Altria’s $13 billion Juul investment has lost 95% of its value

Juul branded vape cartridges are for sale at a store in Atlanta, Georgia.

Elie Nouvelage | Reuters

Cigarette maker Altria’s $13 billion investment in struggling vaping company Juul has gone up in smoke – it’s now worth less than 5% of its original value as US regulators ban its e-cigarettes.

Altria wrote down the value of its Juul investment by more than $1.1 billion on Thursday, setting its new value at $450 million as it reported second-quarter results. The Marlboro maker had recently valued its stake in the company at a significantly reduced $1.6 billion.

Despite the losses, Altria said it would maintain its investment agreement with Juul, including an agreement not to sell competing vaping products.

“At this time, we continue to believe that these investment rights benefit us,” Altria said in a prepared statement.

Altria, based in Richmond, Va., is the largest investor in Juul with a 35% stake. Altria executives signed the $12.8 billion pact in 2018, betting that popular Juul vaping devices were a lucrative alternative to tobacco products.

Last month, however, the US Food and Drug Administration announced plans to ban small cartridge e-cigarettes, saying Juul had failed to provide key information about potentially harmful chemicals in its juice. nicotine formula. The decision surprised observers and industry experts given that the FDA has cleared several competing e-cigarettes and Juul has spent years collecting data to back up its application.

In another twist of the company’s fortunes, the FDA reopened its review of Juul’s application earlier this month after a federal court blocked the ban from taking effect immediately. For now, Juul is able to continue selling its products while the FDA review continues.

The Juul decision is part of an extensive FDA review of all US e-cigarettes aimed at eliminating those that have not been shown to help smokers cut down or quit smoking.

Juul rose to the top of the US vaping market five years ago thanks to the popularity of flavors like mango, mint and crème brûlée. But the company’s rise was fueled by underage use by teenagers who became addicted to Juul’s high-nicotine pods.

As of 2019, the company has been on the back foot: halting all advertising in the United States, dropping most of its flavors, and rebranding itself as a product for older smokers looking to ditch traditional cigarettes.

The blow to Juul contributed to a nearly 60% decline in Altria’s quarterly profit of 49 cents per share.

Excluding Juul and other one-time expenses, the company’s adjusted earnings were $1.26 per share, just ahead of Wall Street estimates. Six analysts polled by Zacks Investment Research had expected earnings of $1.25 per share.

Net revenue fell nearly 6% to $6.5 billion due to lower sales of cigarettes and other company flagship products. The Company’s brands include Parliament and Marlboro cigarettes, Black and Mild cigars and Skoal chewing tobacco.

Altria, the country’s largest cigarette maker, has tried to diversify its product offerings into vaping and nicotine pouches as traditional tobacco use continues to fade.

Smoking has been declining for more than five decades. Some 42% of American adults smoked in the early 1960s. This figure had fallen to less than 13% in the latest report from the Centers for Disease Control and Prevention

For the full year, Altria said it expects earnings of between $4.79 and $4.93 per share.

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