Vaping Industry Suffers Growing Pains as Altria-JUUL Investment Goes From Bad to Worse

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The sudden and explosive growth of the vaping industry was something that the tobacco companies never expected and didn’t plan for. Historically, America had always been the center of the worldwide tobacco industry. The electronic cigarette was an innovation that came out of China without warning and threatened to disrupt the American tobacco empire. Smokers switched to vaping by the millions, and it seemed obvious to many people that traditional cigarettes would one day become completely obsolete.

Big Tobacco had to enter the vaping industry, or it might fall behind permanently. That’s exactly what has happened over the past several years, but one Big Tobacco company may have finally bitten off more than it can chew. 

Big Tobacco and Vaping: History

The major tobacco companies in America and elsewhere scrambled to develop their own e-cigarette brands or buy out existing brands. Big tobacco’s entry into the vaping industry was so gradual and so quiet that many people didn’t notice. The tobacco companies generally didn’t change anything about the brands they acquired, and when they launched new vaping brands, they distanced those brands from their existing cigarette brands.

These are just a few of the more important events that have taken place in the intermingling of the vaping and tobacco industries over the years.

  • In 2012, Lorillard acquired the Blu Cigs brand.
  • In 2012, Lorillard acquired the Skycig brand.
  • In 2012, R. J. Reynolds developed the Vuse brand.
  • In 2013, Altria developed the MarkTen brand.
  • In 2013, Imperial Tobacco acquired the Dragonite brand (formerly Ruyan).
  • In 2013, British American Tobacco developed the Vype brand.
  • In 2014, Altria acquired the Green Smoke brand.
  • In 2014, R. J. Reynolds acquired Lorillard, selling the Blu Cigs brand to Imperial Tobacco as part of the deal.
  • In 2015, Japan Tobacco acquired the Logic brand.
  • In 2018, JUUL acquired the V2 Cigs brand and shut it down. V2 Cigs UK remains open.

The biggest acquisition of all, however, came in 2018 when Altria acquired a 35-percent stake in the JUUL e-cigarette brand. The acquisition cost Altria $12.8 billion based on a JUUL company valuation of $38 billion. It absolutely dwarfed every brand acquisition that had taken place in the vaping industry up to then. JUUL’s acquisition of V2 Cigs, in comparison, cost just $75 million. 

In the weeks leading up to the JUUL acquisition, Altria shut down the MarkTen and Green Smoke e-cigarette brands. By that time, JUUL’s share of the e-cigarette retail market was so large that brands like MarkTen – which had always lagged behind JUUL and Reynolds’ Vuse brand in sales – were insignificant in comparison.

The acquisition, it turned out, couldn’t have come at a worse time.

A Year of Controversy

In 2019, the vaping industry experienced its first period of decline after more than a decade of rapid growth. The seeds of the controversy were planted in late 2018 when the United States government released the results of its yearly Youth Tobacco Survey. According to the survey’s results, more than 3.6 million underaged students in America were regular vapers. Most of them used the JUUL brand. The FDA and other public health authorities told JUUL and the rest of the vaping industry that if they couldn’t find a way to curb youth usage immediately, there would be major problems.

Court Orders FDA to Regulate Vaping Products Immediately

While tens of millions of adults around the world continued to rely on vaping products to keep them away from cigarettes, a growing contingent of concerned parents and activists began to demand that the government do something about youth vaping immediately. Activist groups sued the FDA, demanding that the agency abandon its plan to require all companies in the vaping industry to obtain regulatory approval for their products by 2022 and begin regulating the industry right away.

The FDA lost the lawsuit in July 2019 and was ordered by a federal court to implement full regulation of the vaping industry by May 2020. By May, all companies in the vaping industry would need to apply for approval of their products or remove those products from the market. Suddenly, the American vaping industry – which could have continued operating as it was for at least three more years – had ten months left to live.

Former FDA head Scott Gottlieb said in June 2019 that he couldn’t see JUUL getting through the application process successfully due to the brand’s history of youth use.

Illegal Cannabis Industry Gives the Legal Vaping Industry a Bad Rap

The vaping industry took another major hit in 2019 when more than 2,000 Americans who vaped contracted an illness that resulted in severe lung damage for many patients and the deaths of dozens. Research showed that most or all of the cases of the illness were caused by illegal vaping products containing THC. No commercial nicotine e-liquid was shown to cause the illness, but the media conflated the two forms of vaping as if there was no difference between nicotine e-liquid and THC oil. The legal nicotine vaping industry experienced an enormous backlash, with many people incorrectly believing that legal e-cigarettes had caused the illness. 

Low-quality media coverage of the lung illness had caused many smokers to doubt whether vaping was actually a less risky option. Vaping product sales decreased for the first time. In October 2019, Altria wrote down its investment in JUUL by $4.5 billion.

Youth Vaping Increases Again

A year after telling the vaping industry that it needed to get its act together immediately, the FDA released the results of the 2019 Youth Tobacco Survey in November. Teen vaping had increased yet again, with more than 5 million underaged kids reporting regular e-cigarette use. 

In response to the survey, the federal government removed all flavored e-cigarette cartridges and pods – with the exception of tobacco and menthol flavors – from the market. JUUL had already removed its fruity and sweet flavors in October. They had kept their most popular flavor – mint – on the market, however, but the flavored pod ban removed that as well. 

In January 2020, Altria wrote down its investment in JUUL by another $4.1 billion.

The Federal Trade Commission Sets Its Sights on JUUL and Altria

By the beginning of 2020, Altria’s investment in JUUL was looking like an unmitigated disaster. The controversies of 2019 had seriously eroded the strength of the JUUL brand, and JUUL’s plans for international expansion were not turning out as well as Altria and JUUL had hoped.

The potential final nail in the coffin came in the form of an April 2020 complaint filed by the Federal Trade Commission. The complaint alleged that Altria’s closure of the MarkTen and Green Smoke e-cigarette brands was something that JUUL had required as a condition for Altria’s investment. JUUL, the complaint said, would not have allowed the investment unless Altria had agreed to stop competing in the vaping segment. According to the complaint, the agreement left consumers with fewer choices. The FTC sued for the breakup of the two companies. 

Altria said that it would rigorously defend itself from the allegations.

Although it’s impossible to predict what the future holds for the American vaping industry, one thing seems very clear: Executives at Altria are probably second-guessing their decision to invest in America’s most controversial e-cigarette brand.

 

Disclaimer: This content does not necessarily represent the views of IWB.

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