Tobacco giant Altria buys 35% stake in e-cigarette firm
Tobacco giant Altria purchased a 35 percent stake in e-cigarette maker Juul Labs, the company announced Thursday. The deal, which is worth $12.8 billion, values Juul Labs at $38 billion.
Altria, the maker of the Marlboro cigarette, is looking for alternative sources of revenue amid the decline in traditional cigarette use. Its investment in Juul Labs – which currently has over 75 percent of all e-cigarette revenue, excluding online sales and sales at specialty shops, according to a Wells Fargo Securities analysis of Nielsen data – is the largest in the company’s history.
Roughly 14 percent of U.S. adults, or 34 million people, smoked cigarettes everyday or some days in the previous month, down from 15.5 percent in 2016, according to the Centers for Disease Control and Prevention, the Food and Drug Administration and the National Cancer Institute. That’s a 67 percent decline since 1965.
“We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes,” Howard Willard, Altria’s chairman and CEO, said in a statement.
Founded by two former smokers, James Monsees and Adam Bowen, Juul Labs created its product because it is a “public health imperative to create alternatives that work for smokers,” Ashley Gould, chief administrative officer of Juul Labs, told USA TODAY in an interview in August.
According to a January report by the National Academies of Sciences, Engineering and Medicine, there is “conclusive evidence” that substituting e-cigarettes for traditional cigarettes “reduces users’ exposure to numerous toxicants and carcinogens.”
Juul partnering with a traditional cigarette manufacturer may have caught people by surprise, and Juul Labs CEO Kevin Burns called Altria an “unlikely” investor.
“We understand the controversy and skepticism that comes with an affiliation and partnership with the largest tobacco company in the U.S.,” Burns said in a statement. “We were skeptical as well. But over the course of the last several months we were convinced by actions, not words, that in fact this partnership could help accelerate our success switching adult smokers.”
The investment in Juul comes at a controversial time for the company, as youth usage has soared. Though Juul Labs refuses to sell to anyone under the age of 18 and condemns youth usage, the company’s product has been popular among teenagers and young adults.
Currently, more than 3 million middle and high school students say they regularly vape with e-cigarettes. The number of high schoolers who reported using e-cigarettes increased 78 percent from 2017 to 2018, according to the 2018 National Youth Tobacco Survey.
The high rate of youth usage has led to a federal crackdown. In November, the Food and Drug Administration placed restrictions on sales of sweetflavored electronic cigarette liquid and announced plans to ban menthol cigarettes. As a response to FDA regulation, Juul halted sales of its mango, fruit, creme and cucumber flavored pods at more than 90,000 retail stores.
Matthew Myers, president of the Campaign for Tobacco-Free Kids, called the purchase an “alarming development for public health.”
“The Altria-Juul deal shows how far the tobacco industry will go to maximize profits and sell as many products as possible, including cigarettes,” Myers said in a statement.
This month, Altria made a $1.8 billion investment in Canadian cannabis company Cronos Group.