Callum Elliott: And I have just sort of very, very different follow-up. The question is, can you talk about some of the recent regulatory changes in Louisiana, where I think they’ve been taking it upon themselves to clamp down on the illegal sales that you spoke about the disposable vaping products given the action that we’ve seen from the FDA? I think some of those changes took place in November. So should have a couple of months’ worth of data now. What impact have you seen in Louisiana? And do you expect that other states might follow that path that Louisiana have taken?
Billy Gifford: Yes, that is a lot based on efforts by ourselves and working with the legislatures in the state. And what you’re referring to is Louisiana requires manufacturers to certify the individuals within the company to certify that they either have followed FDA guidance and they have a legitimate application on file and it’s pending or that they have actually received authorization. It is early right now, Callum, in Louisiana, I would say the early signs are encouraging that we are seeing illicit base being removed from the marketplace. Hope that trend continues. And we are — there have been a number of states that have passed similar legislation as well as a number of states that are considering it. But it’s a bit early, but yes, the early signs are encouraging.
Operator: We’ll go next to Pallav Mittal with Barclays.
Pallav Mittal: Can you please comment on the sell-through trends for NJOY? Or is the $11 million number the shipment similar to retail trends as well?
Billy Gifford: Yes. What we tried to share with you is that was the shipment volume. We tried to share with you also the share, and if you will, that’s an estimate of consumer take. So it was 3.7% for the period that we owned them and then we try to highlight for you that we have put in place testing some bundle offers, where we could test trial promotions so that we’re prepared for the full distribution and be able to bring that across the U.S. this year. We did it on a small scale, but just that small-scale impacted national share, an additional incremental 0.3 in November and another incremental 0.3 in December. So it’s early. We’ll be bringing that marketing activation and promotional to the nation this year. But certainly, the early results are very encouraging.
Pallav Mittal: And one more. So the minus 8% decline in industry volumes, how much do you think is the cannibalization from e-cigarettes? And how much is the impact from the growth in modern oral?
Billy Gifford: Yes, I would say from modern oral, there is minimal impact. You’ll recall that in secular decline, we represent historically about 1% across category movement. Then we try to call out any additional or special items. And what we call out, and you’ll see that in our quarterly metrics that about 1.5% to 2.5% is related to the illicit e-vapor category. And so if you think about historically 1% being up in secular decline, this 1.5% to 2.5% being related to illicit base. But yes, we are encouraged that we’re seeing some interaction with going with adult smokers. But at this point, from an impact to the overall industry, it is minimal. It is really illicit base that is driving the majority of that.
Operator: We’ll go now to Jennifer Maloney with Wall Street Journal.
Jennifer Maloney: I have a question about the California market dynamic data that you shared this morning. It looks like overall cigarette industry sales fell in California more steeply than the country overall in 2023. But it also looks like Marlboro, I thought Morris USA retail share increased in California more than elsewhere. So is it fair to say that as a result of the menthol ban, some consumers moved away from cigarettes, either stop smoking or move to other products, but also there was a dynamic here where people who might have smoked menthol cigarettes switch to Marlboro cigarettes.
Billy Gifford: Yes. It’s a complex issue. So let me try to unpack it for you. When you look at that 15%, we would consider that legitimate shipments that went to California. What you’re seeing is a lot of black market activity that takes place in California. So you see gray market consumers going across the border, and we’ve seen that, whether it be Nevada or other bordering states, some consumers go across to get them menthol cigarettes. We’re seeing a lot of black market enter up from Mexico into the state of California. That would not be included in the 15%. So that is black market or a legal product that has made its way into California for the consumer to buy. Again, that wouldn’t be in the 15%. We do believe some consumers have moved.
Certainly, there’s a huge market of a listed vape in California. That continues even though the flavor ban is in place. To answer your question on the adult cigarette consumer. What you see with the benefit of Marlboro is I think if you look at various studies, when there’s a menthol ban, the consumer really doesn’t leave the nicotine space and a lot of them don’t even leave cigarettes. They look to non-menthol cigarettes as an alternative. And with our over-indexing and non-menthol, it makes sense that they would move to Marlboro. One of the other things I would highlight in moving to non-menthol, we’ve seen an influx of what we call menthol cards into the state of California. So again, they’re illegal, but it allows the consumer to buy a non-menthol pack of cigarettes, insert the card and then if you will self-ventilate their cigarettes.
So there, I think it points again to when you pass the law without an eye towards how you’re going to enforce the law, you see a significant amount of illicit activity that takes place related to that.
Jennifer Maloney: What I don’t see here is PM USA total shipments in California, I see that there’s a retail share increase, but did your sales in California decrease in 2023 more than the national average?
Billy Gifford: They did. They are commensurate with overall industry.
Jennifer Maloney: So based on your observations of the market dynamics in California, what would you expect to see this a national ban menthol cigarette ban were implemented in terms of market dynamics and the impact on your sales?
Billy Gifford: It’s hard to answer on the hypothetical Jennifer, and I apologize for without [indiscernible] the actual proposed rule and what’s going to take place. It’s tough to say what their enforcement activities will be. I think if you look at our comments related to the menthol ban, you’ll see that we felt like the FDA needed to take into consideration all of the unintended consequences and that you’re seeing them take place in California. Black market activity, illicit product getting into the marketplace, methylated cards. So there are a lot of unintended consequences. So it’d be tough to tell, if you will, what the overall how the consumer will be at play in that depending on what’s available to them.
