The Coming Corporate Future of the Marijuana Industry

It seems inevitable that the marijuana industry will be dominated by major corporations, but what will those corporations look like?

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Dec 12 2014, 5:50pm

Photo via Flickr user Park Ranger

"Who invent capitalism? Yeah, the system that you're livin' through—who invented it? Is the guy who invented it still alive? That guy dead years ago, but system still alive."

-Bob Marley to Jeff Cathro​w, 1978

Last month, news emerged of a multinational marijuana brand called Marley​ Natural, endorsed posthumously by the reggae legend himself via the family members who control his trademark. Soon it will be possible for certain dorm-dwelling Marley fans to smoke Marley-branded weed rolled in Marley-branded papers while wearing Marley-branded T-shirts and looking at a post of Bob Marley. Bunny W​ailer is pissed off over the news, but apparently at least partly because his face isn't the one on the package.

Legal cannabis is on its way to becoming a massive worldwide business, and Bob Marley is probably the most famous ganja consumer in the world, so the choice is a no-brainer to the Yale MBAs who inked the Marley Natural deal. They weren't the first to think of it, though. The announcement of Marley Natural revived an old rumor among cannabis enthusiasts that now looms ever closer to becoming reality.

Philip Morris, manufacturers of Marlboro and other cigarettes, registered the brand name Marl​ey in France in 1993, along with a number of stree​t names for cannabis. It was a time of great reflection for the American tobacco industry. The previous decade had seen an escalation in public scrutiny of Big Tobacco, starting with ​Surgeon General C. Everett Koop's campaign against secondhand smoke and evolving into a rash of major lawsuits from terminally ill smokers, including a crusading former Marlboro Man who personified the dangers of cigarettes for the masses before dying of lung cancer in 1992.

Photo via Flickr user ​Jack Samuels

The world had known that smoking causes cancer since as early as the 19​50s, and restrictions on the industry had been building for years, but the tobacco giants had always managed to adapt. When the FCC ban​ned broadcast tobacco ads back in 1971, the brands spilled onto enough billboards and magazines to fill the gap. If a scientific entity said something negative about tobacco, the industry's own Tobacco Industry Research Committee (later known as the Tobacco I​nstitute) promptly re​futed it. But the turn against smoking in the 90s was far more fundamental—a threat to the very idea of consuming tobacco. Things were changing, and all the marketing budgets and lobbying contributions in the world weren't going to change them back. Lucky for Big Tobacco, they had been planning for this since 1969.

(The following is based on documents studied by Stanton Glantz, director of the University of California at San Francisco Center for Tobacco Control Research and Education, and author of the report "Wa​iting for the Opportune Moment: The Tobacco Industry and Marijuana Legalization." Glantz is responsible for making public 82 million pages of unreleased internal documents from major tobacco companies following a 1995 court case.)

At the tail end of the hippie heyday, not long after the Summer of Love, when an open-minded generation appeared poised to take the nation's reins or at least tilt politics and culture in a new direction, a scientist named Raymond Fagan from Philip Morris's Research & Development division sent a letter to his boss, VP of R&D Helmut Wakeham, with the idea to research cannabis in conjunction with the US Department of Justice's Bureau of Narcotics and Dangerous Drugs (BNDD). Without its own funding for such a study, the BNDD jumped at the opportunity to have Philip Morris do the lab work to analyze weed smoke the same way they analyzed tobacco smoke. Over the next couple of months, the chief of BNDD's Drug Sciences division, Dr. Milton Joffe, facilitated the creation of the program, and in 1970 Wakeham sent a memo to Philip Morris brass informing them that the Department of Justice had asked for the tobacco company's help in studying cannabis, a request that they could "hardly ignore... under any circumstances."

This was not simply a favor to the federal government, and Wakeham acknowledged Philip Morris's incentive in the same memo:

The human needs that our product fills will not go away. Thus, the only real threat to our business is that society will find other means of satisfying these needs... In this situation, business theory strongly suggests that we should learn as much as possible about this threat to our present product. We have done nothing so far because of the product's illegality and out of concern for our image. This request from the Justice Department, therefore, seems opportune.

Wakeham's words summarize Big Tobacco's ongoing doublethink on the matter of cannabis since its legalization became a viable prospect. On one hand, weed was a competitive smokable product with a great high that could potentially take out a chunk of the tobacco market. On the other hand, tobacco was becoming harder to sell in an increasingly health-conscious world, and since the tobacco companies had the infrastructure to cultivate, manufacture, and market any kind of cigarette, weed might be a perfect fallback. Around the time Philip Morris played ball with the BNDD, British American Tobacco, the UK-based maker of the all-American Lucky Strike, pursued their own interest in studying cannabis in European markets as those nations moved towards easing enforcement of anti-pot laws. All this appeared to be a promising direction for the industry until the anticipated liberalization of marijuana hit a series of roadblocks.

In 1970, while tobacco companies were just getting excited about weed, President Richard Nixon signed the Contr​olled Substances Act, complying with a new UN convention on drugs and placing marijuana in the category of the most dangerous substances with no potential for medical use. While the new law reduced penalties for possession of small amounts, it greatly increased the focus on enforcing prohibitions on manufacture and distribution, officially commencing the infamous war on drugs.

Throughout the 70s, a contingent of US states ranging from Alaska to Missisippi to New York decriminalized marijuana possession, running directly counter to federal law. This created a gulf between state and federal attitudes that was further widened when Ronald Reagan was elected in 1980, bringing modern conservative values to the presidency and dashing out hopes of further marijuana liberalization. A National Organization for the Reform of Marijuana Laws (NORML) ti​meline describes the 80s as "NORML's darkest days politically and financially," when all their efforts were focused on challenging the Controlled Substances Act. 

