RICHMOND, Va. — One of the country’s largest tobacco manufacturers has made pivotal moves in recent months to transform itself as a way of circumventing the continuing decline of combustible cigarettes.
Focusing on its successes in noncombustible products, Altria Group Inc. nonetheless had to report a dip in cigarette volumes for the second quarter. During its July 30 earnings call, the Richmond, Va.-based manufacturer of the iconic Marlboro cigarette brand reported a cigarette volume decline rate in the second quarter of 6%, up from 5% in the fourth quarter of 2018 and first quarter of 2019.
In light of those declines, Altria officials touted several moves it has made to transform itself. Here are four of those steps …
U.S. introduction of IQOS
“In the second quarter, we made important progress [in] further enhancing our business platform in noncombustible product offerings for adult tobacco consumers,” said Howard Willard, CEO of Altria. In April, the U.S. Food and Drug Administration (FDA) authorized New York-based Philip Morris International’s (PMI's) IQOS product for U.S. commercialization in the heated-tobacco category, he said.
That decision made way for Altria to market the heat-not-burn device in the United States. Altria has since announced plans to introduce IQOS into the Atlanta area this fall, involving as many as 500 convenience stores.
Nicotine pouch acquisition
Earlier in the year, Altria signed an agreement to acquire 80% ownership of the companies that will globally commercialize On, an oral nicotine pouch. Like Zyn, the pouch product from Richmond, Va.-based Swedish Match, On is a smokeless nicotine product that comes in seven flavors and five nicotine strengths, the company said.
Potential PMI merger
[Editor's Note: On Sept. 25, Altria announced its talks with PMI had ended.]
PMI confirmed it is in discussions with Altria on a possible all-stock “merger of equals.”
Altria spun off PMI in 2008, with Altria focusing on selling Marlboro products in the United States and PMI selling the brand overseas. In recent years, PMI has had success in several international markets with IQOS, which Altria can market and sell in the United States.
Cronos buys CBD maker
Last month, marijuana product producer Cronos Group Inc., Toronto, acquired the cannabidiol (CBD) businesses of Studio City, Calif.-based Redwood Holding Group, which included the high-end brand Lord Jones, for $300 million in cash and shares in four companies.
Cronos’ acquisition may have convenience implications, because Altria bought a minority stake in Cronos last year. Among those implications are medicinal products geared to the convenience channel, with Altria having a strong distribution network with c-stores, said Bethany Gomez, managing director of Brightfield Group, a Chicago-based retail marketing firm.
Founded in 2017, Redwood sells CBD-infused body lotion, bath salts and candies under the Lord Jones brand online and through many U.S. retail channels.
Last fall, the federal government took hemp off the list of Schedule 1 drugs, creating a legal pathway for the production and sale of hemp-derived CBD products. These products come from the cannabis family but contain 0.3% or less of tetrahydrocannabinol (THC), a psychoactive element in marijuana.