The Wall Street Journal
reports that Altria Group Inc. is in talks to purchase a minority stake of Juul Labs Inc. This move would permanently change the landscape of the e-cigarette industry. Altria, manufacturer of Marlboro cigarettes, would obtain an enormous footprint in the fast growing but controversial pod system market with this acquisition. Reuters
reports that the stake in question could range from 20 to 40 percent. Both companies declined to comment.
Juul, valued at $16 billion earlier this year, had over $1.8 billion in retail sales during the fiscal year that concluded November 18. This makes Juul among the most valuable startups in the US, but they have faced regulatory headwinds in recent months. New FDA regulations
limit the sales at convenience locations to tobacco, mint at menthol flavors. Although fruit/dessert flavors are still available at vape shops and online, Juul moved to voluntarily pull their sweeter products from everywhere but their own eCommerce website for at least the next couple of months.
According to sources, the deal is not imminent but the reverberations of such a buy-in would be felt far beyond Juul’s offices and their 1,000 employees. Altria has suffered flagging fortunes in the last year as the threat of a menthol cigarette ban in the US has dragged down their stock prices 20 percent since January.
Although still valued at over $100 billion, Altria faces serious challenges. Since 2005, the number of American adults who smoke has dropped from 20.9 to 14 percent, which is the lowest level ever. The e-cigarette business, even with regulatory surprises like those sprung at the beginning of November, continues to grow.
Altria’s own e-cig subsidiary NuMark, featuring the MarkTen e-cig series, has been left behind by Juul. Between early 2017 and November 2018, Juul’s share of the market has grown from 13.6 to 75 percent. At the same time, Altria’s share has plunged from 11.1 to a mere 4.4 percent of the e-cig market.
The upside for Altria is obvious but they can expect to pay a stiff price for a minority share in a company that is being targeted by federal regulators. Juul would benefit from Altria’s long-term relationships and shelf space at brick and mortar locations. Marlboro also has a long history of working with federal officials, an invaluable skill in the current regulatory climate.