Although electronic cigarette sales in Japan are slowing and regulators in the U.S. are giving greater scrutiny to those devices, Philip Morris International (NYSE:PM) wants to squash the notion it might consider getting into the marijuana market. CEO Andre Calantzopoulos told Bloomberg the tobacco giant "has enough on our plate" getting 1 billion people around the globe to switch to its iQOS heat-not-burn device, without trying to get into legal weed.
E-cig growing pains
Electronic cigarettes were considered the next big growth opportunity for Philip Morris and other tobacco companies since the devices promised a safer alternative to smoking. The vapor created by e-cigs has been found by one health organization to have a 95% chance of being safer than their combustible alternatives.
Yet Philip Morris discovered in Japan that while younger smokers were early adopters of the iQOS, older, more conservative smokers weren't convinced. Philip Morris had leapt to an early 80% share of the e-cig market in Japan as rivals were slow to come to market with competing devices, but earlier this year it reported that growth had slowed dramatically. Because of those skeptical older smokers, Philip Morris has had to wage a much bigger educational campaign earlier in the process than it had expected.
In the U.S., it is awaiting a decision by the Food and Drug Administration (FDA) over whether it will be allowed to market the iQOS, and if the device can have a reduced-risk label saying it's safer than cigarettes. Such a label would say that the iQOS reduces the harm or risk of tobacco-related disease, giving it a significant competitive advantage over other tobacco products.
But this summer, the FDA started cracking down on e-cig manufacturers and retailers. While the agency acknowledges that e-cigs are useful in combating adult cigarette use, it is concerned about the number of teenagers using the devices. Altria (NYSE:MO), British American Tobacco (NYSE:BTI), and several other manufacturers were warned that they need to come up with a plan to block teenagers' access to these products or risk having them pulled from store shelves.
That could impede Philip Morris' plans to gain market acceptance in the U.S. for its heat-not-burn device. But it apparently doesn't mean it's ready to turn to marijuana as another new product.
Just say no
There are good reasons for U.S.-based tobacco companies wanting to avoid the legal weed market (it's still illegal at the federal level, and there's a mishmash of state laws). But it would seem to be easier for global manufacturers like Philip Morris and British American to enter the marijuana business, as they would have the resources to target different markets where it's already legal or about to become so.
Except that they already have big investments in their smoking alternatives. British American has put about $2.5 billion into next-generation tobacco products since 2012, while Philip Morris has spent over $4.5 billion since 2008 on alternatives and has committed to contributing $1 billion for an anti-smoking foundation.
While they wouldn't have to abandon those efforts to invest in marijuana, they also don't necessarily want to bring to market more products that would potentially undermine the approval or sales of the devices. And a marijuana product would also still involve smoking, and Philip Morris International has made a big deal out of wanting the future to be smoke-free.
Calantzopoulos did say that Philip Morris had no plans for entering the cannabis market today. But who knows whether the tobacco giant could have a much different outlook in the future?