(Reuters) Philip Morris International Inc (PM.N) plans next year to enter the electronic cigarette business, a $2 billion plus global market identified by the maker of Marlboro cigarettes as its “greatest growth opportunity”.
Speaking to investors in New York, Philip Morris Chief Executive Andre Calantzopoulos said the company would enter the e cigarette business in the second half of 2014 to tap fast growing demand for a less harmful alternative to cigarettes.
The world’s largest listed tobacco company will launch a new range of products, called “Reduced Risk”, Calantzopoulos said at a conference. The company, which sells to countries outside the United States, will also spend more on research and development.
“2014 will be a key investment year behind our Reduced Risk products, our greatest growth opportunity in the years to come,” he said.
Market consultant Euromonitor estimates the world market for electronic cigarettes was more than $2 billion last year, with the United States accounting for a quarter of that.
The market is growing at breakneck speed. Some analysts predict e smokes could outsell conventional cigarettes within a decade, particularly as Big Tobacco grapples with declining sales due to government regulation and health aware consumers.
Yet e cigarettes battery powered metal tubes that turn nicotine laced liquid into vapor are far from universally accepted as a public health tool.
Regulators are agonizing over whether to restrict them as “gateway” products to nicotine addiction and tobacco smoking, or embrace them as treatments for would be quitters.
A big issue is the lack of long term scientific evidence to support the safety and effectiveness of e cigarettes, prompting critics like the British Medical Association (BMA) to warn of the dangers of their unregulated use.
CELEBRITY E SMOKERS
Celebrity endorsements from Courtney Love, Leonardo DiCaprio and others have provided further inducement to the makers of iconic cigarette brands to invest.
Imperial Tobacco Group (IMT.L), the world’s No. 4 international tobacco company, has announced plans to launch two electronic cigarettes in fiscal 2014.
Lorillard (LO.N), known for its Newport and Kent cigarette brands, paid $135 million to acquire Blu Ecigs in 2012 and last month acquired Britain based e cigarette maker SKYCIG.
Other leading tobacco companies, including British American Tobacco (BATS.L) and Camel cigarette maker Reynolds American (RAI.N), are also placing their bets on e smokes.
Philip Morris said on Wednesday it estimated the retail sales value of the eight largest e cigarette markets worldwide at around $2.5 billion, with nearly half outside the United States and China.
Philip Morris also raised its full year earnings forecast to $5.37 $5.42 per share from $5.35 $5.40, citing a reduced impact from unfavorable exchange rates.
Analysts on average were expecting Philip Morris to earn $5.39 per share, according to Thomson Reuters I/B/E/S.
The company’s shares were down 2.5 percent at $89.18 on Wednesday afternoon on the New York Stock Exchange.
(Writing by Robin Paxton Editing by Kirti Pandey and Saumyadeb Chakrabarty)
How much will a pack of joints cost? the future of mass market marijuana
Health experts anxious to see fda rules on e-cigarettes nbc news
Since the legalization of marijuana in Colorado and Washington, several articles have circulated suggesting that Marlboro would soon be getting in on the weed selling business. This was all started, it appears by an article in Abril Uno (April 1st in Spanish), a satire publication. These claims unsurpisingly, given the source seem to be false. But it does makes one wonder What would a pack of Marlboro Mary Janes cost?
I spoke with Jeff Caldwell, a representative of Altria, the parent company of Philip Morris, which makes Marlboro Cigarettes, and he stated that because the selling of marijuana is illegal at the federal level, their companies have no plans to sell marijuana based products. He also didn t seem too keen on speculating on such possibilities.
At the low end of things, you re looking at a production cost of nearly $40 per pack of Mary Janes.
But Marlboro is in the business of making money, so it seems likely they would want to get in on such a large market. According to a 2010 paper, the business could yield more than $20 billion a year in just tax revenues. Imagine what it could yield for a company mass marketing joints.
In June of 2013, a company named BOTEC speculated that the production cost of marijuana ranges from $2 to $3 per gram, which implies a price to retailers of $6.25, which is broadly consistent with current access points paying about $5 per gram. The average Marlboro cigarette has just under one gram of tobacco in each of the 20 cigarettes contained in a pack. So at the low end of things, you re looking at a production cost of nearly $40 per pack of Mary Janes.
In the current weed economy, successful companies like Medicine Man in Denver are selling 20 pre rolled, one gram joints for $120. Medicine Man produces high quality products, though, and the company is not anywhere close to the size of Marlboro. But production cost also does not factor in what the company must charge to make a profit. The Economics of Smoking, written in 1992, declared that production costs are often half of what cigarette companies wholesale their product for, so what costs a large corporation $40 per pack could result in a $70 or $80 retail price.
You also might not need a whole gram of marijuana in every cigarette.
The cost of a pack could be brought down by the massive economies of scale a company like Marlboro would bring to the market. You also might not need a whole gram of marijuana in every cigarette a little can go a lot farther than a gram of tobacco. Another solution mix the marijuana with tobacco.
If marijuana cigarettes were to be mixed with tobacco, at a 50 50 ratio, it would bring the cost down significantly. Many tobacco farmers will wholesale a pound of their product for less than $2. With a 50 50 ratio of marijuana to tobacco, the cost of producing a pack of 20 pre rolled joints could be brought down to just a little more than $20 so a $40 pack at the store.
It isn t as easy as it seems, though. The government has a vested interest in producing income from the selling of marijuana. In Colorado, the law that voted in marijuana brought with it a 25% tax. The tax includes 15% excise and 10% sales tax. Marlboro Cigarette companies are very familiar with the excise tax. Philip Morris s website explicitly states their opposition to the current excise tax taxes on products that aren’t good for society writing Between 2000 and 2012, federal and state cigarette excise tax rates were raised more than 120 times, more than doubling the price of a pack of cigarettes.
According to Philip Morris, the price of a pack of cigarettes is merely $2.60 after production cost and company revenue, before the 55% of the price that goes to the government. Cigarette taxes are often increased locally to deter smoking, but smoking kills in ways that marijuana doesn’t. The tax would likely be closer to 50% if the marijuana was mixed with tobacco, or closer to the 25% we see today in Colorado if the product was solely marijuana.
The bottom line is a pack of purely marijuana cigarettes is going to run you at least $50, and a pack of marijuana tobacco mixed cigarettes could be as affordable as $20. The mixed cigarettes would cost less to produce, but since they include tobacco, the states would likely tax them around twice as much as if they didn t.