British American Tobacco Explores US Expansion, CBD

Two years ago, just under 4.5M units of smart e-cigarettes were sold, compared to over 400B units of traditional cigarettes. But sales of traditional cigarettes have nearly halved since 2000. In 2021, the domestic e-cigarette market was worth only $364.7M, but analysts suggest it could grow by over 39% per year through 2027, reaching a valuation of nearly $2.7B.

In response to these changing consumer preferences, e-cigarettes have emerged as a perceived healthier alternative to traditional cigarettes. Additionally, the availability of a wide variety of flavors is seen as a key factor driving growth in the smart e-cigarette market over the foreseeable future. Notably, global revenue generated by vaping (inclusive of smart e-cigarettes) has recorded consistent growth over the past decade, and this trend is expected to continue.

Market Dynamics

Juul, a prominent name in the e-cigarette market, held as much as 72% of the US market by the end of 2018, the year Altria acquired a 35% stake in the company for $12.8 billion. However, Juul's cautionary tales led to scrutiny from the FDA, which sought to ban the products due to concerns over its popularity among young people.

Juul's market share has since dropped precipitously, and Altria recently marked down its stake in the company by 98% to $250MM.

In a trial that began Monday morning, Altria’s lawyers claimed the company played a passive role in Juul’s efforts to market e-cigarettes to young users and “hasn’t received a penny for this investment, they haven’t benefited.”

The bellwether trial forces Altria to publicly defend itself solo for the first time as it faces thousands more cases that were brought against the company and Juul. In December, Juul agreed to pay more than $1.2 billion to settle more than 5,000 suits blaming the company for a youth vaping epidemic across the US.

In April, Juul agreed to pay $462 million to six states and the District of Columbia to resolve lawsuits and investigations into the marketing of addictive vaping products to children.

But subsidiary Philip Morris has so far been immune. Based on its own estimate however the company has captured 59% of the global market for smokeless products, excluding the U.S. and China. A recent takeover of Swedish Match gave Philip Morris a U.S. distribution network and a leading position in oral nicotine pouches too.

The Swedish Match deal benefits Altria ($MO), which has a weaker smoke-free portfolio but is still the parent company of Philip Morris. Marlboro had 43% of the U.S. retail cigarette market in 2021, but the company maintains a lower cut of the market for “reduced-risk products”.

British American Tobacco In The US

British American Tobacco (BAT) has established itself as a major cigarette alternative player, with a 17.5% global market share achieved through its American Reynolds Brand. The company has invested significantly in its non-combustibles segment and achieved a 30% customer CAGR over the past five years. By 2030, BAT aims to target 50MM customers in this segment.

The company has set an aspiring target of doubling segment revenue to £5B ($6.23B) by 2025, representing a 33% CAGR and accounting for 15% of overall sales. The New Categories segment had revenue growth of 37.0% last year despite a 10% decline in traditional cigarette volume.

(Source: https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOCNUNN9/$file/FY_2022_Presentation_Slides.pdf )

CBD Trials

British American Tobacco (BAT) has extended its focus beyond e-cigarettes and has made strides to venture into the cannabis industry. In November of the previous year, the company acquired a minority stake of £48.2MM ($60MM) in Charlotte's Web, a US-based company traded in Canada known for its CBD products.

Despite the fact that BAT's investment in Charlotte's Web is relatively small, considering its £27.7B ($35.5B) 2022 sales, it signifies the company's interest in diversifying its revenue sources.

In addition to its investment in Charlotte's Web, BAT obtained a nearly 20% stake in Canadian cannabis producer Organigram earlier in 2021 and has invested in other cannabis-related businesses. These strategic moves have prompted speculation that BAT is exploring the potential of the cannabis market and positioning itself as a significant player in the industry.