History/Biography

• Endzone: The Rise, Fall, and Return of Michigan (John U. Bacon).

Self-Development

• Die With Zero (Bill Perkins).

Fiction

• Dune (Frank Herbert).

Some of these facilities provide reentry and electronic monitoring and supervision services for hundreds of thousands of individuals. The company uses radio and GPS technology to monitor curfew and house arrest compliance — and alcohol monitoring devices to make sure offenders don’t drive under the influence again. GEO designs and manufactures these compliance devices which it sells to and administers on behalf of governments.

GEO operated as a REIT from 2013 to 2020. As a REIT, GEO enjoyed significant tax benefits but was required to distribute at least 90% of taxable income to its shareholders. Management decided to abandon its REIT status starting in 2021 so that it could freely allocate free cash flow toward reducing debt, paying dividends, buying back shares, and/or reinvesting in its businesses. Regarding GEO’s decision to de-REIT, CFO Brian Evans said, “We’re looking at what’s the best use of the company’s cash flow going forward, where are we going to get the most value for the cash flow that we generate.” Accordingly, the board voted to stop paying a dividend and instead prioritize allocating GEO’s free cash flow toward reducing its debt.

Between 2007 and 2023, GEO grew revenue 147%. Revenue per facility grew 46%.

GEO’s largest business in terms of revenue and operating income is its U.S. Secure Services segment. That division owns and operates private prisons on behalf of U.S. states and the federal government. While its revenue and operating income are up 141% and 101% from 2007 to 2023, its operating margin has been trending down from almost 24% in 2014 to under 18% in 2023.

GEO’s International Services business (private prisons overseas) generates 13% and 4% of the revenue and operating income of its U.S. counterpart. Not only is it much smaller than the U.S. business, it’s much more volatile as well (in part because of currency exchange rate changes).

The GEO Care segment used to include both Reentry Services and Electronic Monitoring and Surveillance Services (EMS). Then, several years ago, GEO Care was renamed Reentry Services, and EMS became an independent reportable segment.

Reentry Services includes residential and non-residential treatment, educational and community-based programs, and pre-release and half-way house programs. The company supervises individuals in community-based programs and reentry centers, provides temporary housing, education, mental health services, and employment assistance to help those reentering society reintegrate with their communities after leaving prison.

While Reentry Services revenue fell 23% between 2019 and 2023, the segment’s operating margin has stabilized at around 17%. Operating income is up 10% over that timeframe.

EMS is GEO’s most profitable and fastest-growing segment with an operating margin of 50%. The business supervises hundreds of thousands of offenders and pretrial defendants (up from 70,000 in 2013), using radio frequency, GPS, and alcohol monitoring devices. It generated $213 million in operating income in 2023. By contrast, GEO’s U.S. prisons business (U.S. Secure Services) generated $270 million in operating income in the same year. Between 2019 and 2023, EMS revenue and operating income grew 66% and 104% while U.S. Secure Services revenue and operating income shrank 5% and 16%.

At the time of this writing, GEO’s market cap is $1.84 billion. The company’s facilities and land together are worth almost $2.5 billion. Why is the company’s real estate alone worth more than the entire company? Because the company’s long-term debt was $1.726 billion as of the end of 2023 (down from $1.933 billion in 2022). So GEO’s real estate and long-term debt are about 135% and 93% of its market cap.

By contrast, McDonald’s has a market cap of $204 billion, and its real estate holdings and long-term debt are each almost 19% of that.

Another comp: Waste Management’s market cap is $85 billion, and its property and equipment are worth 47% of that. Its long-term debt is almost 19% of its market cap.

Thanks for reading.

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

Despite having 56 fewer landfills, Republic only has ~3% less capacity than WM, and both companies generate roughly the same free cash flow. Between 2009 and 2023, Republic’s FCF/cubic yard grew almost 200%. WM’s grew 60%.

Republic groups its customers into three categories: commercial (small container), industrial (large container), and residential. Between 2009 and 2023, the company’s industrial collections business grew the most with that segment’s revenue up 90%. Commercial collection revenue grew 74%. Residential was the slowest of the three, growing only 29% during that timeframe. These numbers are roughly the same as WM’s.

Republic has recently started reporting environmental solutions revenue. That business includes water treatment and disposal services; hazardous waste services; and field services like industrial cleaning, maintenance, and remediation for refineries, chemical plants, and manufacturing plants. The company has six hazardous waste landfills, nine energy waste landfills, waste storage facilities, salt water disposal wells, and deep injection wells. This business now accounts for 11% of the company’s revenue and grew 29% between 2022 and 2023.

Republic also acquired US Ecology in 2022 which puts the company in a position to benefit from PFAS cleanup activity. The CEO sees PFAS-related services eventually bringing in at least a billion dollars in additional revenue each year.

And like WM, Republic has been working on its renewable energy business by harnessing landfill gas (a byproduct of decomposing waste) and converting it into energy. Gas collection systems cover 87% of Republic’s landfill acreage. A third party develops and owns these gas collection systems, and Republic earns royalties on the energy sold. Republic also has a joint venture with Archaea Energy (which BP bought in 2023) to develop projects that convert gas to renewable natural gas (RNG). That RNG can be sold to third parties and used to fuel Republic’s fleet of trucks, turning a cost center (fuel) into a potential profit center.

Republic and WM have each reduced their shares outstanding by 17% between 2009 and 2023. Over that timeframe, Republic increased free cash flow per share by almost 300% compared to WM’s 90%. In 2023, Republic converted almost 14% of revenue to free cash flow. By contrast, WM converted about 9% of its revenue to free cash flow.

Thanks for reading.

