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The biggest American cigarette company buys a $13 billion stake in the biggest e-cigarette startup

Altria, America's preeminent cigarette company, is looking beyond tobacco for growth.Fresh off a ...

Posted: Dec 20, 2018 1:51 PM
Updated: Dec 20, 2018 1:51 PM

Altria, America's preeminent cigarette company, is looking beyond tobacco for growth.

Fresh off a $1.8 billion investment in Canadian cannabis company Cronos Group (CRON), Altria on Thursday purchased a 35% stake in e-cigarette maker Juul, worth $12.8 billion. The Wall Street Journal was the first to report that Altria (MO) was considering an investment.

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The investment is the largest in Altria's history, and it values Juul at $38 billion dollars. It pairs a company that controls half of the American tobacco market with startup Juul — which sells more than 70% of the cartridge-based e-cigarettes in the United States.

The marriage allows Altria to broaden its customer base. Altria is a US-only business, spinning off from Philip Morris International in 2008. Juul sells its e-cigarettes in Canada, Israel, Russia and the United Kingdom, in addition to the United States.

It could give Altria, a leader in a US cigarette business in slow decline, a window into the rapidly growing market of e-cigarettes. The deal could give Juul access to Altria's massive distribution network and top-shelf space at stores. And Altria will advertise Juul products in cigarette pack inserts and mailings, the company announced.

Ironically, Juul has marketed its products for people who want a smoke-free source of nicotine to help them quit cigarettes.

"We can't restate this enough," said Juul CEO Kevin Burns in a July letter to customers. "As an independent company that is not big tobacco, we are driven by our mission and commitment to adult smokers."

Burns acknowledged the irony of Altria's investment in a statement Thursday, calling its new Marlboro-making partner "unlikely -- and seemingly counterintuitive."

"We understand the controversy and skepticism that comes with an affiliation and partnership with the largest tobacco company in the US. We were skeptical as well," Burns said. "But over the course of the last several months we were convinced by actions, not words, that in fact this partnership could help accelerate our success switching adult smokers."

Burns said Juul supported Altria's investment because it agreed to support Juul's mission to wean people off cigarettes.

"We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes," Altria said in a statement. "We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction."

The deal has alarmed anti-tobacco advocates, who worry that the companies' pooled political power could squash regulation efforts. Many have also criticized how both companies have appealed to youth, gaining potential lifelong customers.

Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, said in a statement that the deal "is a truly alarming development for public health and brings together the two companies that have been the most successful in marketing their highly addictive products to kids."

Myers called on the Food and Drug Administration for urgent regulation "to stop tobacco companies from reversing decades of progress and addicting another generation of kids."

Altria's investment is a risky one.

Juul has come under intense regulatory scrutiny after teenagers became addicted to its products.

Federal law prohibits the sale of e-cigarettes to people under the age of 18, yet one in five high school students uses e-cigarettes, according to the surgeon general. Teen e-cigarette usage is soaring: The percentage of high-school-age children who say they used e-cigarettes in the past 30 days rose by more than 75% between 2017 and 2018, according to the National Youth Tobacco Survey.

In September, the FDA started a campaign to prevent kids from using e-cigarettes. It called teen use of e-cigarettes "an epidemic," claiming that nicotine use is hazardous to young adults' health. The FDA conducted a surprise inspection of Juul's corporate headquarters in San Francisco a month later, seizing thousands of documents, many of which relate to the company's sales and marketing practices.

The FDA was expected to ban e-cigarettes last month, but it instead pushed for e-cigarettes to be sold only in parts of stores that are closed-off to teenagers.

Altria also faces regulation of some of its most popular products. The FDA last month sought a ban of mentholated cigarettes.

Altria also wants to bring Philip Morris International's IQOS tobacco-heating device to market, but it has not yet received government approval. The company has not shown that IQOS is a safer alternative to cigarettes, the FDA said earlier this year.

The company's investment in Cronos, much smaller than its reported interest in Juul, is potentially its safest bet. Marijuana has gained legal status in Canada and a growing number of American states — although it remains a controlled substance on the federal level.

Correction: An earlier version of this story incorrectly stated Juul's valuation. This story also has been updated to clarify the FDA's action last month.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 308737

Reported Deaths: 7139
CountyCasesDeaths
DeSoto20931250
Hinds19961410
Harrison17562303
Rankin13369277
Jackson13156243
Madison9950212
Lee9890170
Jones8310161
Forrest7542148
Lauderdale7221237
Lowndes6289144
Lamar613384
Lafayette6072117
Washington5291133
Bolivar4776129
Oktibbeha457197
Panola4458103
Pearl River4437141
Warren4299119
Marshall4286102
Pontotoc417572
Monroe4062132
Union404675
Neshoba4005176
Lincoln3886109
Hancock373385
Leflore3471124
Sunflower331589
Tate325384
Pike3215105
Scott311472
Yazoo305069
Alcorn299465
Itawamba297877
Copiah293965
Coahoma290479
Simpson289586
Tippah285168
Prentiss276659
Marion266279
Leake261773
Wayne261541
Grenada256484
Covington255280
Adams246982
Newton245761
George238547
Winston226081
Tishomingo222567
Jasper220048
Attala213673
Chickasaw205457
Holmes187172
Clay183254
Stone179733
Clarke177776
Tallahatchie176140
Calhoun165431
Yalobusha160136
Smith159334
Walthall131043
Greene129633
Lawrence126623
Noxubee126534
Montgomery125742
Perry125238
Carroll120926
Amite120741
Webster113832
Jefferson Davis105532
Tunica103225
Claiborne101330
Benton97525
Kemper95628
Humphreys94632
Franklin82923
Quitman78916
Choctaw73917
Wilkinson65128
Jefferson64828
Sharkey49817
Issaquena1686
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Alabama Coronavirus Cases

Cases: 521623

Reported Deaths: 10739
CountyCasesDeaths
Jefferson754061493
Mobile39067799
Madison34040496
Tuscaloosa25367444
Montgomery24019567
Shelby23186239
Baldwin20701302
Lee15589165
Calhoun14342311
Morgan14158271
Etowah13685346
Marshall11995220
Houston10404278
Elmore10011200
Limestone9852147
Cullman9503189
St. Clair9463234
Lauderdale9265228
DeKalb8757181
Talladega8115171
Walker7139275
Jackson6756110
Autauga6750103
Blount6519134
Colbert6229130
Coffee5424113
Dale4772111
Russell430038
Franklin420782
Chilton4101109
Covington4061114
Tallapoosa3907146
Escambia390174
Dallas3525149
Chambers3514122
Clarke347060
Marion3072100
Pike306176
Lawrence295995
Winston273172
Bibb256059
Marengo248361
Geneva246075
Pickens233259
Barbour226455
Hale218575
Butler212967
Fayette209460
Henry188044
Cherokee182644
Randolph177241
Monroe172540
Washington165238
Macon155648
Clay150155
Crenshaw149457
Cleburne146741
Lamar139734
Lowndes136553
Wilcox124427
Bullock121640
Conecuh109428
Perry107626
Sumter103232
Coosa99428
Greene91434
Choctaw58824
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