Tobacco company Altria Group is doubling down on its e-cigarette business after a catastrophic bet with Juul lost it billions. The Marlboro maker announced this week it is putting up at least $2.75 billion to buy startup vape maker NJOY Holdings.
Just last week, Altria divested its disastrous stake in Juul, which tumbled from $12.8 billion in 2018 to $250 million at the end of 2022. Altria said it was exchanging the stake for intellectual property rights related to Juul’s heated tobacco products.
“That certainly has dented credibility with investors,” Fitch Ratings senior analyst Bill Densmore said.
Juul has been on a downward spiral as evidenced by Altria’s investment, forced to pay $439 million in a settlement involving marketing to children, along with its FDA battle over a product ban. But Densmore said the switch to NJOY makes sense because, beyond NJOY having regulatory approval, Altria controls its destiny with a 100% ownership versus the minority stake it had in Juul.
Altria’s NJOY acquisition comes at an additional cost of $500 million in cash contingent on the company securing regulatory approval for more products.
“You’re looking at a category that has more than 10 million adult users in the U.S. and represents roughly 15% of total tobacco volumes,” Densmore said. “It’s one that Altria couldn’t ignore.”
The e-cigarette industry has faced significant challenges in recent years as cities and states look to ban flavored tobacco products that made e-cigarettes more popular in the first place. New York Gov. Kathy Hochul (D) has moved to ban the sale of all flavored tobacco products in the state, expanding the state’s ban on the sale of flavored vaping products. Last year, California voted to ban the sale of most flavored vaping products.
“I think it’s best to kind of frame things on a national basis, because you can get a little bit more noise on a state-by-state basis,” Densmore said. “The tobacco industry talks about a smoke-free future with next generation products that have a much lower risk profile. This is in line with the FDA risk continuum for reduced risk products.”
In spite of legislative and other challenges, the global tobacco market is projected to reach more than $907 billion by 2028 from $782 billion in 2021, according to The Insight Partners research.
“Building out these next generation product portfolios with reduced-risk products that have much lower health risk, that’s going to be key,” Densmore said. “We’re seeing regulatory movement across the globe toward reducing those sorts of risks, so the tobacco industry is responding to those.”
