Tobacco Giant Altria Takes $13 Billion Stake In Juul Labs

Tobacco Giant Altria Takes $13 Billion Stake In Juul Labs

Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the past year, as have e-cigarette brands from other major tobacco companies.

The move represents a 35-percent economic interest in Juul, valuing the San Francisco-based vapor company at $38 billion.

"We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes", Altria COE Howard Willard said in a statement.

Under the agreement, Altria's only entry into the e-cigarette market will be through Juul for at least six years.

Altria also brings years of lobbying expertise in Washington that could benefit Juul as the company navigates heightened federal scrutiny over its products' popularity among teenagers. The WSJ had earlier reported on the discussions. "But intent is not enough, the numbers are what matters, and the numbers tell us underage use of e-cigarette products is a problem". In a statement, Juul Labs CEO Kevin Burns described the deal as "seemingly counterintuitive", before arguing that the massive, all-cash deal will actually help in the company's mission.

The agreement lays out requirements for Altria to make Juul products available at retail stores, and limits Altria's ownership stake to 35 per cent, enabling Juul to maintain control, Burns added. They have been pitched to adult smokers as a less-harmful alternative to cigarettes, though there's been little research on the long-term health effects or on whether they help people quit.

Youth consumption of e-cigarettes "is a big problem that needs to be resolved and if it's not resolved, it's going to put the whole category at risk, including for adults", he said. A study this week from the University of MI found that teen nicotine use has hit record highs over the past year, with more than 20 percent of teens reporting some use.

Juul said Thursday that it recently began to take actions meant to prevent underage vaping.

The U.S. Food and Drug Administration is ramping up efforts to restrict the sale of flavored e-cigarettes which appeal largely to children.

Juul has boosted its own lobbying spending, spending United States dollars 890,000 so far in 2018, according to the Center for Responsive Politics.

However, that is dwarfed by Altria's spending of more than $7m this year, making it the biggest spender in the U.S. tobacco industry. Altria had been watching Juul's growth for awhile, finding it continually exceeded expectations, and sees global growth as a main rationale for the deal. In many ways the company positioned itself as the foe of big tobacco, saying in job postings that it was "driving innovation to eliminate cigarettes".

Marlboro maker Altria announced on Thursday that it invested $US12.8 billion ($18 billion) in Juul, valuing the firm at roughly $US38 billion. The company has quickly grown both revenue and share, and today represents approximately 30 percent of the total USA e-vapor category.

Some analysts on Thursday expressed concern that Altria was paying too high of a price.

Multiple reports suggested that some Juul employees have been upset about the rumored Altria investment.

Altria will apply its logistics and distribution experience to help Juul expand its reach and efficiency and Juul will have the option to be supported by Altria's sales organization, which covers approximately 230,000 retail locations.

The investment comes about two weeks after Altria stepped into the cannabis market with an investment of around $2 billion in Cronos Group, the Canadian medical and recreational marijuana provider.

Altria also announced cost cuts of about $500 million to $600 million a year by the end of 2019.

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