Marlboro Maker Buys Piece of Juul

Altria Buys 35 Percent of Juul

Juul CEO Kevin Burns issued a press release confirming that Altria, maker of Marlboro cigarettes, has purchased a 35 percent stake in his company for $12.8 billion dollars. The rumors of Altria buying a large stake in Juul have been rampant for weeks but now it is official. The all-cash deal also includes a bonus of $2 billion to spread among Juul's 1,500 employees, contingent on salary, tenure and the amount of stock they own. Upon anti-trust clearance, Altria will have 35 percent voting shares and considerable sway over the future of the vape pod giant. Altria will be subject to a standstill agreement and may not acquire additional shares for six years from closing. Juul will remain fully independent.

 Pursuit of Market Domination

A shared dream of total market domination has made strange bedfellows. Altria’s substantial investment, based Juul's market valuation of $38 billion, seems at loggerheads with Juul’s mission statement: to provide the billions of smokers in the world with an alternative to cigarettes. Plunging cigarette sales no doubt played a large role in Altria’s move, as did their abortive forays into the vaping arena. Juul can now take advantage of Altria’s resources and get their products into the hands of more smokers. Not only will Juul now have access to premium shelf space but their products will be helpfully positioned next to Marlboro cigarettes. This gives Juul a huge advantage by capturing the attention of smokers who are looking to quit and considering electronic options. Perhaps most importantly, Juul will also have the ability to have their inserts placed in cigarette packaging and access to Altria’s massive smoker database. This will allow them to reach out directly to current Altria/Marlboro smokers with targeted advertising. Altria and Juul both hope that such endeavors will get both the FDA and the public to view the merger more favorably. Other benefits include, access the massive logistical distribution structure Altria already has in place and the well-staffed Altria sales organization. It will be interesting to see how much Altria will pitch in to extend Juul’s marketshare if it comes at the expense of Marlboro's core cigarette products.

An Influential Partner

What was not emphasized by Altria was the wealth of legal, political and regulatory savvy Juul now has at their disposal. Altria would not have laid down nearly $16 billion if they were not confident in their ability to smooth over Juul’s fraught relationship with FDA regulators. Juul had been forced to invest more heavily in public relations and lobbyists since the FDA put them in their cross hairs. Despite these efforts, they are clearly on defense and taking a beating in the court of public opinion. Whether the criticism is fair or not, they have been blamed for making “Juuling” a word and creating the preferred nicotine device of underage vapers. Their innovative nicotine salt formulations allow them to pack far more nicotine into their e-juices. Oddly enough, vaping critics and concerned parents do not consider this a feature. Juul will now have access to the best connected and most experienced lobbyists in Washington. Expect them to hit back, although being associated with a tobacco giant also has its drawbacks. There are critics who will not be convinced that Altria is interested in reducing smoking, instead viewing this purchase as little more than a fallback plan. In the event that menthol flavors cigarettes are banned and smoking rates continue to decline, it is wise that Altria hedge their bets. Expect the ill-informed claim about vaping being a gateway to smoking to rear its ugly head. Juul is attempting to head this line of attack off and also released two white papers that discuss smoking cessation and e-cigs. The first deals with how Juul products help smokers trying to switch to electronic nicotine delivery systems. The second charts the decline of smoking and how it corresponds with the rise of Juul. The question as to why Altria would invest in a company whose mission is to make their products obsolete has already been raised, but we should not neglect to consider Altria’s many efforts to stake a claim in the e-cig market.

Altria’s Earlier Bids at E-Cig Dominance

Altria has confidently stormed into the e-cig market before. It feels like ages ago, but they anticipated that their marketing, logistics  and deep pockets would allow them to dominate the diffuse and decentralized e-cigarette industry. Their Green Smoke and Mark Ten brands never achieved the market share that they expected and while fixated on their battle with Vuse for supremacy, they were swamped by Juul. Altria confirmed in a press release that they will only participate in the “e-vapor” market through their investment in Juul. This does not prevent Altria from pushing non-combustible and “heat-not-burn” devices upon FDA authorization of IQOS technology. Keep your eye on that ball. Things change fast in the vaping world. Altria’s previous adventures in vaping were stymied by a fast evolving market. First there was the appearance of affordable and powerful subohm mods on the market. Initially, these devices cost at least $200 but now you can get a powerful mod, complete with subohm tank for well under $100. The final nail in the coffin Altria’s earlier e-cig adventures came in the form of highly potent nic salt juices and pod based systems. Juul was the catalyst behind this market shift and have seized 75% of the e-cig market. Interestingly, Altria did not express any concerns about future FDA regulations in their press releases and instead pointed out that they were the only company in the industry to support FDA regulation of tobacco products in 2000.