Other related pieces:

• Waste Management: Working With Less

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By the end of 2023, management had reduced the company’s landfill count to 263. With ten fewer landfills, Waste Management could handle the same 5.2 billion in cubic yards and almost 12% more tons of waste than it could in 2009.

Over the same timeframe, revenue jumped 73%. But opex (labor, transfer, disposal, maintenance, repairs, fuel, and other operating costs) and capex (spending on recycling and renewable energy projects and on fixed asset purchases) increased 74% and 146%. Free cash flow increased 57%.

The value of Waste Management’s properties has also increased over the years. Its landfill holdings are now worth over $19 billion, and its waste collection vehicles are altogether worth almost $6.6 billion.

By buying back outstanding shares, management has been able to juice shareholder returns. Free cash flow per share is up over 90% from 2009 to 2023, and share count is down over 17%.

Waste Management’s customers are municipalities, restaurants, oil and gas companies, construction companies, and hospitals, among others. Management groups its customers into three categories: commercial, industrial, and residential. Between 2010 and 2023, the company’s industrial collections business grew the most with that segment’s revenue up 93%. Commercial collection revenue grew 71%. Residential was the slowest of the three, growing only 34% during that timeframe. The company’s largest customer represents less than 5% of its revenue.

Thanks for reading.

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

Under the franchise arrangement, franchisees are granted the right to operate a restaurant using the McDonald’s System and, in most cases, the use of a restaurant facility, generally for a period of 20 years. At the end of the 20-year franchise arrangement, the Company maintains control of the underlying real estate and building and can either enter into a new 20-year franchise arrangement with the existing franchisee or a different franchisee, or close the restaurant. Franchisees generally pay related occupancy costs including property taxes, insurance and site maintenance.

Rather than relying solely on royalties and selling supplies to franchisees, McDonald’s makes almost 40% of its revenue from leasing its properties to restaurant operators. Collecting rent protects the company from fluctuations in restaurant sales to a degree. The company’s lease agreements with franchisees provide for minimum rent payments and variable ones. Variable rent payments are based on a percentage of restaurant sales. So even when it comes to collecting rent, McDonald’s does share some of the risk associated with sales fluctuations. Tying a portion of lease payments to sales helps franchisees manage expenses during downturns and aligns the incentives between franchisee and franchisor.

When dealing with property developers, management structures its contracts to protect its control over prime retail locations.

For example, in 2018 McDonald’s sold one of its restaurant properties in Washington, D.C., to commercial developer JBG Smith for about $31 million. Almost six years later, in December of 2023, McDonald’s reacquired the property from JBG for just $11.5 million. Reportedly, the 2018 sales contract required JBG to re-develop the location and lease the ground floor unit to the fast-food chain at a rate below market rent. Apparently, the contract also gave McDonald’s the right to buy back the location for $11.5 million if JBG failed to redevelop the site by a certain date.

Today, McDonald’s owns 57% of the land under its restaurants and 80% of all McDonald’s restaurant buildings. Franchisees operate almost 95% of McDonald’s restaurants. The value of McDonald’s land and buildings accounts for about 60% of the company’s assets (before depreciation and amortization). And rental income from franchisees accounts for 64% of franchisee revenue (not to be confused with total revenue, of which, as previously mentioned, rental income accounts for 40%).

Thanks for reading.

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

To be clear, leadership believes cigarettes will still be around in thirty years, but it doesn’t believe that some of its major brands will last indefinitely. So management is opting to amortize some of the value of its major brands over three decades. If BTI were to sell its U.S. business to a buyer (like Altria) at a loss, the company could realize some tax benefits. Otherwise, the write-down does not provide a benefit to the company (aside from keeping the company in compliance with accounting standards). (March 2024 update: BTI announced plans to sell part of its ITC stake. Any taxable gains there could be offset by the write-down on its U.S. cigarettes business).

While BTI’s U.S. cigarette volumes have fallen 25% between 2018 and 2022, its U.S. cigarette revenue is up 25%, profit is up 55%, and operating margin is up 24% over the same timeframe.

Altria — BTI’s competitor in the U.S. — has also put up decent numbers over the same period. Despite its cigarette volumes dropping 24% between 2018 and 2022, its cigarette revenue has held steady with profit and operating margin both increasing by over 25%.

Altria’s cigarettes business from 2009 to 2022 shows the same trend of increasing profitability as volumes fall.

Despite its free cash flow, free cash flow margin, and dividend all roughly doubling or tripling between 2009 and 2022, Altria’s shares today trade at around the same price as they did in May of 2014. Moreover, Altria’s price-to-free-cash-flow multiple has halved since 2014, and its dividend yield has just about doubled.

Thanks for reading.

Other pieces on Altria:

• Cigarette Pricing + Demand

• The FDA’s Menthol Ban

• Nicotine Control in the U.S.

• Altria’s Market Share

• Capital Allocation at Altria

• M&A at Altria

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

History/Biography

• How to Hide an Empire: A History of the Greater United States (Daniel Immerwahr).

• What It Takes: Lessons in the Pursuit of Excellence (Stephen Schwarzman).

• The End of the World Is Just Beginning: Mapping the Collapse of Globalization (Peter Zeihan).

• Chip War: The Fight for the World’s Most Critical Technology (Chris Miller).

• The Glass Castle (Jeannette Walls).

Fiction

• I Am Pilgrim (Terry Hayes).

• Project Hail Mary (Andy Weir).

Management is laser-focused on transforming the company into a provider of smoke-free products. In the CEO’s own words: “We continue to make exciting progress on our smoke-free transformation, with smoke-free products accounting for almost one-third of PMI’s total net revenues in 2022.” The company’s heat-not-burn products (HNB) have taken off in Europe and Asia.

PMI’s smoke-free business rests on five distinct product “platforms.” Each platform represents a smoke-free nicotine delivery method.

