Altria Buys 35% of JUUL for $12.8 Billion

Following a month of rumors, cigarette giant Altria has bought a 35 percent stake in JUUL Labs, San Francisco-based private company that makes the country's most popular vaping device: a small vape that helps smokers quit with pre-filled nicotine salt e-liquid. Altria is investing $12.8 billion.

The deal will give JUUL access to Altria’s distribution network, and provide direct access to millions of smokers who use the brands Altria markets in the United States, including the single most popular cigarette brand, Marlboro.

Altria dropped its entire e-cigarette product portfolio two weeks ago, in preparation for the deal with JUUL. As part of its investment in JUUL Labs, Altria has agreed not to “participate in the e-vapor category” except through JUUL for as long as it provides services to JUUL, which it has committed to for six years.

The “e-vapor” exclusivity deal with JUUL doesn’t include sales of the IQOS heat-not-burn tobacco product, which Altria will license for U.S. from Philip Morris International. PMI has submitted to the FDA premarket tobacco (PMTA) and modified risk tobacco product (MRTP) applications, and is awaiting approval.

According to Altria’s press release, the company will provide JUUL these services:

Not mentioned in the press release is whether JUUL will have access to Altria’s regulatory affairs and lobbying departments. The company has been under siege by angry legislators and tobacco control activists all year. Last month it agreed to remove flavored e-liquid products from retail shelves to combat youth sales.

Altria has agreed not to purchase shares in JUUL that would give it more than a 35 percent ownership in the company, and both companies say that JUUL Labs will retain full control of its business. Both companies support Tobacco 21 legislation that would prevent adults under age 21 from accessing low-risk vapor product, a position vaping advocates strongly oppose.

JUUL is now valued at $38 billion, an incredible figure for a company that nas never had sales of more than $2 billion in a year. JUUL Labs now becomes the second-highest valued private company after Uber. Altria is a Fortune 500 company (#154), with a market capitalization of $100 billion, and 2017 sales of $25.6 billion.

JUUL Labs will be criticized by anti-tobacco and -vaping activists for the move, and also probably from many in the independent vaping industry, which JUUL has kept its distance from in the past. The company claims its mission to convert smokers to JUUL hasn’t changed, and CEO Kevin Burns says “this partnership could help accelerate our success switching adult smokers.”