Juul’s alliance with Altria helps both companies overcome Big Tobacco legacy
March 14, 2019 | Blog

Juul’s alliance with Altria helps both companies overcome Big Tobacco legacy

As Juul Labs continues to rapidly grow, the company’s decision to sell a majority stake to Altria Group, the parent company of Phillip Morris, is making increasing sense.

Altria’s nearly $13 billion investment into Juul Labs does not merely the boost the unicorn’s already lofty valuation but also gives Juul’s much needed experience with federal regulators who have been scrutinizing Juul’s failure to prevent teenagers from using its “alternative” smoking products.

Juul now enjoys a private valuation of $38 billion due to its popular vapor products that heat tobacco instead of burning it which releases more hazardous chemicals. According to Pitchbook, the company is projected to generate $3.4 billion in revenue this year, almost three times more than 2018.

Juul says its mission is to provide a way for smokers to stop using traditional combustible cigarettes. Last month, the company released a landmark study that claimed smokers who used its product over a 5-day period experienced a near identical drop in biomarkers related to cancer compared to smokers who abstained from smoking during that period.

Juul and Altria are both lobbying the Food and Drug Administration to, for the first time, to approve its claims that their products are safer than cigarettes. For Juul, Altria offers a good deal of experience in navigating the FDA. The agency is currently in flux as FDA Commissioner Scott Gottlieb, a strong critic of Juul and e-cigarettes, is resigning.

Juul runs into some problems

Juul has portrayed itself as the anthesis to Big Tobacco, the company that has really taken smokers’ interests to heart. But Juul recently faced enormous scrutiny, especially from the FDA, because its products, especially the flavored ones, proved especially popular with underage teenagers.

The result of the FDA’s review of Juul’s marketing practices is not merely a bout of bad publicity. The agency could possibly reject Juul’s claims that its vaping products are healthier or safer than traditional cigarettes, especially if it determines the company purposely targeted underage kids.

“Our intent was never to have youth use JUUL products,” CEO Kevin Burns said in a statement. “But intent is not enough, the numbers are what matter, and the numbers tell us underage use of e-cigarette products is a problem.”

“We are not perfect,” he said. “We are constantly learning and getting better at what we do.”

Burns is essentially saying that Juul needs help in these matters. So who has experience with retail distribution, communicating with the FDA, and designing campaigns and programs to stop underage teen smoking?

Big Tobacco. Hence the investment from Altria.

New direction for Big Tobacco

Like Juul, Altria has been trying to popularize “healthier” tobacco products that will help smokers transition away from traditional cigarettes.

In 2008, Altria spun off Phillip Morris International (PM) which owns the Marlboro brand, so the unit could focus on emerging markets. But the two companies also jointly created an electronic smoking device called IQOS that heats, not burns, tobacco.

The company sells IQOS in places like Great Britain, Japan and South Korea. But PMI has been lobbying FDA to approve the product, which Altria will market and distribute in the United States.

As smoking rates plummet in the United States, tobacco companies like PMI have been searching for new revenue streams, including products like IQOS that can help wean smokers off cigarettes.

To gain credibility with consumers, PMI has asked the FDA permission to describe these products as “reduced risk.” Like Juul, the company has invested considerable resources in scientific studies and clinical trials to prove IQOS are safer to smoke than regular cigarettes.

But that might be a tough sell, given Big Tobacco’s history of misleading the public on addiction and the dangers of smoking. But the company hopes transparency and rigorous science will win consumers over.

“People are going to be skeptical, and they're right to be skeptical,” PMI spokesman Corey Henry previously told me. “But our position is you don't have to trust us, and you shouldn't automatically trust us.”

“Take a look at the information yourself and do so with an open mind and see if you arrive at the same conclusions that we do,” he said. “We've got 200 peer-reviewed studies of our science. All of the science we've submitted to FDA will become available through our application.”

The fact that PMI chose to pursue FDA approval for its claims is significant in itself, given the historically contentious relationship between the industry and the country’s top regulator for consumer products.

“For us going through the FDA process, hopefully they'll arrive at the same conclusions that we have,” Henry said. “But it does sound a little counterintuitive that a tobacco company is welcoming the opportunity for a government health agency to review its data. But for us that's incredibly important to have that opportunity for them to do so.”

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Thomas Lee

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.

DISCLAIMER: This blog does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The information contained in this blog has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

None of the information contained in this blog represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

Copyright © SharesPost, Inc. 2019. All rights reserved.