November 29, 2018

Is Big Tobacco About to Buy a Piece of JUUL?

Altria may be planning to acquire “a significant minority stake” in JUUL Labs, according to the Wall Street Journal. But the Journal adds that “no deal is imminent,” quoting unnamed sources.

JUUL’s sales for the 52 weeks ending Nov. 17 were $1.8 billion, according to Wells Fargo tobacco analyst Bonnie Herzog. Herzog’s report says that JUUL controls about 76 percent of the Nielsen-tracked convenience store/gas station vaping market.

JUUL may own as much a one-third of all vaping sales in the United States. The San Francisco-based vape company also sells its products in Canada, the U.K., and Israel, and expects to expand into mainland Europe and Russia very soon. The company is valued at about $16 billion — huge for a vaping company, but still tiny compared to Altria’s $100 billion market valuation.

JUUL is privately owned. The company is partially controlled by large investment firms, who may be getting nervous following accusations of sales to minors and the recent FDA action prohibiting the sales of flavored vapor products in non-age-restricted retail outlets. Before the FDA acted, JUUL itself announced that it would only sell its non-tobacco, -mint, and -menthol flavors from its own website. Before JUUL’s move, Altria had announced that it would remove its (poorly selling) pod vape products from the market.

The Wall Street Journal doesn’t disclose who Altria is negotiating with. In any case, a purchase by Altria would lose JUUL much of the respect it still has in the independent vaping industry. Most vapers and small business owners are very unsympathetic to the tobacco industry.

JUUL has made several moves this year that have earned the company scorn among vapers and the small businesses that dominate the vape shop/e-liquid/online retailer segment of the vaping industry. The company announced its support for Tobacco 21 legislation that also restricts vapor sales to customers 21 and over. And JUUL has on multiple occasions made statements comparing their “adult-oriented flavors” with open-vapor e-liquid manufacturers who supposedly sell flavors with “obvious youth appeal.”

The company has reportedly pumped some money this year into small-vapor advocacy efforts, donating to the Vapor Technology Association (VTA). But JUUL has been quiet about this initiative, and focused its visible strategies on hiring lobbyists and government relations pros who are veterans of previous Democratic and Republican administrations.

The company doesn’t seem to care about being a leader in the independent industry, preferring instead the image of a cool Silicon Valley startup. To anti-vaping activists like Truth Initiative, of course, JUUL is no better than a tobacco company. The Campiagn for Tobacco-Free Kids’ statement concerning the possible sale is insulting and dismissive, and concludes that JUUL “has followed Big Tobacco’s playbook,” and might as well “go all the way and join forces with Big Tobacco.”

JUUL would certainly lose its claim to being a tobacco industry disruptor by having any financial association with Altria, the owner of Philip Morris USA and maker of the most popular cigarette brand in the world, Marlboro.

The tobacco industry had no presence in the vapor market between its 2007 European and American beginnings and 2012, when Lorillard bought independent company Blu. Within the next two years, RJ Reynolds (now owned by British American Tobacco) launched its Vuse vapor brand, and Altria introduced MarkTen.

Since then, all the major tobacco companies around the world have made at least token efforts to compete in the vaping market. But until JUUL arrived in 2015, and took off like a rocket in 2017, the c-store/gas station market was the lesser of the two “vapor industries.” The Big Tobacco companies may now own less than 10 percent of the entire market, thanks to JUUL.

The Wall Street Journal isn’t positive the deal will happen. “Any deal is likely several weeks away, one of the [sources] said, and there might not be one at all,” says the article. For that matter, it could be a rumor intended to boost or deflate JUUL’s value or its reputation, or to test the waters for reactions. But neither JUUL nor Altria denied the story outright.

If Altria’s JUUL purchase is more than a rumor, it will mark the day the vapor industry is finally seen as a true threat to cigarette sales — and the day the tobacco industry begins a serious effort to control that threat. Altria could use JUUL to bulldoze a distribution path for vapor in mainstream retail outlets even wider than the one JUUL has already created. Or it could quietly sink the company, not fighting for favorable laws and regulations, not opposing restrictions the FDA might choose to impose, and not working to change public perceptions of vapor’s low risk. Of course, just by owning it, Altria would alter and possibly damage JUUL’s disruptive tech cachet.

The tobacco industry makes much of its innovations — like IQOS and other heat-not-burn tobacco products — but aside from cigarette filters and boosting cigarettes’ addictive potential by adding ammonia, this is Big Tobacco’s greatest innovation: using power to game the tobacco regulatory system, and using money to buy things.

Smokers created vaping without any help from the tobacco industry or anti-smoking crusaders, and vapers have the right to keep innovating to help themselves. My goal is to provide clear, honest information about the challenges vaping faces from lawmakers, regulators, and brokers of disinformation. I recently joined the CASAA board, but my opinions aren’t necessarily CASAA’s, and vice versa. You can find me on Twitter @whycherrywhy

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