Platform 1. Heating tobacco with a blade or via induction heating to produce an inhalable smoke-free aerosol. PMI’s heat-not-burn technology heats tobacco enough so that it releases the flavor and nicotine that naturally occurs in tobacco while reducing exposure to the tobacco stick’s toxins by 90-95%. No combustion takes place, so neither smoke nor ash is produced. Products using this method are IQOS, BONDS, and ILUMA.

Platform 2. Heating tobacco using pressed carbon to produce an inhalable smoke-free aerosol. No combustion. For the time being, management has canceled commercializing this technology due to consumer testing feedback.

Platform 3. Aerosolizing nicotine powder for inhalation using a non-electric device. No combustion. Still a work in progress (no commercialization yet).

Platform 4. Devices that produce an inhalable aerosol by vaporizing tobacco-free liquid. No combustion. Products using this method are BIDI and VEEV.

Platform 5. Snus and nicotine pouches. Snus is dried loose tobacco (i.e., snuff) which is consumed through the nose or mouth (between the lip and gum). Snus pouches contain a combination of shredded tobacco, water, salt, and flavoring. Nicotine pouches, on the other hand, contain pharmaceutical-grade nicotine derived from tobacco, cellulose, and flavoring. PMI’s most popular Platform 5 product is ZYN.

While growing share and raking in profits from its cash cow cigarettes business, PMI made a series of acquisitions in 2021 which led to the launch of the company’s health and wellness business. Management plans to use this new venture to develop healthcare products that will drive growth “beyond nicotine.”

Acquisition of OtiTopic

In August of 2021, PMI acquired OtiTopic, an inhaled drug specialist.

OtiTopic developed a dry powder of aspirin that heart attack patients could inhale. The drug would enter the respiratory system via the lungs and hit the bloodstream in under two minutes. In contrast, oral aspirin takes twenty minutes to enter the bloodstream. Otitopic’s product is a non-invasive, heart-specific therapy designed to quickly inhibit platelets in those experiencing heart attacks, but it has struggled in clinical trials. The method of delivery here aligns with Platform 3.

Acquisition of Fertin Pharma

In September of 2021, PMI acquired Fertin Pharma, a contract development and manufacturing organization (CDMO) specializing in oral drugs. Fertin develops and manufactures tablet, gum, lozenge, and pouch powder products with applications that include nicotine and cannabinoids but also vitamin and energy supplements, oral care, pain management, and sleep. The method of delivery here aligns with Platform 5.

Acquisition of Vectura

Also in September of 2021, PMI acquired Vectura, another inhaled drug specialist (also a CDMO), best known for working with Big Pharma to commercialize inhaler products. Vectura has mastered the process of bringing inhaled drugs to market. The company has three core competencies:

1. Drug development. Formulating drug therapies, conducting pharmaceutical analyses for regulatory submissions, and choosing the right inhalation device for the proposed drug (the company has a selection of proprietary inhaler and nebulizer technologies to choose from).

2. Manufacturing. Scaling a product up from the lab to commercial viability via the company’s contract manufacturing capabilities.

3. Regulatory approval. Vectura has substantial in-house expertise in navigating the requirements imposed on the inhaled medicine industry by regulatory organizations all over the world. Some of the products developed and manufactured by Vectura are prescribed to treat diseases that result from cigarette use.

Post-acquisition, PMI combined Vectura with Fertin Pharma, forming a new company called Vectura Fertin Pharma. Per the 2022 annual report, the new business is focused on developing inhalable and oral products that “have a net positive impact on society.” PMI reports the operating results of this business under a new segment called “Wellness and Healthcare.”

So, in addition to milking its lucrative cigarettes business and growing its smoke-free nicotine business, management is now also focused on developing and distributing non-nicotine healthcare products to consumers.

Shareholders would probably be better off if management did not pursue plans to develop non-nicotine healthcare products. Since 2009, management has spent $6 billion on R&D. The result has been a series of very commercially successful inhaled nicotine products. If the purpose of PMI’s $2-3 billion acquisition spree on Otitopic, Fertin, and Vectura was to add to its nicotine tech and talent stack, that might be fine. But launching a money-losing business unrelated to nicotine could turn out to be a costly distraction. Instead, capital might be better spent on share repurchases and paying out dividends. The future of this company should not depend on aspirin inhalers and COPD nebulizers.

Acquisition of Swedish Match (and AG Snus)

Following its acquisition of Danish snus manufacturer AG Snus in 2021, PMI purchased Swedish Match in November of 2022. The acquisition gave PMI the world’s number one nicotine pouch brand (ZYN) and a retail distribution network in the U.S. rivaling that of Altria.

Acquisition of U.S. IQOS Rights

In October of 2022, PMI bought back from Altria the rights to commercialize IQOS in the U.S. starting in 2024. It is expected that PMI will plug its lineup of IQOS products into Swedish Match’s retail distribution network in the U.S.

Altria-PMI Merger Chatter

There has been some talk about PMI potentially merging with its former parent company. In 2020, the two companies discussed the possibility of recombining, but PMI management backed away from the idea.

Thanks for reading.

Other pieces in this series on PMI:

• The New and Improved Philip Morris International

• Philip Morris International: Europe

• Philip Morris International: Middle East & Africa

• Philip Morris International: Americas

• Philip Morris International: Asia (+ Australia)

• Philip Morris International: Comparing Markets

• Philip Morris International: Market Share

• Philip Morris International: Capital Allocation

• Nicotine as a Nootropic

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

So far this year, I’ve published several research pieces on Altria and Philip Morris. These two are often criticized for selling addictive products that cause disease.

But exactly what is it about cigarettes that make them so harmful?

While nicotine certainly makes cigarettes addictive, the harmful effects of smoking actually stem from the inhalation of smoke and the many chemicals found in tobacco leaves, not from nicotine itself.

