The rumor mill is spinning with word that Altria and Phillip Morris International (PMI) may merge again, over a decade after they parted company. As reported by Bloomberg, the companies were split apart ten years ago to disentangle profitable overseas interests with from a US market buffeted by smoking lawsuits and declining cigarette sales. Phillip Morris is best known as the maker of Marlboro, and Altria is a 35 percent stakeholder in Juul.
With changes afoot in the marijuana and vaping arena, a combined PMI-Altria is looking to reenter the fray. Combined, they are a $200 billion dollar behemoth. Rumors of the merger have been circulating since at least 2016 but are gaining steam.
Wells-Fargo analyst Bonnie Herzog described the potential merger as a tremendous value that would shore up PMI’s tumbling stock prices. She advised that Phillip Morris would be an ideal partner for Juul. With their distribution channels and ability to further the international reach of Juul. The future of the iQOS, a heat not burn cigarette alternative, is central to the merger as well.
Altria-Phillip Morris and Flavor Bans
The combination of Altria and Phillip Morris would be incredibly well-positioned in the event of a vaping flavor ban and the FDA’s accelerated deadline for premarket tobacco authorization applications (PMTAs). The Vaping Technology Association and Vapor Stockroom recently sued the FDA over the capricious execution of the PMTA process.
At the forefront of their growth strategy would be the iQOS, a device that is meant to provide an authentic alternative to conventional cigarettes and uses actual packets of tobacco. The FDA approved the iQOS, which was developed by Phillip Morris and licensed to be marketed by Altria.
Appeasing the Anti-Vaping Lobby
As a result of the Vaping Technology Association’s lawsuit against the FDA, Juul cut ties with the Vaping Technology Association. This was due to Juul’s support of tobacco 21 laws and the potential benefit they would derive from a flavor ban, which would neuter their refillable vape pod and Juul compatible competition.
Juul’s willingness to embrace the attack on the sweet and dessert flavors preferred by adults, while remaining intentionally obtuse to the fact that menthol derived Juul Mint is the most popular flavor with minors, is a strategy that may end up being too clever by half.
The teen vaping epidemic will not be impacted by targeting retro ejuice flavors inspired by Reagan-era candies and cereals. But anti-vapers are surely emboldened when the largest vape manufacturer tacitly concedes that sweet flavors, and the kinds of fruit flavors that Juul defended in a study this winter, are intrinsically “kid-friendly”. The fruit flavor fallacy is simply untrue, and Dr. Farsalinos conclusively demonstrated that the majority of adults prefer sweeter ejuice flavors.
After vape juice companies and small manufacturers are wiped out, the next obvious step is that anti-vapers will go after Juul, a company that they view as evil incarnate and despise for being closely aligned with “Big Tobacco”. Considering the damage that the media inflicted on Juul by citing a flimsy and ignorantly curated slideshow created by Stanford University, it stands to reason that they will smell blood in the water if flavors are banned.
A decimated vaping industry leaves only big tobacco companies and Altria partner Juul. The attack on the social media marketing of e-cigs will seem like a skirmish in comparison. Perhaps they think they have the legal wherewithal to weather any attack. But if teen vaping rates don’t start to drop, the product that is most popular with teens will remain in the cross-hairs, whether the independent vaping industry is nearly dismantled or not.
Regulatory Capture and Big Tobacco
Altria supports a flavor ban, which would benefit a combined Phillip Morris- Altria. The one-note iQOS is a much more appealing option when pitted against tobacco ejuice flavors, which simply are not as popular with adult smokers as the sweeter varieties.
With no fruit and dessert flavors to compete with, it would boil down to who has the best tobacco flavor. Altria clearly thinks the iQOS would win that contest. The edge is even greater when it comes to novices and smokers who have never tried vaping.
Where Juul ends up, and if it will be pitted head to head against the iQOS is another market disruption that is nearly impossible to predict.
We are fast approaching a scenario that resembles regulatory capture. The practiced hands of the tobacco industry are the largest and most influential stakeholders. They are pushing for regulations that destroy the competition and leave their own products untouched.
How the public would react to this sleight of hand and a restructured vaping industry dominated by Big Tobacco and Juul could end up making this power move a pyrrhic victory.