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Could cannabis legalisation boost tobacco?

guy lighting a joint
How could it not?

In Canada, use of cannabis will soon be completely legal, mainstream and widespread.  Will cannabis actually help increase smoking tobacco consumption in Canada?

Instinctively many think the answer is  – yes, tobacco sales will increase as a result – but it seems the cannabis industry does not want to hear that, and spokespeople for the cigarette industry do not want to say that – they  are united in pretending, or claiming, that everything necessary has been done to ensure that tobacco sales do not benefit from cannabis legalisation.

A key factor to consider is the Canadian government’s recent legislation on tobacco – in particular, the Tobacco and Vaping Products Act (TVPA), enacted on 23 May 2018.

André Gagnon, media relations officer at Health Canada, the federal health ministry, said TVPA is a “critical piece of the government of Canada’s overall approach to reducing and addressing the harms of tobacco use in Canada. While we have made great progress in reducing the overall tobacco smoking rate, from 22 per cent in 2001 down to 13 per cent in 2015, more work needs to be done.”

And he stressed that the government of Canada is “taking concrete steps to minimise the risk of an increase in smoking due to the legalisation and regulation of cannabis.”

These steps include prohibiting the production of any cannabis product mixed with tobacco; banning all lifestyle promotion that would stylise cannabis – smoked or otherwise – such that it would appeal to youth (this restriction is already in place for tobacco); and amending the Non-Smokers’ Health Act to align cannabisrestrictions with those in place for tobacco smoking, such as smoking restrictions in federally regulated workplaces.

Gagnon added: “Moreover, upon the coming into force of the Cannabis Act, adult consumers will have access to a variety of ways to consume cannabis that do not involve smoking.”

He explained that these include “cannabis oil, which will be available in liquid or capsule form, that can be ingested on its own or added to edibles (eg, baked goods, tea), or droplets that can be placed under the tongue; dried cannabis, in capsule form, which can be ingested; and dried cannabis, which can also be vaporised rather than smoked.”

In line with an amendment adopted by the Canadian House of Commons standing committee on health, the sale of cannabis edible products and concentrates will be authorised no later than 12 months after the Cannabis Act came into force last week.

Health Canada is working diligently to develop the necessary regulations to address the production and sale of cannabis edibles and concentrates,” said Gagnon.

Given this strict anti-smoking regulatory outlook, along with numerous other factors, commentators suggest that while in the short term there may be some upside to tobacco use in Canada following the legalisation of cannabis, in the longer term there is likely to be a continuing decline in tobacco consumption in the country.

Shane MacGuill, head of tobacco research at Euromonitor, said: “In the short term, recreational cannabis legalisation could support the Canadian tobacco market as consumers experiment with consumption of cannabis flower in combustible format. However, there is already a large pre-existing market [in other words, most people who will consume legal cannabis are already cannabis consumers] and many new entrants to the category will prefer oil or eventually, once legal, beverage/edible formats. So, I believe any bump will be relatively small and short-lived.”

He added: “In the medium/longer term, my belief is that wider cannabis legalisation will further drive declines in combustible cigarette consumption as, for example, some smokers experiment with CBD [cannabidiol – a non-psychoactive cannabis element] as a form of smoking cessation and the consumption of cannabis in devices strengthens consumer expectation and desire to use the same devices for nicotine intake.”

With regard to the prospect of an increase in combining tobacco with resin or even cannabis leaf, he said: “In the short term, I’m sure this will happen but the experience of [cannabis] legal states in the US is that very quickly consumers adopt non-combustible delivery formats which do not involve tobacco.”

Asked whether the legalisation of cannabis in Canada could make smoking more socially acceptable, and result in an increase in tobacco smoking, he said: “In my opinion, this is extremely unlikely.”

Eric Gagnon, head of corporate and regulatory affairs at Imperial Tobacco Canada, agreed, noting that, “many provinces and municipalities have already imposed the same [public] smoking bans on cannabis as the ones for smoking cigarettes.”

Rules about packaging will also pose challenges for companies in Canada’s cannabis market.

André Gagnon at Health Canada said that the steps being taken by Canada’s government to minimise the risk of an increase in smoking due to the legalisation and regulation of cannabis include “implementing plain and standardised packaging and labelling requirements for cannabis and tobacco products and continuing to require labelling with health warning messages that alert Canadians to the health harms of smoking.”

