Reefer redemption

It’s all happening, in just the way I predicted.

Back in 2016, I wrote the article “High time for big tobacco”.

This was back when the US was first greenlighting legal cannabis, and the industry was in its infancy.

Well, it still is. But back then it really was in its infancy. This was just before California and Canada’s “yes” votes on legalisation.

Anyway. While researching the issue, I uncovered some old memos sent by big tobacco companies talking about moving in on the cannabis market back in the late 1960s.

Here’s an excerpt:

In January 1971 Time magazine reported: “Tobacco men are … discussing the potentially heavy market for marijuana, and some figure it could be legalized within five years.”

Big tobacco, of course, denied any such discussions had taken place. The six major cigarette companies issued press releases denouncing the article and Time was forced to print an apology.

The then CEO of Philip Morris (PM), Joseph Cullman, even went as far as to have a message printed in Time stating PM had “held no discussions”. What we now know is that like any good spokesman, he was lying through his teeth.

As this memo to PM’s manager of chemical and biological research, dated September 1969, reveals, PM had been discussing this market for some time.

From all I can gather from the literature, from the press, and just living among young people, I can predict that marihuana smoking will have grown to immense proportions within a decade and will probably be legalized. The company that will bring out the first marihuana smoking devices, be it a cigarette or some other form, will capture the market and be in a better position than its competitors to satisfy the legal public demand for such products. I want to suggest, therefore, that you institute immediately a research program on all phases of marihuana.

And PM wasn’t the only one. BAT’s internal documents contain this gem. It was written by Sir Harry Greenfield, one BAT’s taxation consultants in March 1970:

One of my ideas which I want to talk over with you concerns the possibility of drawing upon the immense amount of research done by the tobacco industry into the smoking of tobacco and utilizing it for research on Cannabis.

Of course, we all know what happened next. Richard Nixon’s “war on drugs” put a stop to any of these plans.

But, big tobacco didn’t go away, and neither did the demand for cannabis. The only thing that changed was the law.

Now, half a century later, the laws have been relaxed. Cannabis is legal – and proving to be a cash cow for many companies – and big tobacco wants in.

From The New York Times on Wednesday:

Altria, the maker of Marlboro and other cigarettes, last week paid $1.8 billion for almost half of Cronos Group, a cannabis company in Toronto.

In August, Constellation Brands, which owns Corona and other beers, paid $4 billion for a major stake in Canopy Growth, another Canadian marijuana company. That month, Molson Coors, another brewer, formed a joint venture with a cannabis company in Quebec.

“There’s always been the expectation that big business was going to come in; we’ve been hearing rumors about ‘Marlboro Greens’ for decades now,” said Bethany Gomez, director of research at Brightfield Group, a cannabis market research group. “Now we’re past the point of no return.”

The arrival of large multinational corporations portends sweeping changes for an industry that until recently operated in the shadows. As billions of dollars pour into product development, marketing and manufacturing, these companies will be looking to create big brands with the market share to match. Brightfield estimates that global legal cannabis sales will reach more than $31 billion in 2021, up from less than $8 billion last year.

As I pointed out in my original article, big tobacco has the resources, know-how and marketing clout to turn cannabis from niche to mainstream.

The question is, which cannabis stocks are going to profit from this new development, and which are going to get rolled over?

What about hemp?

This week is also monumental for cannabis’ un-cool cousin, hemp.

I wrote about hemp back in July when there was first talk that it would be legalised on a national level.

(As an aside, there was no reason for hemp to be banned in the first place, even if you’re a fan on “the war on drugs”. Hemp is not psychoactive.)

From my article:

In 1938, Popular Mechanics wrote that hemp was on the verge of becoming “the billion-dollar crop” – about $17.5 billion in today’s money.

That’s because it had so many uses in so many industries, from clothes to construction to publishing to transport and shipping.

Henry Ford even made a prototype car out of it, which he proved was “ten times stronger than steel” by hitting it with a sledgehammer.

Hemp is thought to be the first plant used for textiles. Hemp cloth has been found in the Middle East that dates back to 8,000 BC.

The first paper was produced from hemp in 150 BC. And many of the old masters painted on hemp canvas.

In fact, the word canvas is derived from the Latin for cannabis. Ships’ sails and ropes were made from hemp, as it is three times stronger than cotton and resistant to salt water.

Back in the day it was so important to industry that in 1535 Henry VIII passed an act compelling all land owners to sow ¼ an acre of hemp or face fines.

When Christopher Columbus sailed to America, his ships used hemp sails and rigging.

And up to the 1920s 80% of clothing was made from hemp.

However, the innocent hemp got tangles up in prohibition and was outlawed along with cannabis.

But this week, in an historical vote, it is finally being re-legalised.

From Business Insider:

This week, a plant that’s nearly identical to marijuana is set to become legal to grow in the US.

Thanks to the US Farm Bill, which the House passed on Wednesday in a 369 to 47 vote, American farmers will be able to plant and harvest hemp, a strain of the same plant species from which marijuana originates. The bill passed the Senate Tuesday in an 87 to 13 vote, and President Donald Trump has indicated his support.

Hemp legalization has been a longtime goal of Senate Majority Leader Mitch McConnell, a Republican from Kentucky, who believes it can help replace tobacco as a key crop for his state’s farmers.

The move alters the language of a major drug law that had previously remained unchanged for half a century and loosely defined hemp alongside marijuana as a controlled substance. The new bill exempts hemp from that law and defines it as an agricultural product. That means farmers and researchers of hemp now get some of the same benefits as farmers and researchers of other crops, like the ability to apply for insurance and federal grants.

Another thing that hemp has going for it is you can get CBD from it. This is the compound that has been linked to many of cannabis’ miraculous medical breakthroughs.

Hence Business Insider’s headline on that article: “Congress just quietly passed a law that could spark a boom for the $1 billion marijuana-linked CBD industry”.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Commodities

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