Big Tobacco Bets Big On Cannabis

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP

Word began circulating a few days ago that tobacco giant Philip Morris has agreed to purchase Israeli cannabis company Syqe Medical for a whopping $650 million if certain future events come to fruition.  While the two companies evidently have some history together, this new deal is reportedly tied to Philip Morris’ interest in acquiring Syqe’s metered-dose, pharmaceutical-grade inhaler that dispenses precise doses of medical cannabis to patients.  

To be fair, this is not the first instance of big tobacco investing in cannabis. As MJBizDaily reported, tobacco companies invested significant amounts in cannabis in 2018 (Altria Group put $1.8 billion in Canadian company Cronos Group) and in 2019 (Imperial Brands put $123 million of Canadian dollars in Auxly Cannabis Group). The recent news, however, made me wonder if “this time will be different.” Here are some reasons it just might be and other takeaways:

  • Vaped cannabis delivery products will continue to thrive.

In 2020 and 2021, vape products made up 28.1% of sales in the U.S. cannabis market, second only to pre-rolls and nearly 10% more than overall cannabis sales in California, Colorado, Michigan, Nevada, Oregon, and Washington combined. In 2022, vape cartridge sales exceeded $2.8 billion, which was 23% of the entire cannabis market. Since 2018, sales of these products increased by 172%. 

It doesn’t take a genius to assume Philip Morris has been paying attention to the trends in the cannabis industry, but seeing the above figures coupled with the news of the Philip Morris/Syqe deal confirm that vape products are here to stay and will soon likely dominate the industry. Indeed, some projections value the vaped medical cannabis market at $22 billion in the next 10 to 15 years. 

  • Is this a sign that Congress will re-schedule rather than de-schedule?

Following President Biden’s October 2022 announcement about pardoning federal convictions of simple marijuana possession and the directive that the Department of Health and Human Services expeditiously review the scheduling of marijuana under federal law, many working in or around the cannabis industry, including us, began to ponder whether the federal government would de-schedule marijuana out of the Controlled Substances Act or re-schedule it, keeping it within the CSA’s purview.

While far from definitive, this Philip Morris/Syqe deal may suggest re-scheduling is on the horizon – or at least that’s the intel Philip Morris has received. In addition to the fact that Syqe’s inhaler product is what likely enticed Philip Morris to the table, $530 million of the $650 million deal apparently hinges on Syqe securing U.S. FDA approval for its inhaler following clinical trials. As we surmised in earlier blog posts, re-scheduling marijuana will likely involve far more FDA red tape and compliance than de-scheduling. Philip Morris very well may be getting a head start in that respect and signaling what’s to come.

  • Big tobacco is willing to pay lots of money and is optimistic about the cannabis industry’s future.

Many invest in the cannabis industry with hopes of one day earning massive ROIs after marijuana is legalized federally and big tobacco, pharma, and/or the alcohol industry gobble up state and multi-state operators. This Philip Morris/Syqe deal should only strengthen those hopes. Although we would not suggest going ahead and buying that mountain or beach home just yet, it appears these other industries are betting big on the future of cannabis in the United States. Wheels up!

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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