In other words, nicotine is not the issue. However, the delivery of nicotine can be problematic.

Surprisingly, nicotine does not cause cancer. Nor does it cause heart disease. In fact, nicotine alone actually has a number of positive effects on brain health and mental performance. And billions of people consume it everyday.

Nicotine According to Andrew Huberman

Andrew Huberman is a professor of neurobiology at Stanford.

Nicotine is a substance that can promote cognitive function. It enhances focus and motivation. And it can be protective against certain forms of cognitive impairment — it can offset neurodegeneration and help protect against Parkinson’s and Alzheimer’s, which are linked to the deterioration of dopamine in the brain. Nicotine also suppresses appetite and increases metabolism.

When nicotine gets into the bloodstream and reaches the brain, it has three major effects:

1. Nicotine triggers the release of dopamine (feelings of alertness, wellbeing, and motivation).

2. Nicotine increases acetylcholine in the brain. Acetylcholine enhances focus, concentration, and mental performance. This effect lasts about thirty to forty-five minutes. Studies show that an increase in acetylcholine before and during learning improves information retention.

3. Nicotine triggers the release of norepinephrine, which increases alertness and energy levels.

These effects explain why — addictive properties aside — so many people consume nicotine. Like caffeine in coffee, nicotine enhances short-term mental performance and increases energy levels.

The main issues with nicotine are how its consumed and its addictive nature. The negative effects of smoking and vaping far outweigh the mental performance and brain health benefits of nicotine. But if nicotine can be consumed without smoke and harmful chemicals, it can have a positive impact.

Nicotine According to Dr. Peter Attia

Dr. Attia is a physician (MD from Stanford) focused on longevity science.

Dr. Attia uses nicotine gum and pouches when he wants to enhance his mental performance. Surprisingly, he claims that he has been able to use nicotine for ten days at a time without developing an addiction. He uses it when he wants to write or focus on some work. He says nicotine can also induce weight-loss.

Nicotine isn’t dangerous. There are almost 70 carcinogens in cigarettes. But nicotine isn’t one of them. The World Health Organization does not list nicotine as a carcinogen. It does, however, list red meat and processed meat as potentially cancer-causing.

Nicotine is not the problem with cigarettes or vaping. The problem is the toxicity caused by the delivery of nicotine in the form of tobacco and vaping chemicals.

In my next piece, I will cover PMI’s M&A activity and the company’s efforts to develop and distribute safer methods of nicotine delivery.

Thanks for reading.

Other pieces in this series on PMI:

• The New and Improved Philip Morris International

• Philip Morris International: Europe

• Philip Morris International: Middle East & Africa

• Philip Morris International: Americas

• Philip Morris International: Asia (+ Australia)

• Philip Morris International: Comparing Markets

• Philip Morris International: Market Share

• Philip Morris International: Capital Allocation

This piece is for informational purposes only. You should not construe anything herein as medical, investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes medical, professional, and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

So from 2009 to 2022, management has dished out ~80% of the value of the company to shareholders (the company reduced its share count by over 20% between 2009 and 2022).

Since 2009, PMI’s average annual spend on maintaining, buying, and improving its fixed assets — properties like factories and equipment — has amounted to ~11% of operating cash flow. The business has converted almost 90% of operating cash flow to free cash flow for over almost fifteen years. Altria, on the other hand, has on average converted over 95% of its OCF to FCF.

PMI has had higher capital expenses compared to Altria because its business is global. While Altria only has to spend on factories and equipment in the U.S. (Altria’s annual report lists just two manufacturing facility locations — Richmond, VA, and Nashville, TN), PMI has to foot the bill for over fifty manufacturing facilities located all over the world.

Indeed, Altria’s management team has highlighted the concentration risk inherent in its reliance on just a few manufacturing facilities.

So while PMI’s capital expenses are higher than Altria’s, its business isn’t exposed to the same sort of concentration risk with respect to manufacturing capabilities.

PMI’s ability to generate substantial free cash flow depends in large part on management’s control over costs. While PMI’s revenue is up ~27% from 2009 to 2022, its cost of materials and labor (COGS) has increased just as much.

And while gross profits are up 27% over the same period, PMI’s SG&A (salaries, rent, distribution costs, etc.) has increased 38%.

In these two areas (COGS and SG&A), PMI has been less efficient than Altria. These differences are due in part to PMI’s sprawling, global operations compared to Altria’s sole focus on one geographical region (the U.S.).

PMI has also invested heavily in new nicotine delivery technologies. That R&D accounts for just 2% of revenue.

Thanks for reading.

Other pieces in this series on PMI:

• The New and Improved Philip Morris International

• Philip Morris International: Europe

• Philip Morris International: Middle East & Africa

• Philip Morris International: Americas

• Philip Morris International: Asia (+ Australia)

• Philip Morris International: Comparing Markets

• Philip Morris International: Market Share

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

Marlboro’s brand strength is not limited to the U.S. market. PMI’s flagship brand — and the number one cigarette brand in the world — accounts for almost 10% of global volumes outside of the U.S. and China. But while PMI’s U.S. counterpart, Altria, relies almost exclusively on Marlboro to generate operating income for its combustibles segment, PMI has four additional brands that are taking share alongside Marlboro. These five brands — Marlboro, L&M, Chesterfield, Philip Morris, and Parliament — have grown their aggregate marketshare from 16.5% in 2014 to over 19% in 2022. Not one of them has lost market share over that timeframe.

PMI holds a minimum market share of 15% in over 100 countries. Italy, the Philippines, Turkey, Mexico, and Argentina stand out as PMI strongholds. While PMI has seen steep drops in share in the latter two in recent years, the company still holds over 60% share in both markets.

