As smoking falls out of favor, Altria looks beyond tobacco
(CNN) — Altria, America’s preeminent cigarette company, is looking beyond tobacco for growth.
Fresh off a $1.8 billion investment in Canadian cannabis company Cronos Group (CRON), Altria is reportedly interested in buying a huge stake in e-cigarette maker Juul. The Wall Street Journal reported Wednesday Altria (MO) is seeking a 35% stake in Juul, worth nearly $13 billion.
The investment would pair a company that controls half of the American tobacco market with startup Juul — which sells more than 70% of the cartridge-based e-cigarettes in the United States.
The marriage would allow Altria to broaden its customer base. Altria is a US-only business, spinning off from Philip Morris International in 2008. Juul sells its e-cigarettes in Canada, Israel, Russia and the United Kingdom, in addition to the United States.
It could give Altria, a leader in a US cigarette business in slow decline, a window into the rapidly growing market of e-cigarettes. Meanwhile, the deal could give Juul access to Altria’s massive distribution network.
Yet the investment, if completed, would be a risky one.
Juul has come under intense regulatory scrutiny after teenagers became addicted to its products.
Federal law prohibits the sale of e-cigarettes to people under the age of 18, yet one in five high school students uses e-cigarettes, according to the surgeon general. Teen e-cigarette usage is soaring: The percentage of high-school-age children who say they used e-cigarettes in the past 30 days rose by more than 75% between 2017 and 2018, according to the National Youth Tobacco Survey.
In September, the Food and Drug Administration started a campaign to prevent kids from using e-cigarettes. It called teen use of e-cigarettes “an epidemic,” claiming that nicotine use is hazardous to young adults’ health. The FDA conducted a surprise inspection of Juul’s corporate headquarters in San Francisco a month later, seizing thousands of documents, many of which relate to the company’s sales and marketing practices.
The FDA was expected to ban e-cigarettes last month, but it instead ruled that e-cigarettes could be sold only in parts of stores that are closed-off to teenagers.
Juul claims its products are for people who want a tobacco-free source of nicotine to help them quit smoking.
“We can’t restate this enough,” said Juul CEO Kevin Burns in a July letter to customers. “As an independent company that is not big tobacco, we are driven by our mission and commitment to adult smokers.”
Juul could not be reached for comment, and a spokesman for Altria declined to comment.
Altria also faces regulation of some of its most popular products. The FDA last month sought a ban of mentholated cigarettes.
Altria also wants to bring its IQOS tobacco-heating device to market, but it has not yet received government approval. The company has not shown that IQOS is a safer alternative to cigarettes, the FDA said earlier this year.
The company’s investment in Cronos, much smaller than its reported interest in Juul, is potentially its safest bet. Marijuana has gained legal status in Canada and a growing number of American states — although it remains a controlled substance on the federal level.
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