This week Altria, the parent company of Philip Morris USA and the sister company of Philip Morris International, purchased a 35 percent stake in e-cigarette company Juul for $12.8 billion. The move comes at a time Altria is seeing a fairly steep decline in traditional cigarette sales and their stock price. Altria announced it will discontinue its own line of e-cigarettes and promote Juul while awaiting FDA approval for IQOS, a heat not burn smoking alternative.
The move has been expected in recent weeks even in the wake of, or perhaps because of, mounting legal issues over allegations that Juul is marketing e-cigarettes to minors. In October the FDA raided Juul’s offices, seizing thousands of documents. Since then it has moved to ban vape flavors that might appeal to kids. In addition, just this week the surgeon general called the rise of teen vaping an epidemic.
With its high-stake investment in Juul, which will remain a private company, Altria is trying to kill two birds with one stone. First off, it stands to profit from investment in the vaping upstart, which has skyrocket from a 13 percent to 75 percent market share in the sector in just over a year. In a classic case of “if you can’t beat em, buy em,” Juul products will now basically exist as part of the Altria portfolio, on shelves right next to their classic cigarette brands.
Another factor that might have played a role in the move is that Juul has arguably been a pebble in the shoe of Altria and Philip Morris International’s efforts to get their IQOS product into the American market. The FDA has been sitting on the application to sell the product, and the request for a Modified Risk Tobacco Product label that the FDA has never before granted.
Concerns over Juul’s marketing and the stark uptick in teen vaping have complicated the message that Altria has tried to send that their risk-reduced products target current smokers, not young would-be nicotine users. The startup, with 1,500 employees set to split $2 billion in bonuses from the deal, has been playing in a wild west of vaping, and has spooked both regulators and lawmakers.
With its 35 percent stake in the company, Altria hopes to rein Juul in and bring it in line with its stated mission of drastically reducing the number of people who smoke traditional cigarettes without targeting new users. It also has legal and regulatory expertise that the young Juul lacks.
For proponents of vaping and other alternative nicotine products, this move is probably a positive thing. Altria should be able to establish some discipline on Juul as government, regulators, and researchers continue to look into these products’ claims of harm reduction. For Juul, the expertise and experience of a major big tobacco player could be a shelter from potential upcoming legal storms.
What impact this move will have on the joint Altria and Philip Morris International FDA application for IQOS is unclear. Should the application for the Modified Risk Tobacco Product label be successful, it seems likely such an application for Juul would follow in short order. But will the purchase of Juul put IQOS on a back burner for Altria?
PMI, the creator of IQOS, is praising the move. Its CEO Andres Calantzopoulos said, “Any development that genuinely results in more choices becoming available for the more than 1 billion men and women who smoke today and moves the world closer to eliminating the cigarette should be applauded.”
This is in keeping with the companies’ line on alternative products, but is it possible that in pushing Juul, Altria might push IQOS less? Only time and the FDA will tell. PMI’s position is that the FDA is currently sitting on the best current possibility to switch smokers to a less harmful product.
This move signals that vaping has now crossed a Rubicon. No longer the nemesis of big tobacco, it has become big tobacco. This and other alternative products will no longer be under the purview of small startups, but mainstays of the new future that tobacco companies are plotting for themselves.
As such, this week’s move should be seen as a positive development towards a world in which fewer people are smoking traditional cigarettes.
