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Big tobacco just spent $12.8 billion to get a taste of Juul

Big tobacco just spent $12.8 billion to get a taste of Juul

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Cash of the titans

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Illustration by Alex Castro / The Verge

Altria, a giant in the world of tobacco conglomerates, just spent $12.8 billion dollars to purchase a 35 percent minority stake in Juul, a company that currently dominates the e-cigarette market. This deal puts the value of Juul at an eye-popping $38 billion dollars, more than doubling the $15 billion valuation from earlier this year.

Some details of the deal were first reported in the Wall Street Journal on Wednesday, and rumors of such a deal have circulated for weeks. The purchase gives Altria, the company behind Marlboro cigarettes in the United States, a large share of the booming e-cigarette market.

“We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes,”  Howard Willard, Altria’s CEO said in a statement.

Juul saw a massive 641 percent spike in sales from 2016 to 2017

Companies like Altria, which rely on the sale of traditional tobacco products, like cigarettes, have seen combustible tobacco use decline in recent years, even as vaping has become steadily more popular. And while Big Tobacco led the e-cigarette market early on, Juul saw a massive 641 percent spike in sales from 2016 to 2017, according to a recent analysis from the Centers for Disease Control and Prevention. The brand now dominates more than 70 percent of the market.

Instead of burning tobacco to deliver a nicotine hit, e-cigarettes use a battery to heat a liquid that gives the user the same kind of kick. Juul’s particular formula has proved incredibly appealing among users, making them, in turn, incredibly attractive to Altria, which struggled gain a foothold in the electronic-cigarette market. Altria closed two of its own e-cigarette brands, MarkTen and Green Smoke, earlier this month. Neither brand was as popular with consumers as Juul.

Juul’s popularity, while appealing to business interests, has also gotten it into trouble recently with public health officials. The Surgeon General called youth vaping an epidemic this week, after multiple lines of research showed that teen use of products like Juul had spiked in the past year. Even before the Food and Drug Administration limited the sale of e-cigarette products in kid-friendly flavors, Juul pledged to stop supplying its fruity- and desert-flavored pods to brick-and-mortar stores. The company also cleared out its social media accounts, which had been criticized for their appeal to young people.

“Some Juul employees have been upset by their company’s talks with Altria”

How this deal with Big Tobacco will be received remains to be seen, but in some circles, it’s reportedly already contentious. As the Wall Street Journal notes: “Some Juul employees have been upset by their company’s talks with Altria, saying it is a betrayal of the startup’s mission to help cigarette smokers switch to less-harmful products.“

That criticism was not lost on Juul’s higher-ups. “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.” Juul CEO Kevin Burns wrote in a statement. “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.”

As a part of the deal, Altria will let Juul have access to its customer information, allowing it to send Juul advertisements to people who buy Altria. The company also plans to stick Juul messaging directly inside packs of Altria-produced cigarettes. Juul will maintain control of the company, and according to CNBC, it’s 1,500 staff will split a $2 billion bonus.