Buried underneath the pomp and circumstance of Prime Minister Justin Trudeau’s grand plan to legalize recreational weed, is an angry faction — one that feels the government is playing favourites, granting cannabis companies the kind of leniency this particular industry hasn’t experienced in decades.
It is perhaps an overstatement to say that Big Tobacco is unhappy with weed becoming legal — after all, they claim that marijuana isn’t a substance that can act as a substitute for tobacco consumption. But tobacco firms are certainly peeved by the way the government is going about the legalization process.
“We do not understand why the same principle, of a low tax for marijuana, is not being applied to tobacco,” said Jorge Araya, President and CEO of Imperial Tobacco Canada. “Right now, 70 percent of the price of a cigarette goes to the government. It’s absolutely draconian.”
The Tax Differential
Last week, the Liberal government proposed a federal tax of just $1 on marijuana sales worth less than $10, and ten percent tax on sales worth more than $10.
Ontario Finance Minister Charles Sousa recently hinted that the price of a gram of marijuana would be approximately $10. That would effectively mean just a 10 percent tax on a gram of weed if provinces don’t impose additional levies.
By contrast, a carton of 200 cigarettes costs approximately $100 in Ontario — taxes from provincial, national and local government represent 66 percent of that cost.
The government says its priority is to keep legal weed at a price that is competitive with the black market in order to encourage consumers to purchase marijuana legally. Araya, the tobacco executive, acknowledges the potential efficacy of this policy, but he claims that the hypocrisy lies in the fact that there is a thriving contraband market for cigarettes that authorities pay very little attention to.
We estimate that about 30 percent of cigarettes in Canada are contraband… just go to Northern Ontario, illegal tobacco is grown everywhere,” Araya told VICE Money. “There is a black market for cigarettes because the taxes are very high.”
“There is an absolutely inconsistency in how our industry is being treated, and how the marijuana industry is being treated.”
There are currently no official government estimates on the size of the contraband tobacco market, but a 2010 report by Physicians for a Smoke-Free Canada pegged the market share of illicit tobacco at between eight and 12 percent.
Data provided to Physicians for a Smoke-Free Canada by British American Tobacco, the parent company of Imperial Tobacco Canada, estimates that the illicit share is far larger — close to 20 percent of the tobacco market overall.
Anti-smoking activists, however, say tobacco firms are inflating figures on illicit tobacco sales in order to pressure the government to lower taxes.
Dr. Robert Schwartz, Executive Director of the Ontario Tobacco Research Unit at Toronto’s Centre for Addiction and Mental Health (CAMH), estimates that illicit tobacco makes up between less than 15 percent of the market, while tobacco firms say it’s higher than 25 percent.
“They (tobacco companies) have been making this inflated claim for many years now,” says Dr. Robert Schwartz, Executive Director of the Ontario Tobacco Research Unit at Toronto’s Centre for Addiction and Mental Health (CAMH). According to Schwartz, Big Tobacco has refused, on multiple occasions to provide his research group with data on the growth of the contraband cigarette market.
“The fact that they are not sharing anything suggests to me that their data isn’t accurate. 25 percent is what they say. But I think it’s reasonable to say that illegal tobacco makes up between 10 to 15 percent of the market.”
In fact, Schwartz’s research shows precisely the opposite of what is being claimed by Imperial’s Araya — that despite tax increases, contraband sales are down. “It’s because of enforcement. Especially in Quebec, you can see that the contraband market has really shrunk.”
There is no branding precedent for legal cannabis. Licensed producers, well aware of the importance of branding, are jostling to create their own versions of the Marlboro Man. A government task force last year recommended plain packaging and a limit on marijuana advertising — a far cry from the advertising regime of cigarettes in their heyday. However, Liberal MP Bill Blair has been quoted as saying that the government will allow for “some degree of branding” for Canadian marijuana vendors. .”
That has drawn the ire of Big Tobacco. They are currently engaged in a lobbying war with the federal government over Bill S5, an act that would require all kinds of cigarette packs, regardless of brand, to be plainly packaged. Tobacco firms say the government is picking sides. Allowing marijuana companies to brand their products and banning cigarette companies from doing the same is effectively “ignoring the health risks of cannabis,” says Imperial Tobacco’s Jorge Araya.
From the perspective of Big Weed, comparing the health risks of tobacco and marijuana is an unworthy cause. “They are in the business of selling cancer, we’re not,” says Paul Rosen, one of Canada’s most active investors in the cannabis industry, and the co-founder of Cronos Group, which owns two licensed medical marijuana companies.
“What’s the whole point of legalization? It’s to get rid of the black market. If we can’t tell our consumers that our products are cleaner, safer and more refined than what’s on the black market, how are we going to get people over to our side?”
The long-term health risks of marijuana remain unclear as the drug was not been particularly well researched due to its legal status. The negative health impacts of tobacco, on the other hand, are well documented.
It’s a tricky act to balance, says Schwartz with regards to the process of legalization.
“You don’t want smoking weed to become as common as smoking cigarettes used to be,” says Schwartz, the anti-smoking researcher. “There are 32 known carcinogens when you smoke weed. I would agree that cannabis should be less strictly regulated than tobacco – but how much less?”