A Stasher forwarded me an email he sent to the board of directors for the tobacco giant, Philip Morris. A fascinating read and maybe a little scary…
Dear Louis & Craig,
With all due respect, sirs, you are missing a golden opportunity to build a stable and sustainable revenue stream in a $35-$100 billion domestic market.
As we both know, the tobacco market is inherently limited, with bright medium run prospects, as demand in developing nations continues to grow, but dim long term prospects, as those same developing nations will ultimately move to limit or ban smoking, following the path of their more industrialized brethren. As a leader of your company and your industry, you have a responsibility to consider these challenges and to find ways to diversify your revenue base in an effort to ensure the long-term viability of your company
While this is certainly a grand strategic challenge that I am sure you have spent countless strategy meetings exploring, you are missing a very attractive market – one that is very large – $35-$100 billion domestically and $200 billion+ internationally, highly sustainable as it is characterized by largely inelastic demand, accessible – given a bit of elbow grease on your part, and and a perfect strategic fit for Philip Morris – you could likely deploy existing capital resources in production for this new market. That market is marijuana. I’ll spare you the business analysis here, as I seek to avoid redoing work that has been completed by both internal and external persons – see this rudimentary business analysis for example (http://www.mcafee.cc/Classes/BEM106/Papers/UTexas/351/Phillipmorris.pdf).
Before you summarily dismiss this idea as too politically complex, consider the current political environment. First, the governments (both state and federal) are in dire fiscal straights. A 20% sales/sin tax on marijuana could yield up to $20 billion, a significant revenue stream for a government of any size. Second, the political stars are aligned. Democrats have overwhelming majorities in Congress, and with the exception of conservative Blue Dogs, favor legalization by overwhelming margins. The President has made clear that he has no interest in expending political capital to move legalization through Congress, but any insightful political analyst would tell you that were a bi-partisan bill supporting legalization/decriminalization to make it to his desk, he’d sign it without a question. Thus, the key strategic imperative is moving a legalization/decriminalization bill through Congress, which is of course an inherently uphill climb, but one that I would argue that Philip Morris is uniquely positioned to undertake.
Let’s assume that 35%-40% of Congressional Democrats favor legalization either explicitly or implicitly. Living in Washington, D.C., I know, through their staff, of two Congresspersons who personally support legalization but are unwilling to declare such a preference publicly because they see legalization as unlikely, and therefore, view the risks of making their preferences known as outweighing the benefits. This means that the remaining 60% would need to be convinced, but that 60% is not really 60%. If the gap from 40% to 60% support was bridged by Republicans, Democrats would have all of the cover that they needed to vote for legalization/decriminalization, and the snowball would effectively begin rolling downhill. This is where Philip Morris comes into play.
Your organization and industry has one of the most formidable lobbying presences in American politics, and your core constituency on Capitol Hill is primarily Republican. Thus, you are uniquely suited convince Republicans to back a decriminalization/legalization bill. There are several politically potent arguments – first, legalization is roughly a 50/50 issue in terms of public opinion, so there is political cover in appealing to the popular will, second, the tax/government revenue and cost savings in terms of reduced enforcement and incaraceration issue is huge, especially to Republicans in this political climate, third, it is a personal liberty issue, we claim to be a country of limited government and personal freedom, we have the freedom to drink and carry guns, why not to smoke marijuana, and fourth, it is an important cash crop to the agricultural states from which many Republicans hail. Simply put, the reasons for Republicans to support decriminalization are real and obvious, they just need a party with a vested interest, campaign cash, and their ear to push them towards making the right decision. That is where Philip Morris can excel.
Philip Morris can begin actively pushing its Republican friends on Capitol Hill to support the legislation recently introduced by Ron Paul and Barney Frank or introduce their own, preferred alternative, thereby paving the way for Philip Morris’ eventual domination of the marijuana distribution market in the United States (and potentially internationally). It’s a win for right headed policy and it’s a win for the shareholders of Philip Morris. It is a golden opportunity to grow revenue as much as 100%, and the political winds are in its favor as much now as they will ever be. Government budgets are a mess and the dollars for enforcement aren’t there while the need for revenue has never been more acute. The Democrats, who overwhelmingly favor legalization, are in power but need an increasingly libertarian Republican (read more open to legalization) party to cooperate. Philip Morris’ push could bring Republicans on-board and push through a bi-partisan bill that opens a lucrative and sustainable market.
One quick note – current legalization efforts are focused on decriminalization at the federal level and devolving the issue to the states, many of which have laws in place that allow for personal cultivation but not for large scale commercial cultivation. Accessing this market may require incremental political reform, first enacting decriminalization and then making the legislative push for the legalization of commercial production. There are also creative ways to get around this as well, by say, taking a friendly state that has legalization on the books and encouraging it to own distribution in the same way that many states have state-run ABC stores. Philip Morris could push for these state-run ABC stores to sell their locally grown Marlboro Greens, etc.
I have tried to keep this brief and there is certainly much more that could be said in favor of Philip Morris’ activesupport of the legalization of marijuana, but I hope that this spurs you to think about what this market could ultimately do for your company’s long-term growth prospects and how you can open this market through your company’s well-oiled political infrastructure. You have the power to make this change, it’s a matter of doing it.
I am sure that you will not take the time to write back, but should you be interested in speaking further, please do not hesitate to respond. I would enjoy the opportunity to further discuss this matter.