Smoking is in decline across the western world, and big tobacco has taken note. In a landmark deal last December, Altria bought a 35% stake in Juul Labs at a staggering valuation of $38 billion. The investment catapulted the unicorn, which had previously been valued at $15bn in July 2018, into the position of the world’s fifth most valuable unicorn, according to CB Insights. That puts it above Elon Musk’s SpaceX, Fortnite maker Epic Games, and Airbnb.
According to Juul Labs’ managing director in the UK, Dan Thomson, the Altria move was indicative of a fundamental shift in the way big tobacco approaches the future. “We’ve got the biggest manufacturer of cigarettes in America to hasten their own decline,” he told the Financial Times. “No one has ever done that.”
It is not Altria’s only attempt to diversify. In December 2018, slightly earlier than the Juul deal, the company invested $1.8bn in a Canadian cannabis firm, Cronos, in order to target the growing national market while setting itself up for a market that could also boom in the United States as more states move to legalise the substance.
However, in the core business of nicotine, Juul is running rampant in the US, where it now takes in 75% of all e-cigarette sales, a 154% year-on-year increase. An analysis of Nielsen data from last August showed why big tobacco might be scared: in the fast growing e-cigarette category, Juul is gobbling up dollar share as traditional players’ share of the new category declines. Altria canned its own vaping products in December, citing current and expected financial performance.
There are risks to getting into bed with big tobacco however, and Thomson noted these, as he maintained to the FT that “money was not the motivation”. He cited Juul’s mission to “end cigarette smoking”. In the meantime, it will enjoy some advantages of Altria’s reach in the cigarette space for advertising as part of the deal, with access to real estate on Malboro packets and supermarket shelf space, as well as access to its customer database.
It’s help that Juul may need. Since it has occupied the vaping lime-light, Juul has attracted a variety of criticisms, not least for its popularity among young people. Juul rejected the effectiveness of its own advertising in driving growth. “Our growth is not the result of marketing but rather a superior product disrupting an archaic industry.”
Meanwhile, Juul’s use of nicotine salts, unlike other manufacturers, has worried some experts. Salts, according to the Verge, are absorbed into the body at a similar rate to normal cigarettes. Without the irritation and coughing of traditional smoking, this means a fast-track to nicotine addiction, though this is a criticism of all vaping.
More recently, the US Food and Drug Administration forced Juul to suspend sales of fruity flavoured capsules from convenience stores, ahead of the FDA’s effective restriction on them by limiting their sale to vape shops, which are age-restricted. There is an additional threat from the agency that it could ban all e-cigarette sales if use among the young continues to rise.
In comparison, the UK presents a relatively soft landing with a public health attitude that sees vaping as a safer alternative to smoking. It plans to position its product as a health item, as it currently sells in 270 Boots pharmacies, and intends to expand to a further 300 by the end of April.
Sourced from CB Insights, Financial Times, WARC, The Verge, CNBC