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Altria exits e-cigarettes as competitors gain market share

U.S. tobacco giant Altria Group Inc.'s decision to drop e-cigarettes follows months of slowing sales growth as it continues to lose retail market share to industry-dominating Juul Labs Inc. and other smaller competitors, according to an analysis by S&P Global Market Intelligence.

"[Altria] likely lost several hundred million dollars just by being in this category," Gregory Conley, president of the nonprofit advocacy group American Vaping Association, said Dec. 17 in an interview.

Altria plans to halt online sales of MarkTen and Green Smoke e-cigarettes just before midnight Dec. 19, according to messages posted on the brands' websites. Customers will be able to buy the e-cigarettes in physical stores while supplies last, the posts said.

The company announced Dec. 7 that it would no longer sell the brands, citing financial performance and increased pressure from the U.S. Food and Drug Administration. Regulators want to limit sales of fruit, crème and candy-flavored e-cigarettes to age-restricted shops and require age-verification for online sales to discourage use of the products by minors.

Altria said Oct. 25 that it would pull some of its flavored e-cigarettes from stores and later announced the complete discontinuation of MarkTen and Green Smoke.

The tobacco company began selling MarkTen and Green Smoke in 2014. While brands initially grew, that increase began to wane in 2017 before turning into declines in recent months, according to Nielsen data compiled by Wells Fargo Senior Analyst Bonnie Herzog.

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Altria sold $214.7 million in e-cigarettes in the 52 weeks ended Dec. 1, according to the data from Wells Fargo. The figures track sales at U.S. convenience stores, grocery stores, drug stores and other mass retailers, while online sales or sales at specialty vape shops are not included, Herzog said in a report accompanying the figures.

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Competitor British American Tobacco sold $428.9 million in Vuse brand e-cigarettes during the same 52-week period while industry leader Juul sold $1.92 billion at retailers, according to the data. Juul's popularity helped drive total e-cigarette retail sales to an estimated $2.95 billion for the year, according to Wells Fargo.

"Ultimately, I think Juul will probably remain a leader for a good amount of time," the American Vaping Association's Conley said.

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Altria's withdrawal from e-cigarettes comes as British American Tobacco and Juul are ramping up their efforts in the category.

London-based British American Tobacco PLC launched two new e-cigarette brands in the city Dec. 11 and plans to roll out the devices — which feature larger batteries than previous models, adjustable vapor volumes and smartphone connectivity — across the UK and online in 2019.

Juul, meanwhile, is targeting a group of alleged copycats through patent enforcement. The San Francisco-based startup in October filed a complaint with the U.S. International Trade Commission alleging 21 domestic and international manufacturers were violating Juul's patents. The commission is investigating the allegations, the agency said Dec. 10.

Juul is also expanding internationally. The company launched its products in the U.K. in July followed by Canada in September and is eyeing further expansion into Indonesia and other Asian countries, according to Reuters. Juul also sells products in Russia and Israel but it is fighting a court ban on some of its products in Israel, while selling products with lower nicotine concentration in the country, Reuters reported.

Altria reportedly held talks about a minority investment in Juul but neither company has confirmed the discussions.

Alternatives to e-cigarettes

Combustible cigarette sales still drive most of Altria's revenue, with $32.9 billion in retail sales in the 52 weeks ended Dec. 1, a 2.9% drop year over year, according to Wells Fargo. The company also sells chewing tobacco and continues to explore other alternatives to traditional cigarettes.

Analysts have said Altria's $1.8 billion investment in Canadian cannabis producer Cronos Group Inc. could help gain a foothold in an emerging industry. The companies expect the deal to close in the second half of 2019.

While Cronos stock has generally been volatile over the past year, the 216.3% one-year return as of Dec. 13 easily outpaced the S&P 500, according to S&P Global Market Intelligence.

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Meanwhile, Altria is also waiting on the FDA's decision on an application from Philip Morris International Inc. to sell iQOS, which heats a tobacco plug to produce a small amount of flavored vapor. Altria would market and sell the device in the U.S. while paying royalties to Philip Morris.

The FDA has yet to approve Philip Morris' application, the agency confirmed Dec. 18.

Altria did not return messages from S&P Global Market Intelligence seeking further comment about its e-cigarette exit.