Altria: Goodbye Juul, Hello Njoy

On March 26th, according to the Financial Times, Altria plans to recover from its disastrous $12.8 billion investment in Juul and engage in a positive competition with Philip Morris International in the U.S. smokeless tobacco market, a former sister company it attempted to restructure four years ago. The owner of the Marlboro brand in the U.S. unveiled a range of new cigarette alternatives on Investor Day Thursday, which still accounts for 90% of its sales, setting a goal to double the revenue of smokeless products to $1 billion by 2028. This portfolio, including the new On! oral nicotine pouches and a device called Swic, will compete with PMI products Zyn (developed by recently acquired Swedish Match) and IQOS (a heated tobacco stick expected to launch in the U.S. in 2024).

Last year, new products accounted for 32.1% of PMI’s revenue. Altria CEO Billy Gifford said in an interview that he expects PMI to be a stronger competitor than other companies, but added that his company is confident in maintaining its leadership position in the U.S. market. “Will they be a little bit better than Swedish Match? Probably. But we are used to competition,” he said, citing Altria’s strong relationships with retailers and distributors.

Earlier this month, Altria acquired e-cigarette startup NJOY for $2.75 billion, its latest bet on the e-cigarette market after almost all of its $12.8 billion investment in Juul five years ago was lost. The American group wrote down the value of its 35% stake in Juul to just $250 million and exchanged it for some intellectual property for Juul’s heated tobacco prototypes. Gifford admitted that Altria did not succeed with Juul and blamed the failure on chasing the market instead of listening to consumers’ opinions. He said with new products, “We will be consumer-led.” He added that it will have 100% ownership of NJOY and can improve its distribution.

Chief Financial Officer Sal Mancuso said Altria could use future capital gains taxes to offset about half of the $12.5 billion loss from its Juul investment. Analysts say this could accelerate Altria’s sale of its 10% stake in the world’s largest brewer, AB InBev.

Mancuso said, “Our focus is on maximizing investment for our shareholders in the long term, but Altria will weigh tax factors as well as other factors, such as potential uses for sales revenue.”

The development of cigarette alternatives in the United States is slower than in Europe, but Gifford refuted the claim that Altria is not aggressive enough in promoting smokeless products. Instead, he described it as a result of the slow regulatory process of the U.S. Food and Drug Administration. “The severity of FDA and regulatory processes in the U.S. is far higher than elsewhere,” he said. He added that this is good for consumers to believe that decisions are based on science, but “We are disappointed with the slow pace of the agency’s approval of smokeless products.” “We need a clear path to get these products to market,” he argued, and strengthen enforcement to prevent the sale of banned nicotine products.