A planned merger between tobacco giants Philip Morris International and Altria Group would have heralded “a new era of Big Tobacco,” according to Bloomberg.
But talks of the $187 billion deal collapsed on September 25 following President Donald Trump’s administration’s announcement that it would ban most flavoured e-cigarette sales in the United States.
Trump justified the decision with reports of an outbreak of lung injury cases associated with e-cigarettes, to which more than 1,000 cases and 18 deaths have been linked to in the US. He also cited the high e-cigarette usage among minors in the US.
On September 27, a Québec resident was confirmed as the first reported case of a vaping-related illness in Canada.
A recent study reported that around 15 per cent of teenagers aged 16–19 in Canada vaped within a month of the survey, which occurred from 2016–2017.
Canadian law prohibits advertising vaping to minors, but regulation is rarely enforced
Canadian federal law prohibits “any promotion of tobacco or vapour products, including advertising, that may be appealing to young people.”
But the law is loosely enforced in Ontario, according to CBC News.
Health advocates have demanded ads for vaping be restricted in stores, similar to the law on tobacco products, which forbids the placement of tobacco ads in areas accessible to minors.
The lack of a rigorous definition of “appealing to young people,” together with thousands of outlets present in Ontario with e-cigarette advertisements, causes enforcement to be impractical.
In Ontario, it is illegal to sell vaping products to people under the age of 19. However, “there are always some stores willing to sell to minors without checking ID,” wrote Robert Schwartz, a professor in the Dalla Lana School of Public Health, to The Varsity.
Other sources include older siblings, friends, parents, and the black market.
Such sales may have propelled Juul Labs, the San Francisco-based startup that popularized vaping, to grow to a $38 billion valuation at its peak.
Juul became the third most popular e-cigarette brand among teens in Canada within weeks of its first sales in the country. In December, Altria purchased a 35 per cent minority stake in the company, anticipating a future where vaping is more popular than cigarettes.
The Federal Trade Commission is currently investigating Juul for targeting minors in its marketing, as its advertising campaign involved payments to social media influencers to promote Juul, though the company maintains it was a pilot project of limited size.
The US Food and Drug Administration and several US state attorneys general are also investigating Juul. Federal prosecutors in California launched a criminal investigation into Juul on September 23, though the focus of the probe remains unknown.
Juul denied that it has ever marketed to minors, maintaining that its marketing efforts are “all conveyed in a style, tone and message tailored to current adult smokers.”
Why is vaping attractive to minors?
Juul devices have been described as being “as slick as iPhones and as tasty and addictive as candy.”
A Juul e-cigarette is comprised of two parts: the stick and the pod. The stick, shaped like a USB drive, can fit in the palm of a hand. The pod contains a concentrated solution of nicotine, with a typical one being advertised as having the same amount as a pack of cigarettes.
The cost of a kit, which includes a USB charger, is about $65.
The taste is also one of Juul’s selling points. Flavoured Juul pods currently account for more than 80 per cent of Juul’s sales, and as such, the planned US-wide ban on flavoured e-cigarettes could be devastating for the firm’s revenue.
“Mainly, in many youth circles, vaping is fashionable,” wrote Schwartz. “A common story is that e-cigarettes get shared at a party, it becomes cool to do it, after a few times, the nicotine takes effect and quickly enough some become dependent.”
Vaping is likely to be “significantly less harmful” than smoking cigarettes since it doesn’t involve burning tobacco. However, this might not be the case for unregulated products, which could be the cause behind the recent outbreak of lung injuries.
How are e-cigarettes advertised?
According to a 2019 study, Juul’s marketing has targeted minors since its product launch in 2015.
The co-authors found that Juul’s advertising highlighted sweet and fruity flavours in its products, featured youthful models in their 20s, and hired social media influencers to promote the product.
“This advertising in 2015 was short-lived, intended for adults, and took place well before JUUL gained any meaningful market share,” wrote Juul in a statement reported by Vox in January. This statement contradicts the conclusions of the 2019 study.
Pervasive advertising of e-cigarettes normalizes their usage, according to Schwartz, speaking on their marketing, which appears on social media, billboards, television, public transit, and convenience stores.
Why is Big Tobacco investing in e-cigarettes?
Despite the market for cigarettes shrinking since 1982, revenue from cigarette sales have soared, according to a 2013 U of T study.
While “the number of cigarettes sold in the U.S. fell by 37% from 2001 to 2016,” according to The Wall Street Journal, tobacco companies still managed to raise cigarette revenue by 32 per cent.
Cigarette sales have similarly fallen by 37 per cent in Canada from 2001–2017, though the change in revenue from these sales over time is unclear.
“When markets decline, the consumers who leave the market… have the lowest willingness to pay,” wrote David Soberman, a marketing professor in the Rotman School of Management and co-author of the 2013 paper, to The Varsity.
Canadian tobacco companies have gradually raised prices to boost profits, and also boosted revenue by cutting costs and facilitating mergers. However, Philip Morris International and Altria made a long-term bet that cigarette alternatives could sharply supplant cigarette smoking.
When talks of a merger began in August, tobacco executives told the Financial Times that tobacco alternatives could be as profitable as cigarettes after heavy marketing investment.
“If consumers are going to leave the cigarette market anyway because the perceived safety of e-cigarettes is higher, it is best to go with the trend versus fighting it,” wrote Soberman.
The two firms strategized to outcompete rivals who did not offer cigarette alternatives, according to the Financial Times, which led to the now-cancelled merger.
Despite further setbacks to the e-cigarette market, such as Walmart’s September 20 announcement that it would stop selling all e-cigarette products, a merger between Philip Morris International and Altria could still be in the books.
Five days after Walmart’s announcement, the Financial Times reported that Philip Morris International will likely reconsider a deal with Altria once the regulatory environment settles.
Such a merger could strengthen Juul’s international advertising and distribution in markets such as Canada’s.