He noted that the TVPA law has imposed new plain and standardised packaging for cigarettes.

Unsurprisingly, key players from the tobacco and cannabis sectors in Canada see developments on this topic rather differently.

Eric Gagnon at Imperial Tobacco Canada said that “there are important discrepancies when dealing with cannabis and tobacco in Canada.” He noted, for instance, that packaging restrictions for cannabis will allow manufacturers to have a logo and brand information on packaging while choosing their own colour, “as manufacturers have argued these elements are necessary to differentiate legal from illegal products”.

He added: “As 25 per cent of the cigarettes sold in Canada are illegal, you’d think the government would also allow these elements for tobacco, but recent draft tobacco regulations will ban any branding or colour for tobacco products.”

However, Dawkins described Canada’s plain packaging and marketing restriction for legal cannabis sales as “extremely restrictive, in fact in many cases more restrictive than for tobacco.

They already require plain packaging, for instance, with only a tiny space on a plain white envelope reserved for a brand logo.”

That said, he added that “given the enormous amount of consumer information that needs to be communicated about the differing cannabis products, many industry insiders are anticipating that these restrictions will be relaxed over time, simply so that more information about the product(s) can be shared with the consumer.

“There is also a significant concern that without some kind of allowance for reasonable, adult-targeted marketing, legal cannabis producers will be at a significant disadvantage compared to the black market, which has created some extremely sophisticated packaging and branding.”

There is also mixed news for suppliers within the tobacco supply chain – of products such as filters, paper and packaging – that might be looking for opportunities in Canada’s cannabis market.

Opportunities for investment

MacGuill said: “Undoubtedly there will be revenue opportunities for the tobacco supply chain from legal cannabis.” However, he stressed that those that relate to the combustible use of cannabis will be limited due to the same factors that are driving the move away from smoking in the country.

Indeed, a spokesperson for US-based TarGard, the world’s largest filter maker, said it has, “no interest” in the cannabis market, and views the tobacco and cannabis markets as separate.

MacGuill added that, in terms of the tobacco supply chain, the most prominent area for potential opportunity is cultivation, due to the similarities between tobacco and cannabis growing.

Dawkins also underlined the potential of this opportunity. “The big thing the tobacco industry brings to the table is outdoor production techniques, both in terms of yield and pest management,” he said. “They also have access to significant tracts of land that could be converted to cannabis agriculture.”

MacGuill said that further opportunities for tobacco companies in Canada’s cannabis market could come through product monitoring tech – he noted that “the tobacco industry is developing significant logistics and track-and-trace expertise, which will also become important in legal cannabis.”

He added that packaging will be a “significant growth area within legal cannabis with significant added value related both to premiumisation and issues like child-proofing.”

However, he also stressed that “in the medium and longer term, the true opportunity from legal cannabis for tobacco companies is in the consumption of THC [another intoxicating cannabis element] or CBD liquids in vapour devices – those same devices which they will be distributing for the consumption of nicotine e-liquid following the clarification of Canada’s e-cigarette regulation.”

Marc Kealey, government relations counsel for the Canadian Vaping Association (CVA), outlined the organisation’s plans with regards to Canada’s cannabismarket. “There are several ways and areas for the vape industry to participate in the burgeoning cannabis sector,” he said, pointing to examples such as vapable products – either CBD or THC micro-dosed or closed systems for vape; and flavours – and the use of innovative vape technology to create suspensions, oils, PG/VG based liquids for use in e-cigarette products.

He noted that the CVA has been in discussions with the Canadian government on the benefits of consuming cannabis through vaping, and has “worked effectively with all provincial governments to showcase the best use of vape shops as points of sale.” He claimed that such shops are “trained to detail a consumer on the most effective way to consume cannabis rather than smoking it, and that is by vaping it.”

The CVA wants to ensure that the regulations currently being drafted for the Cannabis Act “reflect vaping as the more appropriate way to consume cannabisrather than smoking it.

“To that end, we have opened discussions with some licensed producers (LPs) and the Cannabis Canada Association (CCA), about ways we can collaborate,” he added. “Manufacturers of e-liquid are looking at ways to create CBD and THC vapable products and interface with LPs. At the government level, we have begun discussions with several provincial governments on using vape product shops as cannabis dispensaries and distributions outlets.”

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