The maker of Marlboro cigarettes is distancing itself from Juul after losing billions on its investment in the vaping giant amid a federal vaping ban and a flurry of lawsuits.
Tobacco giant Altria Group is also leaving a path open for itself to get back into the vaping business on its own.
Altria said Thursday that it will no longer provide marketing and retail distribution services for Juul, which is facing a ban on most e-cigarette flavors in pre-filled pods, numerous lawsuits and government investigations. Previously, Altria helped promote Juul through the insertion of Juul coupons in Marlboro packs, for example. Now, it will only provide regulatory assistance as of March.
The shift comes amid criticism from anti-tobacco watchdogs who say that Juul lured young people into vaping and that Big Tobacco covets the burgeoning market for e-cigarettes.
Altria’s 35% stake in Juul has quickly deteriorated in value. The $12.8 billion investment, which occurred in December 2018, was worth $4.2 billion as of Dec. 31, 2019, Altria said Thursday. That included a $4.1 billion charge recorded in the fourth quarter due to Juul’s troubles.
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“It’s a real black eye for management – just a major strategic mistake,” said Garrett Nelson, a CFRA Research stock analyst who tracks Altria. “But hindsight is 2020 – they didn’t see the issues with e-cigarettes on the horizon at the time.”
Altria appears to be taking steps to minimize the risk that it could also become the subject of the many lawsuits and investigations targeting Juul, said Robert Jackler, an industry watchdog and Stanford University professor.
“Altria is now working hard to distance themselves from a deeply tarnished brand that potentially links them to an enormous litigation liability,” said Jackler, who is serving as an adviser for some attorneys general and for plaintiffs in some of those cases.
On a conference call with analysts and investors, Altria’s Chief Financial Officer Billy Gifford said the write-down was related to the “legal environment” surrounding Juul, including “slower future e-vapor category growth due to likely regulatory action.”
“We did not assess the merits of the cases, whether they would be successful or not against Juul,” Gifford said. “We really looked at assessing the risk of the uncertainty related to the litigation.”
Central to Juul’s challenges is that the U.S. Food and Drug Administration has banned prefilled e-cigarette pods with any flavors except for tobacco and menthol. Experts blame flavored e-cigarettes for the national boom in youth vaping, which can lead to nicotine addiction and smoking.
Vaping companies say that their product is safer than smoking combustible cigarettes, which cause cancer and other diseases.
A Juul spokesman did not respond to a request seeking comment.
Matthew Myers, president of the Campaign for Tobacco-Free Kids, cautioned against believing that Altria is sidelining Juul altogether.
“My concern is that the revised agreement is designed to put all of Altria’s muscle and expertise into convincing the FDA to allow the very products that fuel the e-cig epidemic back onto the market,” Myers said. “No one should conclude that they have given up on the e-cigarette market.”
Altria spokesman David Sutton denied that the company’s announcement was aimed at getting Juul’s wide range of flavors, such as mint and mango, back onto the market.
Vaping companies must submit applications to the FDA by May 12 in an attempt to get approval to sell prefilled, flavored vaping pods. Refillable pods are still legal.
Altria could also decide to re-enter the vaping market under certain conditions, according to its renegotiated deal with Juul. Altria can resume selling its own brand of e-cigarettes – after agreeing to stop doing so as part of its Juul investment – if Juul is banned from selling in the U.S. for at least a year or if the value of Altria’s Juul investment drops to $1.28 billion or lower.
While reducing its direct ties to Juul, Altria is also pursuing a new path to bolster its revenue. The company wants to attract Juul users to its own smoking alternative, a heat-not-burn device called IQOS, which was recently approved for sale in the U.S, Jackler of Stanford said.
Altria recently began selling the battery-powered IQOS – which heats tobacco, creating an inhalable aerosol containing nicotine – in the Atlanta market and Richmond, Virginia, market. The company plans to expand into other areas soon.
“We think IQOS is going to sell very well because it’s going to benefit from former Juul users switching,” said Nelson, the CFRA Research stock analyst.
Altria’s Sutton said it’s “completely off base” to suggest that the company is trying to get Juul users to convert to IQOS, which, he said, is sold in dedicated retail stores where workers will only sell the product to smokers.
IQOS comes from Philip Morris International, which sells Altria products in foreign markets and allows Altria to sell its products in the U.S. through a reciprocal agreement.
“Their goal is to control the three categories that are emerging in the tobacco market – traditional combustible, the vapor category and the heated tobacco category,” Jackler said of Altria.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.