Altria launches Iqos tobacco device in US, and the timing couldn’t be better

ATLANTA — Marlboro maker Altria started developing its new tobacco device more than a decade ago — as smoking rates declined but long before vaping took hold in the U.S.

It took another two years for regulatory clearance. But Altria is finally launching Iqos in the U.S. this week, and the company’s timing — though coincidental — couldn’t be better.

Iqos isn’t a vaping device nor is it a cigarette. It heats tobacco, but doesn’t burn it, giving users the same rush of nicotine as smoking with fewer toxins. It also comes amid public panic over an outbreak of a deadly lung disease that’s killed at least 18 people. U.S. health officials have traced the illnesses back to vaping.

“It’s perfect timing,” said Piper Jaffray analyst Michael Lavery. “I don’t think they would have expected some consumer uncertainty around vapor coinciding with the launch of Iqos in the U.S.”

Iqos is formally being launched Friday in Atlanta where Altria’s opened an airy new Iqos store with tall glass windows and light wood in a corner of Atlanta’s Lenox Square mall.

The Food and Drug Administration authorized its sale in the U.S. in April, setting strict marketing guidelines aimed at ensuring only adult smokers use Iqos, not kids.

Regulators are already battling a surge in teen vaping, coupled with the vaping disease that’s sickened more than 1,000 people in recent months. Although most of the cases involve THC found in marijuana, some users have said they exclusively used nicotine. The epidemic has prompted health officials around the world to start pulling e-cigarettes off shelves.

Altria and Philip Morris International started developing Iqos when the companies were still combined. PMI led the work once it was spun off from Altria in 2008. It launched Iqos in Nagoya, Japan, and Milan, in 2014 and has since introduced it in 49 markets, with Atlanta being the latest.

Altria will market Iqos in the U.S. through a licensing agreement with PMI.

In some places, like Japan and Russia, Iqos has taken off. Adoption has been slower in other places, like Canada and the United Kingdom. It’s unclear how U.S. consumers will respond to Iqos.

Unlike e-cigarettes, Iqos uses actual tobacco. The device heats the tobacco instead of burning it, avoiding the chemical process that occurs when smoking a cigarette that produces many harmful toxins.

Altria says the experience mimics smoking a cigarette and is therefore attractive to adult smokers. Of the roughly 34 million adult smokers in the U.S., Altria estimates about 20 million are looking for alternatives, many of whom have tried and did not like vapor products, Altria spokesman David Sutton told CNBC.

The pen-like experience is sleek. Using it, however, can be confusing. To use Iqos, users insert a Marlboro-branded heatstick, which looks like a stubby cigarette, into the device. They then click a button and the device heats the tobacco, producing an aerosol.

Similar to a cigarette, users can puff multiple times until the heatstick runs out. They need to use a scraper tool to clean out the leftover tobacco after about every pack of heatsticks. They have to charge it in a carrying case after each session of using it.

That’s why Altria will only sell the Iqos device at its stores and kiosks. It will sell the Heatsticks in about 500 stores in the Atlanta area, but even people who order Iqos online must pick it up in stores.

At the Atlanta store, an employee stands at the entrance, scanning identification and asking whether people smoke cigarettes. If they are under 21 or do not smoke, they are turned away, the company says.

People can test the Iqos device in the “guided trial room.” The separate area is behind automatic glass and doors decorated with a blue couch and built with its own ventilation system. Altria will sell a bundle with the holder and 200 Heatsticks, or 10 packs, for $80.

Altria will open another store in the Mall of Georgia later this month. It will also open mobile stores around the city and pop-up kiosks in its existing retailers, such as convenience stores. People can order Iqos online, but they must pick up the device in stores.

The company chose Atlanta as its launch market because it’s a tech-focused city with “several hundred thousands” of adult smokers, Sutton said. Altria will monitor the results before bringing Iqos to other cities, though the company has said it plans to expand rapidly.

In clearing Iqos for sale, the FDA stipulated a number of marketing restrictions. Since Iqos meets the legal definition of a cigarette, it is subject to the same marketing restrictions barring it from being advertised on radio or TV.

Altria must submit advertisements to the FDA 30 days before publication, establish independent age and identification verification for online sales and disclose its affiliation when using influencers to promote Iqos, among other requirements.

Altria must also keep detailed records and send the FDA quarterly reports on its sales, including details like demographic data on its customers, including how many have switched to Iqos from cigarettes or use both products. The company must also send an annual report with more granular information, including any reports of adverse experiences.

“We’ll be keeping a close watch on the marketplace, including how the company is marketing these products, and will take action as necessary to ensure the continued sale of these products in the U.S. remains appropriate and make certain that the company complies with the agency’s marketing restrictions to prevent youth access and exposure,” the FDA’s Center for Tobacco Products Director Mitch Zeller said in a statement at the time.

The FDA’s review found the aerosol that Iqos produces contains fewer toxic chemicals than cigarette smoke. It also found many of the toxins identified are present at lower levels than cigarette smoke. However, Iqos cannot be advertised as less harmful than cigarettes unless the FDA permits PMI’s application to do so.

Regulators are trying to prevent minors from using the products. They are already trying to stem what they’re calling an “epidemic” of teen vaping. They largely blame the phenomenon on Juul, the market leader that Altria invested $12.8 billion for a 35% stake in late last year.