The devastating investment in Juul Labs is taking another turn for the worse.
On Wednesday, the Wall Street Journal reported that the Food and Drug Administration was preparing to remove Juul e-cigarettes from the US market. Banning Juul in the US, where she was well on her way to earning 94% of her revenue this year, would put the company in serious jeopardy.
At its peak in 2019, Juul had annual sales of $ 2 billion and attracted high-profile shareholders, including the Tiger Global investment fund, which still has $ 511 million invested in the vape brand. But the controversy has hit the business. By 2021, sales had dropped to $ 1.3 billion. Juul has retired from more than a dozen countries and stopped selling fruit and caramel-flavored e-cigarettes in the US as young people flock to these products.
Shares of Altria, which makes Marlboro cigarettes, fell 9.2 percent on Wednesday, losing $ 7 billion in market capitalization. This represents multiples of the $ 1.7 billion book value of the 35% stake in the cigarette giant Juul, which has deducted several impairments from its original value of $ 12.8 billion.
The stock price reaction reflects concerns that Altria will return to the top spot with its smoke-free strategy. The company still makes almost 90% of its revenue from flammable cigarettes and tobacco regulations in the US are becoming stricter. Apart from its stake in Juul, Altria does not own a brand of e-cigarettes or large-scale heated tobacco.
Juul’s ban is just the latest bad news for Altria. In April, the FDA said it would launch plans to ban menthol cigarettes, a category that generates about one-fifth of the company’s operating profits. The former Philip Morris International subsidiary is set to become a direct competitor in the US if the $ 16 billion offer for the Swedish Match is approved. And this week, U.S. regulators said they wanted to reduce nicotine levels in flammable cigarettes.
Altria’s exclusivity obligations to Juul expire if the value of its stake falls below $ 1.3 billion, Bernstein notes. The question is what does Altria do next. After seeing nearly $ 13 billion evaporate, we need a smoke-free repair more desperate than ever.
Write to Carol Ryan at firstname.lastname@example.org
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Appeared in the print edition of June 23, 2022 as “Altria’s Juul Stake Goes Up in Smoke”.