Vaping scandals forces Altria to write off $4.5 bln

Altria will write off $4.5 billion from its investment in e-cigarette maker Juul amid the ongoing vaping scandal in the U.S. and Juul’s own troubles with the law.

CNN’s Paul R. La Monica reported the news:

Marlboro owner Altria’s big gamble on vaping is not panning out as well as hoped. The cigarette giant announced Thursday it was taking a $4.5 billion writedown on its investment in Juul.

Altria (MO) invested $12.8 billion for a 35% stake in Juul in 2018. The deal quickly went south as concerns mounted about the health risks of vaping and US regulators pushed for a crackdown on e-cigarettes. Juul was also criticized for selling pods with flavors like mango, creme and cucumber that became popular with teens.

Juul CEO Kevin Burns stepped down last month and was replaced by Altria executive K.C. Crosthwaite. Since then, Juul said that it will end the sale of its flavored products in the US. And the company announced another management shakeup earlier this week.

The problems at Juul have taken a toll on Altria. The stock is down more than 5% this year and the company abandoned talks about a possible reunification with Philip Morris (PM), which sells Marlboro and other cigarettes internationally, last month. Altria had spun off Philip Morris in 2008.

The company is going ahead with plans to sell iQOS, a Philip Morris e-cigarette product that heats tobacco but does not burn it.

Jonathan Sieber from TechCrunch noted:

JUUL,  which has become synonymous with the vaping phenomenon that has swept the U.S., was once hailed as being at the forefront of a wave of companies that were making smoking obsolete and nicotine consumption safer for consumers.

The company began running into problems as its popularity increased exponentially (in part by allegedly turning to some of the same tactics big tobacco used to target underage consumers).

As the complaints began to roll in, and as JUUL  was held responsible for an explosion in the use of tobacco products among underage Americans, the regulatory scrutiny also began to increase.

First the company was compelled to limit its sale of flavored tobacco products. Now it may be forced to pull all of its flavored products outright.

None of the company’s troubles have been helped by the wave of vaping related illnesses that have swept through the U.S. causing several deaths in users across multiple states.

Indeed, a new lawsuit against the company (filed two days ago) alleges that JUUL knowingly sold contaminated pods despite warnings from at least one employee.

Ruth Reader from Fast Company wrote:

The Food and Drug Administration has charted an enormous rise in youth vaping for years, with as many as 3.6 million kids vaping in 2018. In June 2019, San Francisco moved to ban the sale of e-cigarettes, citing this youth vaping crisis and the FDA’s failure to regulate e-cigarettes and vaporizers. Weeks later, the FDA started looking into the possibility that e-cigarettes, specifically Juul’s, were causing seizures. Shortly thereafter came news of a Federal Trade Commission investigation, which is seeking to discern whether Juul is targeting minors with its advertising (in 2016, the FDA put e-cigarettes in the jurisdiction of the Center for Tobacco Products, which means that, like cigarette makers, Juul can neither sell nor market to minors). All of this happened in August, the same month that Juul raised nearly $800 million in equity and debt to bolster global expansion.

While Juul was under scrutiny from the federal government, a vaping-related illness was sending hundreds to the emergency room and in some cases resulting in death. In response, the FDA warned teenagers against buying off-market vaping products. Meanwhile, the federal organization started targeting Juul more directly. In a warning letter, the administration sternly noted that Juul did not have federal approval to claim that e-cigarettes were a healthier alternative to traditional smoking.

Over the summer, the number of people suffering from the mysterious vaping illnesses climbed. In September, President Trump threatened to ban nearly all flavored vaping products. States have followed: Michigan, New York, Massachusetts, Rhode Island, Washington state, Oregon, and the city of Boulder, Colorado, have put various restrictions into effect, ranging from outright vaporizer bans to limits on flavored products. Media companies have pulled advertising of e-cigarettes. In October, Juul ceased selling many of the fruity flavors regulators believe are luring kids.