Is Cannabis The Future For Big Tobacco?

By Barbara Pastori, Prohibition Partners.

A few weeks ago, Philip Morris (NYSE: PM) CEO Jacek Olczak made the news with a series of seemingly counterintuitive remarks. Namely, that the tobacco giant may soon stop selling in the UK, while urging the to ban smoking altogether. Olczak said the Marlboro brand will “disappear”, and that “the first choice for consumers is they should quit smoking."

While this might seem like a deliberately provocative stance – to some extent – it's also broadly in line with the direction the tobacco industry has taken over the last few years. It may also prove to be a sensible business strategy. Most enduring companies do, at some point, have to reinvent themselves to survive. 

Technological developments are a common driver of change, but pressure can also come from wider changes in consumer behavior. It’s more difficult, for example, to find a company still selling the same product after 100+ years than it is to find a company that successfully changed its line of business. In some cases, the best way to protect shareholders' interest is to imagine different approaches and embrace change, rather than drifting comfortably on a sinking ship.

Tobacco and Cannabis: A Perfect Match

The global exodus of consumers from the tobacco market means this industry is now at a turning point, where alternative or additional product lines are vital to the future security of its companies. Among the many alternatives that the tobacco industry is exploring as part of its broad reimagining of its future, cannabis surely represents an opportunity. Numerous tobacco companies have already made investments in the cannabis industry over the past few years, including Altria, Imperial Brands (OTC: IMBBY), and most recently British American Tobacco (NYSE: BTI). 

But why does cannabis seem to be particularly appealing for Big Tobacco? The first association that comes to mind is smoking, but there is a lot more to the story. Here are a few key points that, in my opinion, make cannabis a particularly compelling case …

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