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Big Tobacco’s Investment in Juul Is Going Up in Vapor

A person smokes a Juul Labs Inc. e-cigarette in this arranged photograph taken in the Brooklyn Borough of New York, U.S., on Sunday July 8, 2018. Juul Labs, the maker of the popular e-cigarette brand that has recently come under fire from health officials over its popularity with young adults, plans to introduce a line of lower-nicotine pods. The company will begin to sell pods with a 3-percent nicotine concentration in its mint and Virginia tobacco flavors later this year, according to a statement Thursday. (Photographer: Bloomberg/Bloomberg)

Juul Labs Inc. had already slipped from Altria Group Inc.’s crown. Now the tobacco company’s investment in the e-cigarette maker could receive a further setback.

The US Food and Drug Administration is preparing to order Juul, in which Altria holds a 35% stake, to take its e-cigarettes off the market, the Wall Street Journal reported on Wednesday. Altria shares fell as much as 10%, the most since March 2020.

The move shows that regulations that came into force two years ago, requiring companies to submit applications to keep their e-cigarettes in the US market, are no tick-box exercise. 

A ban on Juul would be very bad news for Altria. It originally paid $12.8 billion for its stake in 2018. It has progressively written down the value, and the worth of the brand most recently stood at $1.6 billion. Kenneth Shea, an analyst at Bloomberg Intelligence, says this remaining value could now be even lower, possibly even requiring a write-off of the full amount.

This would be the latest blow to Altria’s attempt to unlock the tobacco alternatives market — and to the overall playbook of Big Tobacco. As cigarette smoking declines, the industry’s giants are betting on potentially lower-risk substitutes.

But Juul’s loss may be British American Tobacco Plc and Philip Morris International Inc.’s gain.

Some of BAT’s Vuse vape models, now the leader in US vapor, have already been approved. However, it is still awaiting the FDA decision on its main product, the Vuse Alto. The potential decision on Juul is a risk for BAT, too. But if Vuse Alto is permitted to stay in the US market and Juul is not, that would be a boon for BAT. It’s also worth contrasting the FDA’s stance with that of the British government, which sees e-cigarettes as a way to help people quit smoking. 

Philip Morris, meanwhile, has concentrated on devices that heat rather than burn tobacco, in the form of its IQOS product. It’s possible that heating products pick up more users. The company is also buying Swedish Match AB, maker of trendy nicotine pouches for $16 billion. The deal also brings a vast distribution network in the US, paving the way to rollout other products including e-cigarettes.

To be sure, the FDA has not yet formally pronounced on Juul, and the company could appeal. The approval of Vuse Alto could also go either way. But unfortunately for Altria, there may be no smoke without fire.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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