The Growth of Corporate Cannabis

The Growth of Corporate Cannabis

 Was Kevin Sabet Right All Along About Big Marijuana and the Growth of Corporate Cannabis?

 

Legalization of adult social use marijuana only began in 2012, yet it’s already a multi-billion dollar industry. As 2018 came to a close, a handful of large business deals point to the industry’s possible future.

 

In August, one of the world’s largest wine and beer companies, Constellation Brands, announced it was investing $4 billion (in US dollars) in Canopy Growth, a Canadian marijuana producer. That investment closed in November.

 

Also, in August, Molson Coors announced a partnership with Canadian marijuana producer Hydropothecary to create a new company, HEXO Corp., focused on cannabis infused beverages. Molson Coors owns 57.5 percent of the company and has three out of five seats on the board of directors.

 

In December, Canadian marijuana producer Tilray announced that it was entering into a $100 million research partnership with the world’s largest beer producer, AB/InBev. The beer giant’s iconic Canadian label, Labatt’s, will partner with a Tilray subsidiary to develop non-alcoholic, cannabinoid-infused beverages.

AB/InBev is a massive company that owns Budweiser, one of America’s best-known beers, so it makes a big splash when it wades into anything. That’s why it’s vital to bear in mind that this deal is only about a research partnership. AB/InBev hasn’t taken an ownership stake, at least not yet.

 

On the other hand, the relationship between Constellation and Canopy started as a $190 million investment back in 2017. It’s understandable that this move by AB/InBev may have some investors seeing dollar signs.

 

Finally, also in December, Altria paid $1.8 billion for a 45 percent stake in the Canadian marijuana producer Cronos Group. Even though it’s not as big a deal as Constellation/Canopy, Altria’s move into the marijuana industry has generated a lot of interest because Altria is the biggest tobacco company in the United States.

 

Altria basically started out life as the tobacco company Philip Morris, and Philip Morris USA is still one of its subsidiaries. Suddenly, those visions of a Marijuana Marlboro Man conjured up by Kevin Sabet, visions which many reform activists mocked five years ago, start to seem more plausible.

 

It’s easy to write off Big Alcohol’s involvement in the cannabis business as a defensive move. The move by beer companies to enter the cannabis space may have seemed less threatening and more like a transition – if marijuana is going to devour the market, then ditch booze and go into the marijuana business.

 

Reform advocates expected a decline in alcohol sales post-legalization. Some in the weed business are certainly touting that idea. There are some data that appear to support that idea, though those data are conflicting and far from conclusive, and some in the alcohol industry find that view short-sighted. Rob Sands, Constellation’s CEO, had this to say in an October 2018 earnings call:

“We see no evidence whatsoever especially in the United States and the legal states of alcohol cannibalization. So, I’d say as we sit here right now when we think about the cannabis business and our position in the cannabis business, it’s probably going to be close to a 100% incremental for us talking about incrementality. So, this conversation comes up a lot of two things, okay, number one is it a defensive move, the answer is no. We’re not playing offense, defense, we’re playing offense. This is an offensive move.”

 

Sands may have been blowing smoke with that statement. On the other hand, it is smart business. Constellation isn’t a company that makes beer and wine, it’s a corporation that makes money by owning beer and wine businesses, and now it owns a piece of the weed industry. That’s a change in corporate mindset that policy wonks like Kevin Sabet, the anti-legalization activist formerly with the Drug Czar’s office who now heads Smart Approaches to Marijuana, and myself still need to wrap our heads around.

 

For example, JUUL is a leader in the US e-cigarette market. According to its website, “We envision a world where fewer people use cigarettes, and where people who smoke cigarettes have the tools to reduce or eliminate their consumption entirely, should they so desire.”

 

JUUL sounds like a company committed to putting the tobacco giants out of business, but here’s the kicker: Altria currently owns 35 percent of JUUL.

 

Why buy into JUUL? It’s not that Altria plans to drop the cigarette business, and they’re not buying into a competing technology in order to quash it. The simple answer is that Altria is more than just tobacco.

 

Philip Morris USA makes tobacco products. JUUL makes an alternative to traditional tobacco products. Altria, their corporate parent, just makes money, and it does that the old-fashioned way: Altria owns companies that sell drugs.

 

Legal marijuana is a perfect fit for Altria and for AB/InBev because these deals aren’t about Big Tobacco, or Big Alcohol, and they’re certainly not to create Big Marijuana. These companies, and these deals, are about Big Money.

 

Businesses originating in the tobacco industry may have caught onto this more quickly because the US Food and Drug Administration was given authority to “regulate the manufacturing, marketing, and sale of tobacco products” in 2009, after President Obama signed the Family Smoking Prevention and Tobacco Control Act. On the other hand, when it comes to alcohol being a drug, we’re still wearing blinders.

 

The big question remains: what will these corporate buy-outs, and the involvement of alcohol and tobacco companies, mean for the consumer?

 

This is where Sabet’s concern about Big Marijuana starts to take real shape. On the road to legalization, advocates fought to assuage fears that small producers would be forced out. Constellation CEO Sands, on the other hand, was quite blunt about the future in an interview with Bloomberg News in November 2016: “If there’s a lot of money involved, it’s not going to be left to small mom-and-pops.”

 

Sands speaks from experience. Small wineries do exist, but it’s getting harder and harder for them to survive as independents. More and more of them are selling out to the majors – companies like Constellation Brands, for example, and Altria’s Ste. Michelle Wine Estates. The same is true for breweries, with a number of so-called “craft” beers now partly or wholly owned by larger companies like AB/InBev, Molson Coors, and Constellation.

 

It’s still possible to find small family-run wineries. There are nano-breweries out there that produce very limited amounts of quite excellent beer. That’s not the case with tobacco, however. That industry’s involvement may accelerate the consolidation process, which means even less chance for the “mom and pops” to survive.

 

One possible scenario: The shift to cannabis extracts and concentrates accelerates as e-cigarettes and “vaping,” along with infused edibles and beverages, replace smoking as the delivery mechanisms of choice. Mass production leads to standardization, terpenes and other additives are used to create the illusion of variety, meanwhile heirloom varieties of cannabis die out. Marketing further enhances the illusion of consumer choice as brands and companies get bought out by large conglomerates, with many “craft” cannabis labels surviving as mere business units.

 

Legalization is inevitable. The shape it’s taking is still being determined. It’s like a boxing match, with cannabis culture in one corner and corporate capitalism in the other. It all depends on who can go the distance.

Tags: Corporate Cannabis Big Marijuana Constellation Brands Canopy Growth Tilray AB/InBev Budweiser Altria Cronos Group Kevin Sabet Big Alcohol Rob Sands JUUL



About the author

Doug McVay is an activist, writer, researcher, and speaker with a long history in drug policy reform. Doug currently produces and hosts Century Of Lies on the Drug Truth Network. Doug can be followed on Twitter by following @DrugPolicyFacts and @DougMcVay.

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