Given PMI’s strong presence (15+% share) in almost every corner of the globe, the growing share of its top five cigarette brands, and management’s ability to make up for losses in cigarette share with gains in IQOS share, the company’s market position looks very strong.

Thanks for reading.

Other pieces in this series on PMI:

• The New and Improved Philip Morris International

• Philip Morris International: Europe

• Philip Morris International: Middle East & Africa

• Philip Morris International: Americas

• Philip Morris International: Asia (+ Australia)

• Philip Morris International: Comparing Markets

PM -0.31%↓

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

PMI’s Asia market is also significant, generating 31% of revenue and 27% of operating income off of 31% of PMI’s volumes.

PMI’s Americas market has not played a big role for PMI yet, but that is all but guaranteed to change in the coming years thanks to the Swedish Match acquisition and management’s decision to buy back the rights to IQOS in the U.S.

And while smaller than PMI’s Europe and Asia businesses, ME&A has something Europe and Asia don’t: resilient volumes. ME&A volumes are down only 2% since 2016 compared to Europe and Asia where volumes are down over 8% and 15%, respectively, over the same timeframe.

Europe is also PMI’s most valuable market when it comes to the company’s smoke-free business. While Asia led the way during IQOS’s first few years, Europe caught up by 2020. In fact, Europe’s 2022 smoke-free revenue was greater than the company’s total smoke-free revenue in 2019. Europe now generates 64% of PMI’s smoke-free revenue and 57% of heated tobacco volumes. Asia accounts for almost all of the rest. If IQOS gains traction in ME&A and as management turns its attention to executing in the U.S., PMI’s reliance on Europe and Asia could moderate over the next several years.

Thanks for reading.

Other pieces in this series on PMI:

The New and Improved Philip Morris International

Philip Morris International: Europe

Philip Morris International: Middle East & Africa

Philip Morris International: Americas

Philip Morris International: Asia (+ Australia)

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

Japan 🇯🇵, South Korea 🇰🇷, China 🇨🇳, Malaysia 🇲🇾, Singapore, and Australia 🇦🇺 make up PMI’s EA&A market. EA&A accounts for 16% of PMI’s revenue and operating income.

EA&A revenue and operating income are each up 20% and 13%, respectively, from 2016 through 2022. Smoke-free revenue now accounts for 58% of all revenue in this market. And heated tobacco accounts for 48% of volumes there. Total volumes are flat from 2016 through 2022.

Prevalence in EA&A is high:

• Japan: ~20% (25 million smokers).

• South Korea: ~20% (10 million).

• China: ~25% (350 million — though this market is controlled almost exclusively by a state-owned company).

• Singapore: ~16% (.86 million).

• Australia: ~11% (2.75 million).

Despite strong e-cigarette adoption in EA&A, which has helped volumes hold steady over the years, PMI’s IQOS products have faced stiff competition from other e-cig companies, putting pressure on prices.

And regarding PMI’s business in Australia:

If we take a step back from the United States and look to Australia, we can get a better sense for how well smoking rates hold up in the face of extreme pricing and cost relative to income. The average Australian smoker burns through 13 cigarettes per day compared to 14 per day in the U.S. A pack of 20 cigarettes in Australia costs $35 (more than four times the average price in the U.S.). It’s almost three times as expensive in terms of cost relative to income to be a smoker in Australia than it is in New York (smoking costs almost 12% of the median Australian household income compared to over 4.5% in New York). And yet, over 11% of Australians still smoke, which is higher than in California where cigarettes are a little over 25% the price and where smoking is over three times more affordable. While Australia has succeeded in using annual price hikes as high as 12.5% to drive its smoking rate down from 25% in 1991 to under 12% today, the effect of price increases on prevalence reduction has stalled over the last few years. Australians are quitting at much lower rates these days despite continued hikes on already all-time-high cigarette prices.

South & Southeast Asia.

India 🇮🇳, Indonesia 🇮🇩, the Philippines 🇵🇭, Bangladesh 🇧🇩, Thailand 🇹🇭, and Pakistan 🇵🇰 are among some of the countries that make up PMI’s S&SEA market. S&SEA accounts for 14% of PMI’s revenue and 12% of its operating income.

From 2016 through 2022, while S&SEA volumes have dropped 22%, revenue has been flat and operating income is down just 1%. PMI’s smoke-free products have almost no presence in this market. That means that the pricing power of combustibles alone has kept PMI’s revenue and profits afloat there.

Prevalence in S&SEA is higher than it is in EA&A:

• India: ~27% (378 million smokers).

• Indonesia: ~38% (103 million).

• Philippines: ~24% (27 million).

• Bangladesh: ~39% (65 million).

• Thailand: ~22% (15 million).

• Pakistan: ~20% (46 million).

Because PMI sells its products in local currencies, it gets burned when it converts those weaker currencies into the stronger U.S. dollar. That’s why operating income decreased from 2021 to 2022. In 2019, PMI jacked up prices in S&SEA while volumes held steady, generating significant operating income. The 2020 pandemic drove a steep drop in volumes which have been flat since then.

S&SEA is very different from its EA&A counterpart. While EA&A boasts the highest proportion of smoke-free revenues and volumes out of all of PMI’s markets, S&SEA has stuck almost exclusively to combustibles.

PMI’s IQOS products have had almost no traction in S&SEA because countries like India and Thailand have banned e-cigarettes altogether. If countries like Indonesia and the Philippines adopt more permissive, allow-and-regulate approaches to e-cigarettes, India, Thailand, and others in the region might reverse their e-cig bans and follow suit. In the meantime, combustibles will likely continue to reign supreme in this market for the foreseeable future.

Asia (+ Australia) as a whole.

