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By Emma Rumney
LONDON, Sept 27 (Reuters) – Philip Morris International has registered new lobbyists in at
least 19 U.S. states this year, and plans to add some in four
more in the next two weeks, according to a Reuters’ review of public records and information provided by the company.
The world’s biggest cigarette maker by market
value is expanding its lobbying firepower as it gears
up to launch its flagship IQOS heated tobacco device in a long-awaited entry to the
United States, where vaping is already an established alternative to smoking.
State-level lobbying registers examined by Reuters showed that in at least three states – Georgia,
Colorado and Oregon – disclosures specified that the lobbying activity would focus on heated tobacco products.
Elsewhere, the filings referenced broader topics including tobacco policy, taxation and business, and commerce.
IQOS heats up packets of ground tobacco but does not burn them, a process the company says potentially
results in fewer health risks than traditional smoking. The U.S.
Food and Drug Administration has authorised PMI to market IQOS
as offering reduced exposure to harmful chemicals compared to cigarettes.
PMI was spun off from U.S. cigarette giant Altria in 2008.
It had not sold any products in the United States until the
purchase of oral nicotine company Swedish Match in 2022. As a result, until this year
its U.S. lobbying had been negligible.
PMI is trying to transform its image from a
purveyor of cigarettes to a driving force behind
the switch to healthier alternatives.
The company poured most of its $10.7 billion investment in what the industry refers to as “reduced risk” products between 2008 and 2022
into the development of IQOS.
IQOS’ success in United States could be significant because of the market’s
size, said Sean King, research analyst at Colombia Threadneedle Investments, a top 20 PMI investor.
He said the U.S. non-combustible industry accounts for
a little over half of the global market.
PMI believes IQOS can win a 10% share of U.S. tobacco and heated tobacco unit volume by 2030.
Investors are closely watching which states PMI will select to launch IQOS first.
Any it chooses will likely to be the focus of PMI’s strategy for
years to come, given its slow and steady approach in other countries of launching IQOS in major cities and then building out from there.
“It’s going to be a multi-year process within some of these states… before they progress toward a national launch,”
King said.
Corey Henry, PMI’s director of U.S. communications, said
the company is expanding its government affairs capability across the U.S.
as part of the normal course of business. PMI’s lobbying could relate to its
Swedish Match business or more general engagement
around smoking rates, Henry said.
PMI also plans to add lobbying capacity in four more states within the next
two weeks, he said, meaning its overall lobbying efforts span states where the vast majority of smokers – and the
U.S. population – reside.
“Viewing PMI’s work across all regions of the U.S. strictly through the lens of potential launch geographies for our electrically heated tobacco system is incorrect,” he
said.
The publicly available lobbying registries showed that
PMI has hired more than a dozen firms or individuals,
some with high-level connections in legislatures including in Florida, Illinois and Pennsylvania.
The high-level lobbyists include Park Strategies LLC in New York, a firm founded by former U.S.
Senator Alfonse M. D’Amato, as well as Daniel Hodge, former chief of staff
to Governor Greg Abbott in Texas.
Park Strategies and Hodge did not respond to requests for comment.
COMPETITIVE MARKET
Euromonitor International, a London-based market research company, valued U.S.
nicotine sales, excluding nicotine replacement therapies, at some $143.6 billion last year.
While cigarettes accounted for the vast majority of that, Euromonitor forecasts their value will shrink by 30% by 2027.
The value of vapes, heated tobacco products and other alternatives
will rise by 36% over the same period, it says.
Some rival heated tobacco products have struggled in the
U.S. market, where vaping and other alternatives are already
well established.
After initially test launching a heated tobacco product in the United States, British
American Tobacco said it would instead focus its efforts
on these more established categories.
Gaurav Jain, a director of equity research at Barclays, said PMI has
to prove IQOS will work in the United States after it struggled in other markets with similar dynamics.
“It will be a much more competitive market,” he said.
PMI’s Henry said the company estimates 19.4 million adults around the world
have switched to IQOS and stopped smoking,
and it is confident it can replicate its international success in the United
States.
PMI is likely weighing a variety of factors – including smoking rates, openness to innovation and income levels –
as it selects states for IQOS’ launch, according to Brett Cooper, managing partner and
analyst at Consumer Edge, an equity research firm.
IQOS has a relatively high cost compared to vapes or oral tobacco,
which could put off some price-sensitive consumers. For instance,
the device costs between 39 pounds ($47.38) and 109
pounds in the United Kingdom, according to its website.
Users must also repeatedly buy the tobacco packets, which
resemble small cigarettes, for it to heat.
But it will appeal to those looking for a more similar experience to smoking, especially if PMI can make it relatively cheap compared
to heavily taxed cigarettes, Cooper said.
IQOS has a key advantage in that regard: the device and accompanying tobacco sticks are among only a handful
of products to have been awarded “modified risk tobacco product” (MRTP) status from the U.S.
Food and Drug Administration, alongside some oral tobacco products and some
low-nicotine cigarettes.
In some states like Colorado and Washington – where PMI registered lobbyists in February, March
and September – products with an MRTP designation are already taxed at a lower rate than traditional cigarettes.
The FDA has sought to crack down on flavoured
vapes, in particular, amid concerns around youth usage.
Disposable vapes, often in sweet flavours, rapidly came to account for a significant portion of U.S.
e-cigarette sales. ($1 = 0.8232 pounds)
(Reporting by Emma Rumney Editing by Matt Scuffham and Daniel Flynn)
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