Juul became the global leader in electronic cigarette manufacturing in 2018, with its products gaining widespread popularity. Virginia-based tobacco brand Altria did not want to miss out on the opportunity presented by the rapidly growing e-cigarette market and acquired a 35% stake in Juul for 12.8% of the price. At the time, Altria firmly believed that e-cigarettes represented the future of tobacco use worldwide, and Juul was leading the way towards this promising future.
However, the reality is quite different. Recently, reports claiming that electronic cigarettes are just as dangerous as traditional smoking have dampened enthusiasm for the market, sending shockwaves throughout the entire industry. Even Juul, once the world's most valuable e-cigarette company, has seen its valuation drop following concerns raised by the FDA about the safety of its products, despite a recent investment from Altria.
Tobacco company Altria's investment in Juul is now valued at $450 million, less than 5% of the e-cigarette maker's 2018 valuation. Earlier this year, Altria lowered its valuation of Juul to $1.6 billion as the US Food and Drug Administration began reviewing Juul's products. In its Q2 earnings report, Altria further reduced the valuation by $1.2 billion, putting the new value at $450 million. Despite the drastic reduction, Altria says it has no plans to work with Juul and will honor its original agreement not to launch any new e-cigarette products or invest in other e-cigarette companies. "We made the decision not to make any different decisions," said Altria CEO Billy Gifford. "We believe the right decision at this point in time is to maintain noncompetition.
The rapid decline in Juul's valuation is due to the FDA's decision last month to ban Juul e-cigarettes, as the company failed to provide key information about its nicotine formula. This surprised many as the FDA has approved many similar products. While Juul received criticism from a federal court to continue selling its products, the FDA has re-examined the company's application and frozen its ban. This means that the future of Juul's products remains uncertain in the foreseeable future.
The FDA's decision stems from recent studies that indicate e-cigarettes are harmful to users and pressure from advocacy groups who believe these products are just as bad as traditional tobacco products. Therefore, the FDA is working to eliminate products that do not help smokers quit. Juul's various flavors and brightly colored packaging are attractive to non-smokers. Aside from its valuation, Juul's current issues have also led to a nearly 60% decrease in Altria's earnings to 49 cents per share. This has caused a 6% decrease in quarterly revenue to around $6.5 billion. Altria is the largest cigarette manufacturer in the US and, as smoking rates decline, the company is fighting hard in the Juul and future e-cigarette market.
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