RICHMOND, Va. – The maker of Marlboro cigarettes is making big plays for its future, announcing it will discontinue its electronic-cigarette brands MarkTen and Green Smoke while also declaring its investment in Cronos Group, a collection of cannabinoid-based product manufacturers.
The actions unfold as word that Richmond, Va.-based Altria Group Inc. is in talks with Juul Labs, maker of the popular Juul e-cigarettes. The Wall Street Journal reported that Altria was in talks to purchase a minority interest in the San Francisco-based e-cigarette maker.
Such a move would fall in line with Altria’s official announcement Dec. 7 that it would discontinue the production and distribution of all of its MarkTen and Green Smoke e-vapor products, as well as Verve oral nicotine-containing products. The company said its decision was based on current and expected financial performance of these products, coupled with regulatory restrictions that burden Altria’s ability to quickly improve these products. The company said it will refocus its resources on “more compelling” reduced-risk tobacco-product opportunities.
“We remain committed to being the leader in providing adult smokers innovative, alternative products that reduce risk, including e-vapor,” said Howard Willard, chairman and CEO of Altria Group. “We do not see a path to leadership with these particular products and believe that now is the time to refocus our resources. We recognize the impact this decision has on our employees and business partners, which we do not take lightly.”
Altria’s subsidiaries will begin working with their retailers, wholesalers, contract manufacturers and suppliers to ensure an orderly process, the company said. MarkTen cig-alikes are currently in distribution at retail and through e-commerce, while Green Smoke is primarily available online with limited retail presence. Verve is in limited distribution at retail and e-commerce.
Altria expects to record one-time pretax charges of approximately $200 million, the majority of which would be noncash, asset-impairment charges, in the fourth quarter of 2018 as a result of this decision, the company said. The charges will be excluded from Altria’s adjusted results.
Meanwhile, Altria also made a significant move in the marijuana business, entering an agreement to acquire newly issued shares in Cronos Group Inc., a Toronto-based cannabinoid company. The transaction represents a 45% equity stake in Cronos Group for an aggregate investment of approximately $1.8 billion.
“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” Willard said. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”
SANTA MONICA, Calif. -- Established brands such as Ocean Spray and Whole Foods Market rubbed elbows with cannabis entrepreneurs in Santa Monica, Calif., on Dec 1., to learn the ins and outs of doing business in the cannabis space at the first Cannabis Forum for Food and Beverage.
Attendees experienced four hours of education on legal cannabis hosted by BevNET, a beverage-oriented media company, and Nosh, which covers the natural, organic, sustainable and healthy food industry. The education sessions and networking opportunities revealed an industry beset by regulatory hurdles yet hopeful for the future.
Click through for everything convenience-store operators need to know about legal cannabis today and what was discussed at the conference …
Cannabis laws vary state by state, but most states allow the sale of cannabidiol (CBD) products as long as the active ingredient is derived from hemp. CBDs do not get users “high"; it's the chemical known as tetrahydrocannabinol (THC) that does that.
Hemp is cannabis with almost all of the THC removed. To legally be considered hemp, the plant must have less than 0.3% THC dry weight, according to Cassia Forman, attorney with Vicente Sederberg in Los Angeles.
The U.S. is likely two years away from allowing cannabis (the product with THC) sales on a federal level, according to Jessica Lukas, vice president of consumer insights for BDS Analytics, Boulder, Colo. But that comes with a caveat.
“We do anticipate a federal legalization in 2021, but we’re still assuming that means a state-by-state right to choose, so this is not a light switch,” Lukas said.
Lukas pointed to dry counties, that is, where alcohol sales are still illegal, in Texas and a few other states as examples of what this change in legal status might look like for cannabis, comparing projected cannabis laws to existing liquor laws.
About 15% of the U.S. population has consumed hemp-based products or CBD edibles, according to Lukas. Even those who reject cannabis are open to trying these nonpsychoactive products, she said.
Furthermore, she talked about CBD’s popularity and trends. “Gummy candy is the biggest [sales] driver in the candy category, and frankly the candy category is the biggest driver of edibles,” said Lukas. However, plenty of education is needed before these products reach the general population. “Consumers do not know the difference between THC and CBD,” she said.
Los Angeles-based Sprig is one example of a consumer-facing business that has successfully marketed a line of CBD beverages.
Sprig is available for sale in nine states: California, Nevada, Washington, Illinois, Texas, Vermont, New York, Florida and Pennsylvania. Sprig sodas are available in more than 1,000 c-stores.
CEO Michael Lewis said the company started with a line of THC beverages before launching CBD beverages in June 2018. He described the CBD line as “functional beverages” and suggested customers drink them after working out, before going to work or before bed.
“The term marijuana has fallen out of favor,” said attorney Forman. Instead, many in the industry are referring to the plant as cannabis. Forman said marijuana is associated with prohibition and the war on drugs. However, she said there are some outliers, as states such as Colorado still refer to cannabis as marijuana.
In Aspen, Colo., cannabis stores outsold liquor stores in 2017, said Forman, as an example of a thriving market for cannabis. Last year, she said cannabis stores made $11.3 million in sales, while liquor stores only made $10.5 million.
That's an exception to the rule, however. She qualified the numbers with the fact that most alcohol sales in Aspen occur on the slopes, in bars or in restaurants. To illustrate her point, restaurants and bars in Aspen made $129.7 million in alcohol sales in 2017.
One unfamiliar word heard frequently during the conference was terpenes.
Terpenes are “little tugboats” that direct cannabinoids to the correct receptors in the human body, said Will Kleidon, founder and CEO of Ojai Energetics, which specializes in CBD oils.
Kleidon said that, as with grapes in wine, terpenes vary from season to season. He described them as essential oils that also affect the smell and flavor of the cannabis plant. Terpenes are present in all plants but are of particular interest to cannabis growers looking to differentiate their products.
Lukas with BDS Analytics shared a torrent of numbers and statistics with attendees. Here are a few that stood out:
- More than 50% of the population age 21 and up has used cannabis in the past.
- Of those who consume cannabis in some fashion, 72% prefer inhalable products, 23% prefer edibles and 5% prefer topical products such as creams and lotions. Of the customers who prefer to inhale cannabis, 72% prefer flower, or smoking.
- Lukas said BDS predicts concentrates—which include vapes and edibles—will be the main business for cannabis by 2022.
- A full 64% of people in the United States agree that cannabis has medical benefits.
- While 23% of adults 21 and older in legal medical or recreational states have consumed cannabis in the past six months, about 38% would try it again and 39% would not consider it in the future.
- Of those who consume cannabis in the United States, 30% do so for both recreational and health reasons.