E-Cigarettes: Altria

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From 2014 to 2018 Altria sold its own e-cigarette brands in the United States (US). In December 2018, following controversy over the increasing appeal of e-cigarettes to America’s teenagers,[1] Altria discontinued its e-cigarette products to focus on “more compelling reduced-risk tobacco product opportunities”.[2]

Late December 2018 the tobacco company announced that it had bought a minority stake in e-cigarette market leader JUUL, the company at the centre of national media attention and critical commentary,[3][4][5] and an investigation by the Food and Drug Administration (FDA) into whether the company ran advertising campaigns that intentionally appealed to non-smoking youth.[6][7]

Discontinuation of E-Cigarette Brands

In December 2018, Altria announced that it would discontinue its own e-cigarette brands MarkTen and Green Smoke as “we do not see a path to leadership with these particular products and believe that now is the time to refocus our resources”.[2]

MarkTen

Altria first trialled MarkTen, produced by its subsidiary Nu Mark, in Indiana in August 2013.[8] The product was launched nationally in July 2014,[9][10] and by January 2018 MarkTen held a reported 11.4% market share of the US e-cigarette market.[11]

Green Smoke Inc.

In April 2014 Altria acquired e-cigarette company Green Smoke Inc. for nearly US$110 million in cash and $20 million in incentive payments.[12][13] Green Smoke was founded in 2008 and had operations in the U.S. and Israel.[14]

35% share in E-Cigarette Manufacturer JUUL

Following the discontinuation of its own e-cigarette brands, Altria announced on 20 December 2018 that it had purchased a 35% share of e-cigarette manufacturer JUUL for US$12.8 billion.[15]

Howard A. Willard III, Altria’s CEO, said of the purchase: “We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes by investing $12.8 billion in JUUL, a world leader in switching adult smokers”.[15] He added: “We strongly believe that working with JUUL to accelerate its mission will have long-term benefits for adult smokers and our shareholders”.[15]

Matthew Myers, president of the Campaign for Tobacco-Free Kids, has called Altria’s purchase of Juul shares “truly alarming”, adding that it brings together the two companies that have been the most successful in marketing their highly addictive products to children.[16]

An “Independent” Company

Despite Altria’s claim that “JUUL will remain fully independent”,[15] as per the terms of the agreement, Altria is seeking approval from the Federal Trade Commission to convert its non-voting shares to gain voting rights.[17] If successful, Altria will have the ability to nominate a third of the Board of Directors of JUUL.[18]

In addition, the agreement sets out the following:

  • JUUL’s e-cigarettes will be sold alongside Marlboro and other Altria cigarette brands;
  • JUUL pack inserts will be added to Altria cigarette products;
  • The distribution of JUUL products will be supported by Altria’s logistics services; and
  • Altria will support JUUL in its negotiations with the FDA.[15]

FDA Angered: ‘No Evidence that Public Health Concerns Drove Altria’s Investment’

At the time of purchase, JUUL held a reported 75% share of the US e-cigarette market.[18] It was also at the centre of a controversy relating to teenagers’ use of its products,[1][3][19] with FDA Commissioner Scott Gottlieb stating that “…youth use of JUUL represents a significant proportion of the overall use of e-cigarette products by children”.[20]

Altria’s acquisition of JUUL shares clearly angered the FDA. In February 2019 FDA Commissioner Scott Gottlieb demanded a meeting with Altria's CEO in which “Altria should be prepared to explain how this acquisition affected the full range of representations you made to the FDA and the public regarding your plans to stop marketing e-cigarettes and to address the crisis of youth use of e-cigarettes”.[20]

Altria, Juul, and Gottlieb met in March 2019 but media reported that Gottlieb had found the meeting “difficult” and had indicated that “he did not come away with any evidence that public health concerns drove Altria’s decision to invest in Juul”.[21][22]

Cooperation Agreement with Philip Morris International

Since December 2013 Altria has held a cooperation agreement with PMI.[23] The financial terms of the agreements have not been disclosed.

