporate planning strategies to prepare for future consumer demand.

"In many ways, the marijuana market of 2014 resembles the tobacco
market before 1880, before cigarettes were mass produced using
mechanization and marketed using national brands and modern mass
media," they wrote. "Legalizing marijuana opens the market to major
corporations, including tobacco companies, which have the financial
resources, product design technology to optimize puff-by-puff delivery
of a psychoactive drug (nicotine), marketing muscle, and political
clout to transform the marijuana market."

The researchers entitled their paper "Waiting for the Opportune Moment: 
The Tobacco Industry and Marijuana Legalization."

Today, spokesmen for Altria Group (MO) and R.J. Reynolds (RAI) said
their companies have no plans to enter the legal pot marketplace.
Altria is the new name for Philip Morris.

"We continually evaluate opportunities for portfolio enhancement but
focus our efforts on companies and products designed to meet the
preferences of adult tobacco consumers and companies where we feel we
could add value," said Richard Smith of RJR. "None of Reynolds
American's operating companies is evaluating entering the U.S. market
with commercial brands of marijuana."

Jeffrey Friedland, chief executive of the international cannabis
investment and development company INTIVA, said it's unlikely tobacco
companies ever seriously considered marijuana as a product. The
tobacco documents archive, turned over to the public following the
1998 national tobacco settlement, show that cigarette companies
periodically discussed marijuana as both a potential threat and
possible product, including combining pot with menthol cigarettes.

"I don't think they probably got far, maybe just to the in-house legal
counsel's desk," Friedland said. "They're not going to do anything
until you have an act of Congress and it's legal."

Tobacco companies already are facing stiff government regulation and
taxation and likely worry that moving into marijuana would bring
additional scrutiny when they're trying to move into e-cigarettes,
which aren't taxed and regulated the same way as traditional
cigarettes, he said. Many marijuana stores sell e-cigarettes filled
with marijuana oil.

The idea of Big Marijuana runs contrary to the counter-culture
attitude of many marijuana industry insiders, especially those who
honed their specific strains and growing techniques underground. For
them, marijuana is more than a product, and it's hard to accept that
their labor of love could be commoditized, homogenized and sold
without the personal grower-to-user relationship many marijuana stores
in Colorado strive to maintain.

The reality of the modern world suggests otherwise, said President and
CEO Derek Peterson of Terra Tech, a California-based company that
makes hydroponic greenhouse equipment for both traditional and
marijuana growers and is opening medical marijuana facilities in
Nevada. Peterson, a former Wall Street investment banker, also
operates a dispensary in California and says the economics ultimately
favor large companies.

"We're a mass-produced society, from the food we eat to the television
we watch," he said. "Ultimately, big alcohol or big tobacco is going
to come into this space. I just can't imagine that won't happen."

Because state-legalized marijuana remains a patchwork of rules, few
companies are operating in more than a single state. That's an
advantage for the group Smart Approaches to Marijuana, which opposes
the mainstreaming of marijuana.

Former Congressman Patrick Kennedy co-founded the group with the
message, in part, that Big Tobacco wants in on Big Marijuana. SAM
co-founder Kevin Sabet said Americans would be naive to think tobacco
companies won't try to use the same techniques they long used to
market to kids.

"We're going to see the nightmare repeat," he said. "It's one thing to
say you don't want see someone to go to prison for having a joint in
their pocket. It's another thing to have Philip Morris-type tactics."

Election of a conservative president could alter marijuana
legalization efforts radically, Walsh said. President Barack Obama's
administration generally has taken a hands-off approach in states that
have legalized recreational marijuana, but that could quickly change.

Also a possibility: Our next president could open to the door even
wider to legalization by pushing the Food and Drug Administration to
remove marijuana's listing as a Schedule 1 controlled substance, he

Meanwhile, Friedland said tobacco companies likely are taking a
wait-and-see approach.

"I think they're freaked out and they're not going to touch it because
it will bring down the wrath of governments on them until it's legal,"
he said. "And then I think they end up owning the industry."
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