Cigarettes and e-cigarettes (Photos via Getty Images and Wikimedia Commons)
Altria Group Inc. — one of the largest producers and marketers of tobacco products in the world and a mainstay of the Richmond region’s business and philanthropic community — has vaping on its mind, as well as marijuana.
Acquisitions in both product categories suggest that the legendary tobacco company is mapping a future beyond cigarettes. The change in direction broke like a firestorm during two weeks in December.
First, Altria announced its intent to acquire a 45 percent ownership interest in Canadian marijuana company Cronos for $1.8 billion, with warrants to increase its stake to 55 percent over the next four years. Then Altria closed on the acquisition of a 35 percent stake in San Francisco-based Juul Labs, a leader in the e-vapor market, for $12.8 billion.
In a conference call with analysts and others, Altria CEO Howard Willard articulated the company’s new strategy: “The decision to pursue these investments stems from a desire to enhance Altria’s long-term earnings and dividend growth, while also making progress on our harm-reduction aspiration to help adult consumers switch from combustible cigarettes to noncombustible alternatives.”
The legendary tobacco company is mapping a future beyond cigarettes.
Electronic cigarettes are battery-operated devices that usually contain nicotine. They heat liquid to create a mist that the user inhales. There is evidence to back up Willard’s harm-reduction comment. A 2017 study by Cancer Research UK found that people who switched to e-cigarettes had lower levels of toxic chemicals and carcinogens in their bodies than traditional cigarette smokers. Another analysis published in the New England Journal of Medicine in January found e-cigarettes to be about twice as effective as nicotine patches or gum at helping smokers quit using combustible cigarettes.
Speaking to Altria’s investment in marijuana, Willard says the cigarette giant and Cronos — a globally focused company with no U.S. operations — are looking for growth in “both recreational and medicinal” marijuana products.
What Willard didn’t mention was that Altria’s new business strategy comes amid a precipitous drop in the number of smokers nationwide. In November, the Centers for Disease Control and Prevention (CDC) reported that cigarette smoking in the United States had reached the lowest level recorded. The CDC estimated that in 2017, 14 percent of adults smoked, representing 34 million people. Overall, the number has dropped 67 percent since the peak in 1965, when 42 percent of adults were smokers, the CDC says. The number is also declining worldwide, but in parts of the Middle East and Africa, more people are smoking.
In 1964, the U.S. surgeon general released the first report on smoking and health, concluding that smoking causes lung cancer and laryngeal cancer in men and is a probable cause of lung cancer in women. Over the next four years, Congress passed laws requiring a health warning on cigarettes and banning cigarette ads in broadcast media.
Today, the CDC says that cigarette smoking is the leading cause of preventable disease and death in the United States, accounting for more than 480,000 deaths every year, or about 1 in 5 deaths.
Production numbers also tell the story of cigarettes’ free fall. In 2000, Altria produced 211.9 billion units, or sticks. By 2018, the total was 109.79 billion units, a 48 percent decline. In turn, the workforce of Altria and its subsidiaries has shrunk. In 2010, the company had approximately 10,000 workers; by 2018, that number was down to 8,300.
The headquarters for Altria Group is at 6601 W. Broad St. in Henrico County. (Photo courtesy Altria)
In January, Altria announced it would lay off an additional 900 salaried workers nationwide to help pay for the company’s investments in Juul and Cronos. About 430 of the employees who separated, with severance ranging from 26 to 64 weeks, were Richmond-based, according to Karen Nuckols, senior manager of communications for Altria. As of April 1, Altria had 3,750 employees in the Richmond region.
For now, combustible tobacco products continue to drive Altria’s profits, with the Marlboro brand, produced by subsidiary Philip Morris USA, contributing 75 percent of total revenue for the company, according to Forbes magazine.
But that appears certain to change. Altria discontinued e-cigarette brands Green Smoke and MarkTen in December to concentrate on its purchase of Juul. In late April, Altria also received FDA approval to sell a new product called IQOS that heats tobacco without burning it.
Critics of vaping have said that Juul, and companies like it, have cultivated a following of nicotine-hungry teenagers. Rite Aid, one of the nation’s largest pharmacy chains, announced in early April that it will stop selling e-cigarettes and vaping products because of concerns that they are driving tobacco use among youth.
Both Altria and Juul have pledged to prevent underage use of their products. In November 2018, two months after federal officials called vaping by young people an epidemic, Juul announced that it would pull its flavored products from store shelves.
Cronos, meanwhile, is riding a wave powered by strong interest in medical and recreational products derived from cannabis. Canada legalized recreational marijuana in October 2018, and so far, more than 30 U.S. states also have legalized use of marijuana in some form.
A chart published by the Marijuana Business Daily magazine and website in May 2018 places the total demand for recreational cannabis in the U.S. (both black market and legal) at $55 billion, exceeding the sales of video games and firearms. In 2017, legal recreational and medical cannabis sales totaled an estimated $5.8 billion to $6.6 billion.
Altria’s impact on economic development and philanthropy in the Richmond region and Virginia remains substantial. In 2017, for example, Altria and its companies contributed $671 million to the state’s economy through employee wages and various corporate taxes. Of that total, $646.6 million was in the Richmond region, according to Altria.
“Since 2008, we have donated $137 million to local nonprofits,” Nuckols says, including $14.5 million in 2018.
Kim Scheeler, president and CEO of Chamber RVA, sees Altria’s investments in Juul and Cronos as a positive step.
“It’s good for us as a community, too, because they are important players,” Scheeler says. “I would hate to see them to sit there and not do anything and slowly wither.”
