BOULDER, Colo. -- For tobacco category managers wondering what will come of the highly publicized 2018 Farm Bill that will bring more hemp products to market, Keelan Gallagher has one response: hemp combustibles.
With the passing last December of the Agriculture Improvement Act of 2018, Gallagher, director of trade marketing and brands for Smoker Friendly International, Boulder, Colo., says that legally grown and developed hemp products may present a regulatory and tax advantage in the combustible category.
“Hemp currently does not have the same regulatory or tax burdens of other tobacco products,” Gallagher said. “So, for instance, a flavored-hemp wrap would not fall under a flavored-tobacco ban.”
These hemp combustibles also wouldn’t be subject to the same tax rates as other similar products, he said, so he sees an opportunity for lower retail pricing or higher margins. He believes manufacturers can bring hemp cigarettes to market just like cigarettes for about $15 per pack at retail, but with margins as high as 50%. Retailers have the potential to make 10 times more on a pack of hemp cigarettes than a pack of tobacco cigarettes, he said.
Manufacturers that deliver a “quality-tasting smoke” at an “accessible” price point, and provide the medicinal, cannabidiol (or CBD) benefit linked to hemp, will entice trial from the adult combustible-tobacco smoker, Gallagher said. He believes that market can be as many as 30 million to 40 million people.
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.
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