Marijuana Legalization To Spur Major Investments in Nascent Market?

Marijuana Legalization To Spur Major Investments in Nascent Market?
Image credit: Wendy McCormick

Marijuana users have long claimed that tobacco and alcohol companies both forced the outlaw or marijuana, and impeded it’s acceptance as a legal drug. With marijuana being legalized and decriminalized in states across the country, however, tobacco and alcohol companies may come to view marijuana as a hot new market.

Marijuana Legalization To Spur Major Investments in Nascent Market?

Tobacco and alcohol companies have been facing stagnating markets for their key products. Major tobacco manufacturers, such as Altria Group, Inc. (NYSE:MO) and Reynolds American, Inc. (NYSE:RAI), have seen their market share get eaten up by local craft brewers with more and more consumers putting down Budweiser and similar beers in favor of local favorites like Bell’s Kalamazoo Stout and Rogue Breweries Dead Guy Ale. While mass manufacturers have seen some positive results after investing in their own craft brews, they still lag behind their craft competitors.

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Outside the alcohol market, tobacco companies such as Altria Group, Inc. (NYSE:MO), have been absolutely hammered in recent years by rising taxes, huge lawsuits, and declining sales. From 2000 to 2011 tobacco consumption fell by an astonishing 27% as taxes have dramatically increased the prices of tobacco products and the government has launched major anti-smoking campaigns. None cigarette tobacco products, such as cigars and shisha, have fared better but there are serious question marks surrounding the tobacco industry.

Further, tobacco is now being chased out of the public limelight by many local and state governments. In 2010 Michigan passed a law banning smoking in many businesses, following New York City’s lead when they installed a similar ban in 2003. Numerous other states and cities have launched similar bans and many more are considering implementing them.

Tobacco growers already have ample experience in agricultural activities and should be able to quickly transition to growing marijuana. They also have the distribution and business networks to support its wide-spread sale.  A spokesperson for Philip Morris USA stated cryptically that the company does “have a practice of not commenting or speculating on future business,” and thus refusing to flatly deny ambitions in the marijuana market.

The recent tidal wave of decriminalization and legalization at state and city levels suggests, however, that change may be on the horizon. Washington and Colorado have now legalized the possession of small amounts of marijuana for recreational use. Numerous other states, such as Maine, California, and Massachuesets have essentially decriminalized marijuana and offenders caught with small amounts face only minor fines. Michigan, New Mexico, and Arizona, among others, allows for the possession and consumption of marijuana for medicinal purposes.

In 2011 a Gallup poll found that 50 percent of Americans favor legalizing Marijuana use, up from 12 percent in 1963. Only 46% now oppose legalization. A more recent poll found that 51% of Americans believe that the Federal government should leave states that legalize marijuana alone. If support for legalization becomes a clear majority the U.S. Federal government may be forced to either legalize marijuana or fully recognize state laws legalizing its use. Certainly, tobacco makers will not invest in the market without the Federal government’s blessings.

Marijuana could offer tobacco companies a major and highly profitable new industry should legalization become wide-spread and the Federal government ease restrictions. So far President Barack Obama has stated that the government will not pursue individual users and small-scale growers in newly legalized markets, despite the Federal mandate to do so. Still the Federal government has warned against major retail and growing operations, threatening harsh actions against those who chose to engage in such operations.

Estimates for PBS for the total value of the American marijuana market run as high as 120 billion dollars, far outstripping estimates for the U.S. Tobacco market which is currently estimated at 35 billion dollars. Such a huge and potentially profitable market as marijuana would be tempting for any company and especially with those with experience in similar industries.

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