FDA Lights Up Altria’s $13B Juul Investment

Last week, tobacco companies were under attack from Biden and the Food and Drug Administration (FDA) — destroying billions in tobacco giant Altria’s market cap.

Whatever’s left of Altria’s $13B investment in Juul is at risk of getting torched.

Vapes were meant to help reduce smoking…

Instead, it helped a generation become addicted to e-cigarettes. Founded in 2015, Juul quickly dominated 70% of the market and tobacco giant Altria bought into the hype with a $13B investment in Juul.

But regulators started circling the industry with reports of increased teen vape usage and severe lung damage.

Lawsuits piled in, competition grew, sales declined, and Altria wrote down its Juul investment to $1.6B (88% decline in value… ouch).

• Vaping among high school students declined from 20% in 2019 to 7.6% in 2020, and the FDA played a key role.
• In 2020, the FDA banned sweet and fruity vape pod sales, and in April 2022, proposed a ban on menthol cigarettes and flavored cigars.

Should investors be worried about the ban?

The FDA conducted a two-year scientific review on the effects of vaping and the verdict is to ban Juul vapes from the U.S. market — saying it failed to prove its vapes were safe.

With the U.S. making up 90% of Juul sales, that hurts so much that Juul is considering bankruptcy if it can’t dodge the ban.

The end for Altria? Far from it. Last Friday, Juul was granted a delay on the FDA’s ban, letting Juul make its arguments, and the fight continues.

Altria will also have to worry about the ban on menthol cigarettes — which makes up 20% of its business.

• Good news: This could let Altria re-enter the vape market with other options — as Altria’s Juul ownership prevented it from launching or investing in vape businesses.
• Bad news: Bankruptcy would erase Altria’s investment, but investors had already priced this into Altria’s stock over the years. Biden is also planning to reduce cigarette nicotine levels — reported two days before Juul’s ban.

Investors: FDA picking favorites

Last October, the FDA approved the first authorization to market e-cigarette products to several R.J. Reynolds’ Vuse vape products. Other smoking alternatives are also available on the market, including:

• Philip Morris’ heat tobacco-filled stick IQOS — which works differently than Juul’s vape and has received an FDA permit to sell in the U.S.
• Tobacco major Philip Morris (NYSE:PM) has plans to make more than half its sales from its smoke-free products by 2025.

While Juul fights for its survival, competitors are quickly stealing market share.