As a result, any plans tobacco had to enter the marijuana industry were seemingly moot. "My guess is that because the legalization movement kind of receded, they [tobacco companies] never have been pushed to the point where they actually had to make a decision," Glantz told me over the phone.

Then the 90s rolled around and cooler heads prevailed. Bill Clinton, a man who famously admitted to smoking (if not inhaling) weed became pre​sident. Mu​sic and mo​vies unabashedly promoted marijuana use. Social attitudes toward cannabis began to change, and in 1996 California passed the nation's first medical marijuana law. Big Tobacco sensed that things might be changing once again, and Glantz's research shows that British American Tobacco revived its efforts to study cannabis in 1992. The plant had reemerged as an opportunity, and the timing couldn't have been better.

After all, the tobacco business ate shit left and right in the 90s. Smoking was on its way to being banned on all flights, and by 1997  37 st​at​es had filed lawsuits that claimed the tobacco industry knowingly put a strain on state-level Medicaid programs by selling a sickening and often lethal product. In 1992, the Supreme Court r​uled that warning labels on cigarettes couldn't prevent someone from suing tobacco companies, and though the industry had enough legal firepower and money to defuse or settle many cases, they just kept piling up. Cigarette taxes continued to rise as well. Most importantly, the public was increasingly aware of the health risks of cigarettes. The nation watched in 1994 as tobacco industry executives denied that nicotine is addictive, a final shot in the dark to prevent what they seem to think was a pending meltdown.

How does a multinational company with increasing government and public scrutiny at every level of its operations safely enter an economy that exists in the gray area between state and federal law? 

Throughout this period, Big Tobacco denied any plans to enter the marijuana market. Glantz's document collection, which was not exhaustive to begin with, only includes communications until 1995. So there's no smoking gun that indicates tobacco companies are thinking about weed, and officially they deny that they have any plans in that direction. In an email, Altria (formerly Philip Morris) communications manager Jeffrey Caldwell told me, "Marijuana remains illegal under federal law. Altria and its companies have no plans to manufacture marijuana cigarettes." 

If tobacco companies were, in fact, interested in entering the legal cannabis market, how realistic would those aspirations be? How does a multinational company with increasing government and public scrutiny at every level of its operations safely enter an economy that exists in the gray area between state and federal law? 

According to Morgan Fox, communications manager at Marijuana Policy Project, they don't. "Given the difference between marijuana and tobacco, and the difference in the structure of the marijuana industry currently, it doesn't seem like something that they could transition into," Fox told me on the phone. "Tobacco requires a high level of addiction in order to make it profitable. You don't have nearly that level of addiction with marijuana."

Weed and tobacco are fundamentally different substances. Just because you roll both of them up and smoke them doesn't mean that their markets are necessarily similar. A large part of the current enthusiasm for cannabis centers on its medical use, its lack of addictive qualities, and its safety compared to other recreational and pharmaceutical drugs. In contrast, tobacco provides no known medical benefits and isn't a safe alternative to anything at all. The success of a tobacco brand relies on downplaying the negatives and engendering the early dependency of its customers. The success of the marijuana industry as a whole relies on the knowledge and understanding of a consumer base that was previously skeptical of the plant for many decades.

If that's not enough to discourage Big Tobacco from diving into the marijuana game, there are the logistical challenges of scaling a multinational operation down to service individual states. "Even relatively large cannabis businesses are nowhere near the size of the tobacco giants, which still have to follow a whole lot of federal regulations," Fox told me. "Operating in a bunch of different states with entirely different laws would be pretty difficult for a company to do while continuing to follow federal law."

As the free market would have it, those with clout need not respect the spirit behind the industries they upend. 

That leaves the state-level markets to the cannabis enthusiasts willing to take a risk in a quasi-legal business sector. Gabriel Sayegh from Drug Policy Alliance told me, "If we keep chipping away at prohibition state by state, as we are, it's going to leave intact this federal prohibition framework that's going to make it less advantageous for established companies to operate because they don't want to jeopardize their legal business operations." If the disagreement between state and federal law continues for a sufficient amount of time, one of these homegrown businesses could vie for market dominance ahead of the federal reform that would inevitably attract the participation of major corporations to the marijuana trade.

Glantz isn't so hopeful that this legislative gap will allow for enough low-level growth of the industry before the big boys come in, whether that means Big Tobacco or some other collection of multinationals. 

"The broader cautionary tale is not about cigarette companies," he said. "Although they would certainly have the easiest time getting in because they already know how to sell drugs as mass-market products, Pepsi or Coca Cola or Unilever or any of these big companies have all the same kinds of marketing muscle and product design muscle that the tobacco companies have." 

As the free market would have it, those with clout need not respect the spirit behind the industries they upend. In Glantz's view, not enough is being done to prevent this. "I think that the marijuana legalization debate has completely ignored that problem," he said.

Sayegh, whose organization has been instrumental in the legalization movement, acknowledges this, saying, "[DPA's] primary interest here is to end marijuana prohibition, but we're not particularly invested in defining exactly what the markets will look like. We don't see our role as trying to define that space." He added that he remains confident that once the injustices of prohibition are undone the rest will work itself out over time.

Whether it's a mom and pop shop that grows up fast, Marley Natural, a tobacco company that suddenly enters the game, or some other major company with the infrastructure to do so, there is probably a big marijuana company in our nation's future. The American economic system fosters such giants in every industry, and pot will be no exception. However, it doesn't have to be the ogre that pro​hibitionist groups make it out to be. When federal marijuana reform finally arrives, success will belong to the strongest business. As Bob Marley put it, "System still alive."

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