Under the agreement, Altria gained the right to exclusively sell PMI's e-cigarettes and heated tobacco products in the US, and in return PMI has the right to exclusively sell Altria's products outside the US.[23] The companies also said they would work together on scientific assessments and regulatory authorisations of these products (the commercialisation of these products in the United States is subject to approval by the FDA).[23]

On 30 April 2019 the FDA approved the sale of PMI’s IQOS heated tobacco products in the US, which will be sold by Altria.[24] Altria has indicated that the first city where IQOS will be sold is Atlanta.[25]

TobaccoTactics Resources

Notes

  1. 1.0 1.1 US Food & Drug Administration, Results from 2018 National Youth Tobacco Survey show dramatic increase in e-cigarette use among youth over past year, 15 November 2018, accessed January 2019
  2. 2.0 2.1 Altria, Altria Refocuses Innovative Product Efforts, Press Release 7 December 2018, accessed January 2019
  3. 3.0 3.1 M. Richtel, S. Kaplan, Did Juul Lure Teenagers and Get ‘Customers for Life’, The New York Times, 27 August 2018, accessed January 2018
  4. K. Chaykowski, The Disturbing Focus Of Juul’s Early Marketing Campaigns, Forbes, 16 November 2018, accessed January 2019
  5. Truth Initiative, teens are 16 times more likely to use juul than older age groups, 30 October 2018, accessed January 2019
  6. J. Hoffman, F.D.A Seizes Documents From Juul Headquarters, The New York Times, 2 October 2018, accessed January 2018
  7. U.S. Food & Drug Administration, Statement from FDA Commissioner Scott Gottlieb, M.D., on new steps to address epidemic of youth e-cigarette use, FDA Statement, 12 September 2018, accessed January 2019
  8. Marlboro Maker Altria is Jumping Into E-Cigarettes, CNBC News, 11 June 2013, accessed January 2019
  9. N. Modi, US Tobacco 2014 Playbook, RBC Capital Markets, 12 December 2013
  10. M. Felberbaum, Marlboro maker Altria Group to expand MarkTen electronic cigarette nationally in 2nd quarter, The Associated Press, CanadaBusiness.com, 19 February 2014, accessed January 2019
  11. Tobacco Business, Report: Juul Leads Electronic Cigarette Category in the U.S., 11 January 2018, accessed January 2019
  12. Altria, Altria Group Inc. 2014 Annual Report
  13. Altria Group, Altria Announces Agreement to Acquire E-Vapor Business of Green Smoke Inc., BusinessWire, 3 February 2014, accessed January 2019
  14. Altria Set to Pose a Stiff Challenge to Existing E-Cigarette Leaders, Forbes, 3 June 2014, accessed January 2019
  15. 15.0 15.1 15.2 15.3 15.4 Altria Group Inc, Altria Makes $12.8 Billion Minority Investment in JUUL to Accelerate Harm Reduction and Drive Growth, 20 December 2018, accessed January 2019
  16. M. Fox, Juul now has ‘800-pound gorilla’ to fight FDA, experts warn, NBC News, 20 December 2018, accessed January 2019
  17. Altria, Altria provides update on FTC Review of JUUL investment, Press Release 8 April 2019, accessed May 2019
  18. 18.0 18.1 Reuters, Marlboro company buys 35% stake in Juul e-cigarette maker for $12.8bn, The Guardian, 20 December 2018, accessed January 2019
  19. A. LaVito, Maker of popular Juul e-cigarette says it wants to help stop teens from using its products, CNBC News, 25 April 2018, accessed January 2019
  20. 20.0 20.1 S. Gottlieb, Letter to Howard A. Willard III, Chairman and Chief Executive Officer Altria Group Inc, dated 6 February 2019, FDA website, accessed March 2019
  21. K. Rooney, A. LaVito, Altria shares fall after FDA’s Gottlieb describes ‘difficult’ meeting on Juul], CNBC News, 19 March 2019, accessed March 2019
  22. A. Edney, FDA Chief to Keep Heat on E-Cigarette Makers as He Departs, Blomberg.com, 19 March 2019, accessed March 2019
  23. 23.0 23.1 23.2 Philip Morris, Altria team up on cigarette alternatives, Reuters, 20 December 2013, accessed January 2019
  24. Food and Drug Administration, FDA permits sale of IQOS Tobacco Heating System through premarket tobacco product application pathway, News Release 30 April 2019, accessed May 2019
  25. S. Kaplan, F.D.A. Permits the Sale of IQOS, a New Tobacco Device, The New York Times, 30 April 2019, accessed May 2019