In aggregate, PMI’s business in Asia accounts for 30% of revenue and 28% of its operating income.

Revenue and operating income across Asia are up 10% and 7%, respectively, from 2016 through 2022. Smoke-free revenue now accounts for 32% of all revenue in Asia. And heated tobacco accounts for 18% of volumes on the continent. Volumes have dropped 15% from 2016 through 2022 but have stayed virtually flat from 2020 to 2022.

While steady volumes and pricing power have made Asia a lucrative market for PMI, weak currencies on the continent and e-cig competition in EA&A have been a drag on operating income. PMI’s Asia business would no doubt benefit from a weaker dollar and regulation that would keep e-cigarette competition at bay in Japan and South Korea.

Thanks for reading.

Other pieces in this series on PMI:

The New and Improved Philip Morris International

Philip Morris International: Europe

Philip Morris International: Middle East & Africa

Philip Morris International: Americas

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

• Roughly 12% of American adults smoke. That’s ~30 million smokers. Management no doubt sees those ~30 million as an opportunity to substantially increase its IQOS user base. For some perspective, there are ~35 million smokers in France and the U.K. combined, where about 33% and 15% of adults smoke, respectively.

• 17.5% of Canadians smoke. ~7 million smokers.

• 13% of Mexicans and Brazilians smoke. ~44 million smokers.

• 25% of Argentinians smoke. ~11 million smokers.

Litigation in Canada has made PMI’s Americas business look bad on paper. PMI lost a litigation battle in Canada against Canadian smokers who claimed damages from smoking PMI’s products. A Canadian court granted PMI’s subsidiary there creditor protection, which required PMI to deconsolidate its Canadian subsidiary. Thus, PMI cannot include in its financials any of the revenue, operating income, etc. earned by its Canadian subsidiary until management reaches a settlement with its creditors there.

As a result of the deconsolidation of its Canadian subsidiary, revenue, volumes, and operating income from the Americas are down 33%, 24%, and 54%, respectively. Smoke-free revenue accounts for just 5% of total revenues in this market, while heated tobacco accounts for less than a percent of volumes.

Despite this superficial underperformance, under the hood, PMI’s Americas business actually looks not too bad. First, with smoke-free’s share of revenue sitting at just 5% in the Americas, PMI has a lot of opportunity to grow that side of its business. Second, pre-deconsolidation (2016-2018), revenues and operating income were up 8% and 22%, respectively. Volumes were down 8%. And third, post-deconsolidation (2020-2022) revenues have grown 12%, with volumes up 4%. Due to a tax credit in Brazil, rising manufacturing costs, charges relating to the Swedish Match acquisition, and higher administrative, marketing, and research costs, operating income in the Americas has trended down 23% post-deconsolidation.

Looking ahead several years, for those who can get FDA authorization, there’s a lot of opportunity for sellers of non-combustibles in the States. PMI’s imminent entry into the U.S. e-cigarette market could soon turn out to be a golden goose for the company.

With a population of over 330 million, growing half a percent each year, earning a high median income relative to the rest of the world, the U.S. will likely be PMI’s most exciting market over the next decade. Probably the most important aspect of PMI’s Swedish Match acquisition was gaining control over the Zyn-maker’s vast distribution network, covering gas stations, 7-Elevens, Krogers, Harris Teeters, Walgreens, and many other retailers across the country. Having bought back from Altria the right to sell IQOS in the U.S. (starting in 2024), Swedish Match’s distribution network sets PMI up nicely to introduce its IQOS products to American smokers and e-cigarette users, assuming management can secure PMTA authorizations from the FDA for its new products.

If PMI’s success in Europe is any indication, it would not be surprising to see PMI take share from existing combustibles in the U.S. over the next several years. And if the FDA finally gets around to removing non-PMTA-authorized products from store shelves, those few companies left standing (e.g., Altria, BTI, PMI, and Imperial) will likely monopolize the American e-cigarette market much like they do the combustibles market today.

Thanks for reading.

Other pieces in this series on PMI:

The New and Improved Philip Morris International

Philip Morris International: Europe

Philip Morris International: Middle East & Africa

This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.

All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content.

Africa’s population is over 1.3 billion and is growing at about 2.5% per year. The continent’s population is expected to reach 2.5 billion by 2050. Despite lower per capita income in Africa compared to that in PMI’s developed markets, the continent represents a significant growth opportunity for the company as Africans are expected to grow wealthier in the coming decades. And smoking rates in African countries are high:

• 30% of South Africans smoke.

• 23% of men in Morocco smoke.

• 20% of men in Kenya smoke.

• 42% of men in Egypt smoke.

• 36% of men in Algeria smoke.

• 25% of men in Zimbabwe and Zambia smoke.

From a long-term pricing perspective, this combination of population growth and prevalence in Africa is good news for PMI.

PMI’s Middle East market is more developed and has a population of over 200 million (PMI doesn’t do business in Iran or Syria) that is growing, but not as fast as Africa’s. Some populations, like Lebanon, are actually shrinking.

Among Middle Eastern countries, Turkey and Saudi Arabia are most important to PMI. They are the largest markets by population (85 and 36 million, respectively) and each is growing 1.5% per year. 30% of Turks smoke — a level of prevalence last seen in the United States in the 1970s. Over 30% of men in Saudi Arabia and the UAE smoke. Over 40% of Lebanon’s population smokes. In comparison, only 12-15% of Americans smoke.

ME&A (plus the international duty free business) accounts for 12% of PMI’s revenue and 14% of its operating income.

ME&A revenues are down 14% from 2016-2022. Operating income is down 12% during the same timeframe. Smoke-free revenue accounts for 9% of all revenue in ME&A. Total volumes are virtually flat (down 2% from 2016-2022) with heated tobacco accounting for just 3% of units sold. In other words, PMI’s volumes have held up remarkably well in ME&A, and the company’s smoke-free business hasn’t even scratched the surface.

