Philip Morris hits the US lobby as IQOS launch nears

Philip Morris International (PMI) has registered new lobbyists in at least 19 US states this year, and plans to add some in four more in the next two weeks, according to a 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 prepares to launch its flagship IQOS heated tobacco device in a long-awaited entry to the US, where vaping already is an established alternative to smoking.

State-level lobbying registers show 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 US Food and Drug Administration (FDA) has authorised PMI to market IQOS as offering reduced exposure to harmful chemicals compared with cigarettes.

The maker of Marlboro was spun off from US cigarette giant Altria in 2008. It hadn’t sold any products in the US until it bought oral nicotine company Swedish Match in 2022. As a result, its US lobbying had been negligible until this year.

PMI is trying to transform its image from a producer of cigarettes to a driving force behind the switch to less-harmful alternatives.

The company poured most of its $10.7bn investment in what the industry refers to as “reduced risk” products between 2008 and 2022 into the development of IQOS. The company said on Thursday it aims for more than two-thirds of its net revenue to come from such “smoke-free” products by 2030. 

IQOS’s success in US 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 US non-combustible industry accounts for a little over half of the global market.

PMI believes IQOS can win a 10% share of US tobacco and heated tobacco unit volume by 2030.

Investors are closely watching which states the company will select to launch IQOS first. Any it chooses will are likely to be the focus of its strategy for years, 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 multiyear process within some of these states ... before they progress towards a national launch,” King said.

Corey Henry, PMI’s director of US communications, said the company is expanding its government affairs capability across the country as part of the normal course of business. The lobbying could relate to its Swedish Match business or more general engagement around smoking rates, Henry said.

The group 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 US population — reside.

“Viewing PMI’s work across all regions of the US strictly through the lens of potential launch geographies for our electrically heated tobacco system is incorrect,” Henry said.

The publicly available lobbying registries show 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 lobbyists include Park Strategies in New York, a firm founded by former US Senator Alfonse D’Amato, as well as Daniel Hodge, former chief of staff to Governor Greg Abbott in Texas.

Park Strategies and Hodge didn’t respond to requests for comment.

Competitive market

Euromonitor International, a London-based market research company, valued US nicotine sales, excluding nicotine replacement therapies, at about $143.6bn 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 US market, where vaping and other alternatives are already well established.

After initially test launching a heated tobacco product in the US, 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 US 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 US.

PMI is probably considering various factors — including smoking rates, openness to innovation and income levels — as it selects states for IQOS’s launch, according to Brett Cooper, managing partner and analyst at Consumer Edge, an equity research firm.

IQOS is expensive compared with vapes or oral tobacco, which could put off some price-sensitive consumers. For instance, the device costs between £39 and £109 (R910-R2,545) in the UK, 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 an important 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 US Food and Drug Administration, alongside some oral tobacco products and some low-nicotine cigarettes.

In some states, such as 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 US e-cigarette sales.

Reuters