Philip Morris: Between a Rock and a Hard Place

by Peter Galuszka

It’s been a very long goodbye. Faced with billions of dollars in health-related lawsuits and huge public relations problems in 2008, cigarette giant Philip Morris split itself in two very different companies.

It reminds me of the scene in Stanley Kubrick’s brilliantly sarcastic war move, “Full Metal Jacket.” A colonel stops Private Joker and demands to know why he has born-to-kill and peace symbols on his helmet at the same time. “What does it MEAN?” growls the Colonel. “I dunno, Sir,” replies Private Joker, “I guess it’s the Jungian thing, you know, the duality of man.”

Duality of cigarette making is more like it. Back in 2008, Philip Morris split itself into a Swiss-based international firm while Richmond got Philip Morris USA and its holding company, The Altria Group. The latter is still a potent force with 3,750 local workers and a big honey pot of largess.

Philip Morris International boosted sales by creating such nicotine laden smokes as “Marlboro Wides” and Marlboro Max 9,” which sold in Third World countries that didn’t have the bucks or the court systems to challenge cancer causing products.

Back here, Altria had broadened into other products like wine and still made cigarettes while pretending it really didn’t want to.

It closed Marlboro plants in Kentucky and North Carolina and centralized cigarette making in Richmond. Henrico County also got the Altria headquarters, which slipped down from Manhattan like a hound with its tail between its legs after all but getting booted out of New York City. If you checked out their Website at the time, it pretty much urged you not to buy its products. Go figure.

Well, 10 years later, it seems it is time to pay the piper. Both firms have seen cigarette sales slide, Altria expects domestic sales drops off from 4% to 6% through 2023. Philip Morris International, despite its ability to sell more addictive products with fewer constraints, is also seeing sales declines.

So, they are thinking about an all-stock merger. Some analysts like Bonne Herzog of Wells Fargo Securities, who likens the world market to a “global arms race,” thinks a merger is a good idea because it gives companies time to think through the “what’s next” after tobacco, at least the smoking kind. Altria has come up with new, smokeless snuff and put down #12.8 billion for Juul, which controls two third of the e-cigarette market. In a hint of what may come, it also put down $1.8 billion for 45 percent of Cronos, a Canadian cannabis product maker. There are other products in the pipeline, too.

This marriage isn’t apparently made in heaven since stock shares of both Altria and Philip Morris International tumbled when news of the possible merger came out, other analysts note. There’s no question the firms must continue to move away from cancer-causing smoking tobacco but how to do it is problematic. One former source at Altria told me that the firm had been very reluctant to get into e-cigarettes and vaping because they were unsure of the health effects, regulation and liability. At the time, e-cigarettes were funky-looking contraptions made out of cheap materials in China with no real oversight. Stores were made to resemble ’60s head shops. They were much safer than smoke real cigarettes, we were told.

Those concerns are hitting home now that a strange lung illness has been striking vaping, notably Juul, users so much so that there are various government probes. On some occasions, e-cigarette devices have blown up, either killing their users or blowing out their teeth and jaws.

Branching into marijuana has been a pipe dream since the 1960s but the word is that top executive at Philip Morris International aren’t turned on to the idea.

So, where does that leave us? Not in a very good space, it seems. Tobacco has been a dominant crop in Virginia since 1619 but it has slowly gone away. Being still a very conservative place, Richmond has hung on to the golden leaf just as long as it could. Altria still remains a major lobbying force. Its name is on plenty of entertainment venues. For how much longer? Who knows?