The coronavirus pandemic put a pretty big dent in PMI’s ME&A business in 2020 and 2021. The international duty free business was down 62% in 2020 because of travel restrictions and reduced travel worldwide. PMI’s 2020 volumes in South Africa dropped 35.5% because of the government’s pandemic-related ban on all tobacco sales from March-August in 2020. Volumes in Turkey dropped 4% in part because of lockdown measures in 2020. As of 2022, revenues, volumes, and operating income have bounced back.

PMI’s efforts on the smoke-free front haven’t seen much success yet in the Middle East because of government restrictions on e-cigarettes. While e-cigarette use in Turkey and Saudi Arabia is permitted, e-cigarette sales are not. If management can unlock the regulatory shackles that are holding back e-cigarette sales in these markets, PMI’s performance in ME&A could later mirror the company’s success so far in Europe.

Thanks for reading.

Other pieces in this series on PMI:

The New and Improved Philip Morris International

Philip Morris International: Europe

France 🇫🇷, Germany 🇩🇪, Italy 🇮🇹, Poland 🇵🇱, Romania 🇷🇴, and the U.K. 🇬🇧 are some of many countries that make up PMI’s E.U. + U.K. market. The E.U. + U.K. market’s population is over half a billion — larger than the U.S. 🇺🇸 but smaller than China 🇨🇳. This market accounts for 38% of PMI’s revenue and 47% of its operating income.

Revenue and operating income in the E.U. + U.K. are each up 48% from 2016-2022. Smoke-free revenue now accounts for 40% of all revenue in this market. And heated tobacco accounts for 19% of volumes there. Total volumes are growing again in the E.U. + U.K. thanks to the popularity of PMI’s heated tobacco products.

Eastern Europe.

Russia 🇷🇺 and Ukraine 🇺🇦 account for 70% of PMI’s revenue in Eastern Europe. This market accounts for 12% of PMI’s revenue and 9.5% of its operating income.

Revenue and operating income in Eastern Europe are up 50% and 31%, respectively, from 2016-2022. Smoke-free revenue now accounts for 35% of all revenue in this market. And heated tobacco accounts for 23% of volumes.

The Russia-Ukraine conflict has been a material problem for PMI. Ukraine accounts for 2% of the company’s global volumes and 1% of its global revenues. PMI still sells its products in Ukraine, but it suspended its manufacturing activities there.

Russia accounts for 9% of PMI’s global volumes and 7% of its global revenues. PMI has discontinued many of its products in Russia, suspended marketing campaigns, cancelled product launches, and scaled down manufacturing there. The company is contemplating divesting its Russia business, but management says regulatory hurdles would make exiting very hard to do. PMI is likely hoping the conflict resolves sooner rather than later so that the company can continue doing business there.

In the meantime, PMI has stepped up to support Ukrainians:

“Since the onset of the war in Ukraine, our main priority has been the safety and security of our more than 1,300 employees and their families in the country. PMI has helped to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict zones to locations in the country away from the heaviest fighting; provided critical aid to employees who cannot leave or who decide to remain in Ukraine; and provided those who have left the country with a range of support in neighboring countries. We are continuing to pay salaries to all our Ukrainian employees and are also providing substantial in-kind support to them and their families. In addition, we have contributed approximately $10 million in funds and donated essential items across the country.”

(PMI’s 2022 10-K).

Management noted that the company may face punishment from the Russian government for its decision to suspend aspects of its business in Russia. The company has continued to keep its employees in Russia on its payroll.

Europe as a whole.

In aggregate, PMI’s business in Europe accounts for almost half of the company’s revenue and about 57% of the company’s operating income.

Revenue and operating income across Europe are up 49% and 45%, respectively, from 2016-2022. Smoke-free revenue now accounts for 39% of all revenue in Europe. And heated tobacco accounts for 20% of volumes on the continent.

Volumes have been virtually flat from 2018-2022 as heated tobacco has made up for the decline in combustibles. In 2022, volumes in Russia and Ukraine dropped 3.6% and 18%, respectively, causing a very slight dip in total volumes for PMI’s Europe business that year. Aside from the negative effects of the Russia-Ukraine conflict, PMI’s business in Europe looks strong.

Thanks for reading.

Without abandoning its cash-cow cigarette business, PMI has pivoted to selling reduced-risk nicotine products. It’s going well. Reduced-risk (i.e., heated tobacco) volumes are up almost 1600% from 2016 to 2022. Total volumes are up almost 4% from 2020 to 2022. Combustibles are almost flat over the same timeframe.

This turnaround in volumes suggests that the global nicotine market could be growing rather than shrinking. Another explanation: PMI is taking share from its competitors. Either way, PMI is the opposite of a melting ice cube. In fact, PMI has been growing revenue since 2016 when it started heavily promoting a smoke-free future centered on its reduced-risk products (RRPs). Smoke-free revenues now account for a third of PMI’s top line.

Operating income is starting to take off too. Though, it would be reasonable to expect some fluctuation in that department as PMI works through losses relating to the Russia/Ukraine conflict, the Swedish Match acquisition, RRP development costs, and management’s continued investment in the company’s new “wellness and healthcare” segment. Yes, despite the irony, management claims to be staking at least a part of the company’s future on healthcare products. We’ll see where that goes.

Overall, given the turnaround in volumes, PMI is well-positioned for growing profits over the long term. After years of developing and promoting its lineup of reduced risk products, it looks like management’s long game is paying off.

Thanks for reading!

In 1970, well-before changing its name to Altria in 2003, Philip Morris outbid Pepsi to acquire Miller Brewing Company (MBC) from specialty chemicals business W. R. Grace & Company. The acquisition gave Philip Morris a foothold in the global beer market.

