Altria investment in Juul worries investors

Altria recently addressed its investors concerns regarding its investments in e-cigarette manufacturer Juul. Investors think that the company might be paying too much for too small a stake in e-cigarette manufacturer Juul.

During the end of 2018, the tobacco giant Altria spent nearly $12.8 billion for a 35 percent stake in Juul. Juul has been the frontrunner of the nicotine vaping market and within a short period, has grown significantly from a small start-up to a $38 billion company. Altria’s stake is said to be frozen at 35 percent for the next six years.

From Altria perspective, the deal gave Altria something its core cigarette business could not offer, growth. But many analysts and investors showed their concerns that Altria is the most prominent U.S. tobacco company and owner of one of the best-selling cigarette brand, Marlboro, paid too high a price for too little stake. Apart from that Juul is also battling a public relations crisis and might be facing a regulatory uncertainty. Juul could face problems from the public health official for what they say as an e-cigarette epidemic.

Howard Willard, the CEO of Altria, tried to ease all those concerns on Thursday explaining about the benefits of the deal over a call with analysts and discussing the company’s fourth-quarter earnings results. He spent most of his prepared remarks addressing about Juul and answered many questions about the deal. Howard Willard said “When you add to Juul’s already substantial capabilities, our underage tobacco prevention expertise and ability to connect with adult smokers directly, we see a compelling future with long-term benefits for both adult tobacco consumers and our shareholders,”

While addressing these analysts, he informed that the revenue of Juul’s had grown more than $ 1 billion in 2018 from about $200 million in 2017. Reports say that the actual sales figure of Juul last year was about $1.5 billion.

Howard Willard said that the company estimates Juul to control nearly 34 percent of the total e-cigarette market. Nielsen data holds more than 75 percent of the company’s share a moment. This figure only includes convenience stores and not other retailers like online stores or vape shops.

Willard further said that the company expects Altria’s vapor volume in the United States to grow at a compounded annual rate of 15 percent to 20 percent through 2023. While Altria doesn’t sell any tobacco products overseas, Juul is available in eight markets outside the U.S. Howard Willard went on to comment that Juul gives Altria a “significant stake in the fast-growing e-vapor category.”

The investment of Altria comes at a controversial time for Jull. The Juul company has been condemned by Scott Gottlieb of the Food and Drug Administration for an increase in teen e-cigarette use. He even went on to the length of calling it an epidemic.

When talking about this Howard Willard told that Altria shares the concerns of FDA and the agency’s agency’s response to youth use are “justified and appropriate.” Regarding the same topic, Scott Gottlieb on November said that the agency would restrict where flavors can be sold, limiting them to stores like vape shops where they have an age restriction.

Scott Gottlieb said “This is an issue that we and others in the industry must continue to address aggressively and promptly. We understand that the long-term opportunity of tobacco harm reduction is threatened by continued underage use.”

Scott Gottlieb applauded the efforts put in by Juul efforts to stop underage use, including to suspending retail sales of flavored nicotine pods and shutting down its social media accounts.

Altria told that it intends to file its antitrust approval application for its Juul investment soon.

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