Altria, one of the world’s biggest tobacco companies, is spending nearly $13 billion to take a 35 percent stake in the vape company Juul. The deal, which creates a powerful partnership for marketing and lobbying, raises concerns among anti-tobacco groups.
The tobacco giant Altria has agreed to pay nearly $13 billion for a 35 percent stake in Juul Labs, the wildly popular vaping company that burst on the scene in 2015, with a mission to render cigarettes obsolete.
The all-cash deal, approved late Wednesday by the company boards and announced before the opening of the stock exchange Thursday, pairs two businesses whose products have had a profound effect on public health, and, until now, had seemingly divergent paths.
Altria, the parent of Philip Morris USA, which for decades denied the fact that cigarettes cause cancer and other lethal illnesses, is trying desperately to keep its hold in a declining cigarette market. Juul, a San Francisco startup with ties to Stanford University, has tried to position itself as offering a safer alternative to combustible cigarettes — but itself has ended up vilified for an epidemic of youth vaping.
Now Juul has staked its future growth on a deal with the very industry it sought to transform, while Altria can profit from, and even influence, its would-be slayer. The cigarette giant gets a 35 percent stake in the proceeds from Juul vaporizers and nicotine pods, which have captured 75 percent of the e-cigarette market in just a few years in business.
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In exchange, Juul will get access to Altria’s marketing and distribution muscle, including prized shelf space in convenience stores, but also access to Altria’s lobbying and regulatory influence. During the past year, Juul has confronted one public relations disaster after another as its sleek, high-nicotine e-cigarette became the drug of choice for the nation’s youth and the target of federal regulators, parents and school officials.
Juul “suddenly has the resources to refocus from defense to offense,” said David Sweanor, an anti-smoking advocate, who supports using electronic cigarettes as an alternative. “Instead of just trying to survive an onslaught from FDA regulators and abstinence-only campaigners creating a moral panic about their product, they can move to rapidly expanding with a global orientation and funding the R&D necessary to disrupt ever more of the $800 billion global cigarette market.”
To counter the mounting criticism of its product, Juul has spent months hiring public relations firms and lobbyists to try to persuade regulators that the soaring teenage use was an accident, not a deliberate marketing strategy. Juul changed the name of some of its flavors, took others out of stores and secured the services of Washington’s best-connected lobbyists and image consultants.
Any progress in reforming its image among public health advocates, is likely to vanish with this deal.
“I think it is beyond question that if Altria acquired a substantial interest in Juul, it would dramatically alter the perception that this was a company whose goal was to reduce, if not eliminate, the use of cigarettes,” said Matthew L. Myers, president of the Campaign for Tobacco-Free Kids. “Altria has no interest in seriously reducing the number of people who smoke cigarettes.”
Rather, he contended, Altria sees Juul’s e-cigarettes “as their fail-safe in case the cigarette market keeps declining so that they remain profitable no matter what happens.”
The FDA wants to require companies to lower the levels of nicotine in traditional cigarettes, something that the major tobacco companies have begun to fight. While such a proposal would have played to Juul’s advantage before, the deal with Altria complicates its marketing strategies.
For Altria, the stake in the popular e-cigarette makes up for the company’s disappointment at the FDA’s continued stalling on IQOS, the heat-not-burn e-cigarette device made by its Philip Morris International division, which Altria was expecting to distribute in the United States. The lack of approval has given Juul more time to capture the e-cigarette market.
Altria could see a steep decline in its profits if nicotine was limited in combustible cigarettes. And Altria, for its part, has every reason to pressure Juul to resist such regulations; that’s because Altria, even if it makes 30 percent from the sale of Juul products, still makes 100 percent from the sale of its own products.
Further, it could now serve Altria’s interest if consumers buy both, so-called “dual-use” of cigarettes and e-cigarettes, which is a habit that public health officials loathe because it does little to diminish the threat of cancer among users.