Decades later in 2002, South African Breweries (SAB) bought MBC from Philip Morris. But Philip Morris held on to a large chunk of the newly-created beer conglomerate plus substantial voting rights.

Then, in 2016, Anheuser-Busch InBev bought SABMiller. Through its stake in SABMiller, Altria ended up with ownership of over 10% of the combined entity plus a couple of board seats. (Altria had to buy shares on the open market to get over the 10% stake threshold for tax reasons).

Altria has held on to its stake in AB InBev to this day and received billions of dollars in dividends as a result.

Food can be addictive too.

In the 1980s, Philip Morris bought General Foods and Kraft Foods, combining the two under the Kraft name. (PM also acquired Nabisco in 2000, consolidating it with Kraft).

Under Philip Morris’s ownership, Kraft food scientists formulated their food products to be somewhat addictive. The goal was to optimize the taste of their food products to maximize desire and keep consumers coming back to their products again and again. If you’re interested in this chapter of Altria’s past, I recommend reading Salt Sugar Fat: How the Food Giants Hooked Us by Michael Moss.

Philip Morris executives helped Kraft executives rescue products with struggling sales and grapple with public health concerns centered on Kraft’s contributions to obesity and heart disease. Philip Morris was, of course, around the same time also dealing with the public’s growing disdain toward tobacco products.

In 2008, Altria got out of the food business by spinning off Kraft.

Cigarillos.

In 2007, Altria acquired the maker of the very popular Black & Mild cigar brand, John Middleton Co. Altria still owns the company today.

Black & Mild holds around 30% market share in its category, and volumes have increased over 40% from 2009 to 2021.

Unchaining Philip Morris International.

In 2008, Altria spun off its international tobacco business, Philip Morris International (PMI). The spinoff freed the international unit from the legal and regulatory constraints imposed by U.S. federal and state governments, enabling it to focus on foreign markets.

Adding smokeless tobacco to the lineup.

In 2009, following the Kraft and PMI spinoffs, Altria acquired UST (owner of dip brands like Copenhagen and Skoal), adding smokeless oral nicotine to its roster of nicotine products.

Altria had announced plans to enter the dip market with its own Marlboro Snus offering in 2007. But it abandoned those plans after acquiring UST, whose Skoal and Copenhagen brands dominated the oral nicotine market.

The UST acquisition included a wine subsidiary which Altria sold in 2021.

UST’s portfolio of oral nicotine products remains an important part of Altria’s business today, accounting for ~15% of operating income. This segment of Altria’s business has grown its volumes and revenues by 27% and 91%, respectively, from 2009 to 2021.

Vaping: The next big thing.

In the first half of the 2010s, Altria jumped into the vaping business when it bought Green Smoke in 2014 through its Nu Mark subsidiary.

Altria’s vaping products — MarkTen and Green Smoke — were failures. MarkTen and Green Smoke managed to capture only 4% of the vaping market while Juul took 75%.

Thus, in 2018, mirroring its approach to the oral tobacco market almost a decade earlier with its acquisition of UST, Altria discontinued MarkTen and Green Smoke and took a 35% stake in Juul for $12.8 billion.

While Altria still holds that 35% stake today, the value of its investment has dropped 95%. And Juul’s market share has dropped from 75% to around 30% in 2022.

Today, Juul’s CEO and chief regulatory officer are former Altria executives. Juul is exploring the possibility of selling itself to Altria, PMI, and Japan Tobacco.

Dumping cigars. Keeping luxury cigarettes.

In 2017, Altria purchased Nat Sherman International, a luxury tobacco company focused on high-end cigarettes, cigars, and pipe tobacco.

When Altria declared in 2018 that it supported FDA regulation of all tobacco products, including premium cigars, the company drew criticism from the premium cigar industry (and its own Nat Sherman team) which had historically lobbied for more friendly regulation of premium cigars relative to that of cigarettes.

In 2019, Altria announced its intent to sell Nat Sherman International’s cigar business, but it could not find a buyer. So in 2021, it opted instead to sell a number of Nat Sherman’s cigar brands to a couple of Nat Sherman executives and discontinue the remaining pieces of the business.

Altria did, however, hold on to the Nat Sherman luxury cigarette brand (“Nat’s”) which it still sells today.

Marijuana.

In 2018, Altria bought 45% of Cronos, a Canadian cannabis company.

The deal gave Altria the option to take a controlling stake in the company in the future as well as immediate control of the board.

In 2022, Altria abandoned its option to take a majority stake in the company.

Today, Cronos holds an option to buy a 10+% stake in PharmaCann, a vertically integrated dispensary company with over 50 licensed retail locations across eight states.

Nicotine pouches.

In 2019, Altria bought 80% of nicotine pouch company “On!”

Nicotine pouches are an inconspicuous, spit- and smoke-free way of consuming nicotine. No smoke means that they’re probably much safer than cigarettes.

Nicotine pouches are also tobacco-free, making the product likely much less harmful compared to UST’s Skoal and Copenhagen oral tobacco products.

The nicotine pouch market in the U.S. grew 300 times between 2016 to 2021. There are over a million U.S. pouch users (compared to tens of million smokers).

Swedish Match’s Zyn product has dominated this market since 2016. Zyn holds about 60% market share while On! holds about 25%.

Altria bought the remaining 20% of On! in 2021, and PMI bought Swedish Match in 2022, setting up the pair to go head-to-head on Altria’s turf.

Thanks for reading!

Other pieces in this series on Altria:

• Cigarette Pricing + Demand

• The FDA’s Menthol Ban

• Nicotine Control in the U.S.

• Altria’s Market Share

• Capital Allocation at Altria