Maybe the third time will be the charm for Altria Group (MO 0.22%), which is taking the field again in electronic cigarettes after entering into a joint venture with Japan Tobacco (JAPAF -3.59%) to co-market new reduced-risk products. 

After its ownership stake in Juul Labs went up in smoke and its partnership with Philip Morris International (PM 0.27%) was blocked by patent violations, this new deal could represent Altria's best shot at becoming a player again in the space. But you're going to have to hold your breath for a while, because the earliest a new reduced-risk product will hit the market is 2024.

A person using a vape.

Image source: Getty Images.

Hurry up and wait

Altria and Japan Tobacco are forming Horizon Innovations, a joint venture 75% owned by the U.S. cigarette maker and 25% owned by its Japanese counterpart, that will oversee U.S. commercialization of any products either company develops. Altria will seed the joint venture with $150 million and subsequent cash infusions will be split based on the companies' ownership interests.

The first product that's planned for introduction into the U.S. is Japan Tobacco's Ploom brand of heated tobacco sticks, which is currently sold in four countries. The newest Ploom X device was launched in Japan last year and helped Japan Tobacco increase reduced-risk product volume 13.6% in the latest quarter while also doubling its heated tobacco sticks market share. 

The tobacco companies plan to commercialize Japan Tobacco's latest Ploom devices that have yet to be brought to market and will jointly file an application with the Food and Drug Administration (FDA) for pre-marketing approval in the first half of 2025.

Before then, by the end of 2024, Altria is going to submit for FDA approval its own heated tobacco device design and then have Japan Tobacco take it international later that year or the next year. At that point Altria will effectively be competing directly against its former partner, Philip Morris International.

A proven record of success

The Japan market is notable because that is where heated tobacco devices first gained traction after Philip Morris introduced its Iqos there and owned virtually the country's entire e-cig market. It caused cigarette makers to scramble to catch up by developing their own heated tobacco devices.

There are notable idiosyncrasies about the Japan market. For example, there are regulations that favor heat-not-burn technology over traditional e-cigs, which are strictly regulated. The liquids used in e-cigs are regulated as a pharmaceutical, so they're effectively banned from the market. 

However, the cigarette industry as a whole in Japan is in sharp decline with total volumes down 8.6% in 2022, despite the increased adoption of e-cig usage. Where combustible cigarettes have tumbled 11.5% year to date, reduced-risk products surged 34% and Japan Tobacco's share grew 2.1 percentage points to 12%.

The Ploom X device has seen volume and market share rise for two consecutive quarters this year and now owns 7.4% of the heated tobacco segment of the reduced-risk product market by itself. Iqos is still the leader in Japan with about a 50% share, but that's down from 70% several years ago and Japan Tobacco and British American Tobacco have about 25% each. 

The real key to global growth

Many believed Altria would simply introduce its own product or buy another e-cig maker like Njoy, which has an approved device on the market, but owns just a sliver of share. But the joint venture route with Japan Tobacco could be a winning formula even if it takes several years to develop.

Altria will be leveraging a successful product in the burgeoning heat-not-burn niche of e-cigs. It also has a financially strong partner that will assist it in reaching a global market where Altria will be able to use its well-known Marlboro brand to grow.

As part of Altria giving up rights to Iqos, Philip Morris International will also be giving up rights to Marlboro for Iqos HeatSticks. That may be a more important factor in who ultimately wins share as the e-cigs Altria and Japan Tobacco ultimately sell will be branded as Ploom devices with Marlboro consumables. 

While many times being late to market is much worse than never getting there at all, in this instance, Altria will be starting on even ground with Philip Morris when Iqos is reintroduced into the U.S. market. Altria also could have a distinct advantage in foreign markets. This third time in e-cigs for Altria may just pay for all.