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Going to Pot 

Will the latest vaping controversy help push Richmond’s Altria more into the cannabis market?

click to enlarge An image of a used Juul vaping device.

An image of a used Juul vaping device.

On June 23, Richmond area fans of vaping got distressing news. The U.S. Food and Drug Administration was going to pull all Juul electronic cigarette products from stores for safety reasons.

The outcry was big enough that on July 5, FDA temporarily suspended the order, pending more studies of Juul’s product, which is highly popular. The agency noted on Twitter it had “determined that there are scientific issues unique to the Juul application that warrant additional review."

One company caught in the bind is one of Richmond’s largest – Altria. And the controversy might push the cigarette giant more into cannabis as it tries to move away from tobacco, analysts say.

“Expanding on its position in cannabis could be one way for Altria to reposition its efforts and focus on a different growth avenue,” says David Jagielski, a contributing analyst for The Motley Fool.

Altria has already spent big money towards that path. Betting on the big potential for cannabis, it spent $1.8 billion in 2018 to buy about 42% of Cronos Group, a cannabis company based in Canada which has more liberal policies on marijuana than the United States. Also that year, and with the same strategy in mind, Altria bought a 35% stake in Juul.

But the pot play has run into snags. Congress has yet to pass laws that make cannabis legal. Until it does, Altria is hamstrung. Virginia has made possession of an ounce of marijuana legal but there is considerable confusion about unregulated products and more details that need to be worked out with legislation.

Until a federal law is passed, Altria is likely to run into trouble with stock exchanges such as the New York Stock Exchange and NASDAQ, which have strict rules about listing firms that may be illegally making and selling marijuana products, Jagielski told Style Weekly.

Asked about the situation, Altria spokesperson Jennifer Kelley sent Style Weekly this statement:

“We believe a federally legalized US market presents a significant opportunity for adjacent, long-term growth. We support a comprehensive federal framework for all cannabis products that is based on science and evidence, and we're hopeful that there will be a fully legalized and federally regulated THC cannabis market for adults 21 and over.”

Still, Altria is pushing ahead. According to Forbes magazine, the firm has hired top cannabis lobbying firms Brownstein, Hyatt Farber & Schreck and Akin Gump Hauer and Feld to try to pressure Congress and state legislatures to liberalize cannabis policies.

Altria’s purchase of part of Cronos drew skepticism but could be a way to fast track production and marketing of cannabis once the legal hurdles are surpassed. Cronos products are sold in Canada under such brand names as Peace Naturals, Lord Jones ad Happy Dance.

Cronos could help Altria plan for mass production and marketing of Altria products since it has the expertise. The firm, however, is weak among its Canadian rivals, Jaglielski says.

“Cronos normally incurs losses and its growth hasn't been all that great. It generates a fraction of the revenue that larger companies (Canopy Growth, Tilray) make,” says Jagielski.

He notes that Cronos is working on lab-made cannabis that could be “easier to scale, cheaper to make, and would drastically improve its prospects for profitability,” he says. Attempts to contact Cronos were unsuccessful.

Another temporary solution would be for Altria to move into hemp-based products. The difference lies in the different levels of Tetrahydrocannabinol (THC), the substance that gives users a euphoric high.

Hemp-based products have smaller levels of THC than cannabis ones. Jaglielski points out that hemp does not have the sales potential that cannabis does.

Should laws change and cannabis is legal, Jagielski says that cannabis products could be produced at Altria’s Philip Morris USA plant in Richmond. They also could be made by Cronos in Canada and shipped into this country. At the moment, the Canadian government forbids cannabis exports to the U.S.

There are still considerable risks for Altria as its experiences with electronic cigarettes have shown.

Altria came out with its own e-cigarette, the Mark Ten, but it stopped production.

Juul has a history of regulatory problems. It has been formally chided for targeting minors in its marketing. Now, its website states boldly that “Juul was created for adult smokers only” and “Warning: This product contains nicotine. Nicotine is an addictive drug.”

It isn’t clear what more scientific evidence that the FDA wants from Juul. The company did not respond to an email asking for comment.

Until then, Altria is in a holding pattern. Says Jagielski: “Due to the federal ban on marijuana in the U.S., it hasn't launched any products of its own and that's not likely to happen until marijuana legalization takes place.”

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