Altria Abandoning Traditional E-Cig Users

Despite the appearance of new and novel technology, a significant number of former smokers still prefer the classic, authentic and convenient e-cigarettes and cig-a-likes. The preferences of such loyal customers, usually former smokers, did not stop Altria from pulling the plug on the traditional designs sold under the Mark Ten and Green Smoke labels. These moves were no doubt made in anticipation of the Juul purchase.

Green Smoke and Mark Ten Customers Are Welcome at Vapor4Life

Altria’s willingness to cutoff loyal customers from their preferred style of device was a cynical move and expect them to make an effort to switch these customers over to the Juul product. There is no need to compromise. At Vapor4Life, we will continue to produce, improve and innovate high quality cig-a-like and legacy e-cigarette designs that make excellent Green Smoke alternatives. This week we are offering our classic and widely loved Vapor Titan starter kit at the low price of only $10. Loyal Green Smoke customers just need to enter the promo code GS10 at checkout. We feel these designs have much to recommend and provide an authentic smoking alternative. Users of Altria’s traditional Mark Ten and Green Smoke e-cig products were slightly older on average, and usually heavier smokers. When compared to the users of subohm mods and nic salt pods, a much larger percentage of these customers preferred tobacco e-juices over dessert and fruit themed flavors.

Juul’s Image Problem

The public perception of the typical Juul user contrasts sharply with Green Smoke and Mark Ten’s customer base. Not only does their product appeal to a younger crowd but they have been accused of marketing their product to minors who do not smoke. The fallout from an uptick in teen vaping, often described as an epidemic in breathless media coverage, was a series of new FDA regulations on e-cigs. Much of the rancor directed at Juul is due to the overall popularity sweet flavored e-juices. It is easy to see why an outside observer might think that dessert flavored e-juices are intended to appeal to minors, but a majority of adult vapers prefer these flavors as well. A skeptic may ask exactly how much crème brûlée is actually being consumed by the youth of America and when this became their favorite guilty pleasure. For reasons unclear, naming an e-juice after an upscale French dessert, one that peaked in popularity at least 20 years ago, was viewed as particularly nefarious. It has since been renamed crème. If entrée e-juices were the rage, would similar scorn be cast at e-liquids that tasted like a 1970s fondue spread? The fruity flavor fallacy is just one of the immortal zombie vaping myths that has been used to attack the reputation of Juul specifically and the vaping industry in general. It is unlikely that Juul's merger with “Marlboro” will do much to restore either.

The Juul Case

The Juul CEO Mr. Burns addressed concerns about Juul’s alliance with Altria and the accusations that they marketed to children. According to Juul’s research, almost half of smokers who purchased their product switch from combustible cigarettes within 3 months. The last 2 months have seen an acceleration in smoking cessation that he attributed to Juul’s rapid growth. Naturally, Juul is going to want to take as much credit for the decline in smoking rates as possible, especially considering the PR nightmare they are currently enduring. But there is no doubt that use of combustible cigarettes is in free fall and electronic nicotine delivery systems play a huge, although frequently denied, role in this decline.

Altria’s Strategic Rationale

Altria has plenty of skin in the game with their ownership of Marlboro but at least for today they seem resigned to an electronic future. This view was outlined in an Altria press release, “We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction.” The logistical benefits for Juul are massive but how did Altria defend investing in a company that is seemingly hell-bent on extinguishing their most popular core cigarette products? In terms of dollars and cents of course. Hoping to ride the wave of the largest, fastest growing e-cig company, they argue that teaming with Juul allows them to profit from smokers looking for alternatives while giving them the opportunity to focus on classic tobacco markets.

Vapor4Life

It is impossible to anticipate how the e-cig market will continue to morph. Technological changes and outside regulations have made the fast growing market a bit unpredictable. Just over a year ago, Altria was proudly announcing their investment in Avail Vapor, a chain of over 100 vape shops. At Vapor4Life we will continue to stay the course, doing our part to keep e-cigs out of the hands of minors and striving to help former smokers with the best cigarette alternatives available today.