RICHMOND, Va.--Despite a promising outlook for its recent multibillion-dollar investments in e-cigarette maker Juul Labs and cannabis supplier Cronos Group, one of the country’s largest tobacco companies, Altria Group Inc., said it will cut jobs within its own workforce as a way to help finance its recent moves, according to lead executives.
After describing Altria’s confidence in the growth potential of San Francisco-based Juul and Toronto-based Cronos, Howard Willard, CEO of Richmond, Va.-based Altria, said it was proceeding with a cost-reduction program that includes cutting about 900 jobs, mostly within its own support services.
The move would “offset most of the interest expense associated with the debt incurred to finance the Juul and Cronos investment,” Willard said during a Jan. 31 earnings call, leading to a $575 million savings by the end of the year. Segments affected would include third-party spending in areas such as professional and consulting services, information technology and product research, and regulatory investments.
Meanwhile, Willard said they expected Juul to grow at a 15%-20% compound annual rate over five years, with a near-term focus on expansion into new markets. He said their projections incorporated potential market shifts, such as future action from the U.S. Food and Drug Administration that may include new regulations and sales restrictions.
Describing their confidence in Juul, Willard said the industry has seen products, “particularly in the e-vapor category that have had some success, and then that success has fizzled … but I have to point out that Juul’s growth and success in the U.S. market last year was unique, and first of its kind compared to other tobacco-product successes both in the U.S. and overseas.”
Giving two examples of Juul’s promise in other countries, Willard pointed to Canada and the United Kingdom. In Canada, Juul reported on a retail promotion that led to more than 60% dollar share in stores selling their products after only three months at retail. Then with the Sainsbury retail chain in England, Juul said it recently became its No. 1 e-vapor brand, with a dollar share in excess of 23% in less than 12 weeks after launch.
“And just to remind you, the U.K. operates under the tobacco products directive adopted by many [European] countries, which limits the nicotine concentration level,” Willard said. “Ultimately, we expect the international revenue and income opportunity to end up being as large as or larger than the U.S. opportunity.”
With Cronos, Willard described growth opportunities as “significant” as more markets for cannabis open. He described the Cronos management team as “strong” and having “built unique capabilities to compete globally across the medicinal, recreational and nutraceutical categories.”
The goal with Cronos is to quickly expand its global footprint and production capacity, Willard said. “We also expect it to accelerate the execution of its strategic initiatives, including investments in cannabinoid innovation and developing differentiated products and brands across medicinal and recreational categories,” Willard said. “We look forward to helping Cronos realize its significant growth potential.”
RICHMOND, Va.—Close talks with the U.S. Food and Drug Administration (FDA), a minority stake in upstart Juul e-cigarettes and a public step into the marijuana business all happened in a matter of weeks at the tail end of 2018 and into the new year for one of the country’s largest producers of tobacco products, Altria Group Inc.
Faced with the steady decline of cigarette volume across the United States in recent years, tobacco companies like Richmond, Va.-based maker of the popular Marlboro brand of cigarettes have had to scramble to remake their destinies. But none has moved quicker in the past few weeks than Altria.
Here’s a summary of their latest moves …
Following warning letters sent by the FDA last fall to several manufacturers of electronic cigarettes and vaping devices, Altria announced plans to remove its MarkTen Elite and Apex by MarkTen pod-based vaping products until they “receive a market order from the FDA or the youth issue is otherwise addressed,” the company said in a press release.
The move is the first in what could be many steps by manufacturers as the FDA investigates marketing practices for such devices. The FDA held meetings with top manufacturers late last year and announced its intentions to call for more meetings in 2019.
Announced alongside its quarterly earnings report on Oct. 25, Altria related its actions back to the FDA’s September announcement of steps it is taking to address the problem of minors using vaping products.
On Dec. 7, Altria announcement it would discontinue the production and distribution of all 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.
Altria signed and closed on a $12.8 billion investment in Juul Labs Inc., a San Francisco-based maker of electronic cigarettes and e-vapor products. Announced in December, the investment represents a 35% economic interest in Juul, valuing the company at $38 billion. Altria will participate in the e-vapor category only through Juul, it said.
Altria’s stated strategic rationale for the investment in Juul is that it:
- Provides a significant stake in the largest and fastest growing e-vapor company with a highly talented management team, successful in-market products and strong innovation pipeline.
- Offers exposure to strong revenue and volume growth opportunity with attractive unit economics and to significant international growth plans and global e-vapor profit pool.
- Better positions Altria with adult smokers interested in alternatives while continuing to compete vigorously in all other tobacco product markets.
Juul will remain fully independent, the companies said, but it will have access to Altria’s infrastructure and services.
In December, 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.
Regarding its heat-not-burn product, iQOS, Altria officials said they could move the devices to market as quickly as three to four months after the FDA approves the tobacco company’s new-product application.