Altria, No. 1 U.S. cigarette maker, buying 35% of top e-cig maker; got Ky. legislature to drop proposed tax on e-cigs this spring

Photo by Eva Hambach, Agence France-Presse, via Getty Images

"Altria Group Inc. is nearing a deal to take a 35 percent stake in e-cigarette startup Juul Labs Inc. at a roughly $38 billion valuation, according to people familiar with the matter," The Wall Street Journal reports. "It would more than double what Juul was valued at just a few months ago, a sign of how quickly the startup has been growing and Altria’s desire to find growth outside its shrinking cigarette business. . . . The investment would give the Marlboro maker greater access to a rapidly growing but increasingly controversial segment of the nicotine market."

Juul has about 75 percent of the electronic cigarette market. Its devices can hold as much nicotine as a pack of cigarettes and have become highly popular with young people, prompting warnings that Juul is developing a new generation of smokers, not just of e-cigs but tobacco. "One out of every five high-school students—more than three million teens—reported using e-cigarettes recently, according to a federal survey conducted this past spring," the Journal notes. In Kentucky, at least as many high schoolers use e-cigs as tobacco cigarettes.

"Juul says its products are designed to help adult cigarette smokers switch to a less-harmful way to inhale nicotine," the Journal reports. "But the company’s own research shows its sleek device has hooked many people who had never smoked or had quit smoking."

The surgeon general has called youth e-cig use an epidemic, and the Food and Drug Administration "recently imposed restrictions on the sale of certain flavors of e-cigarettes that it says appeal to teens," the Journal notes. "Juul refills with non-tobacco flavors such as mango and cucumber account for a sizable chunk of its sales, according to analysts. Juul has taken steps to restrict sales to minors, including pulling all but its mint, menthol and tobacco-flavored products from bricks-and-mortar stores. It continues to sell all its flavors on its website, which it says has age verification technology. The company has discontinued its use of U.S. social media."

The company's stake in Juul "would also expand Altria’s reach beyond the U.S,," the Journal notes. "Philip Morris International Inc. sells Marlboro and other Altria brands outside the U.S. Juul products are sold in Canada, the U.K., Israel and Russia, and the company has expansion plans in Europe and Asia." Philip Morris USA, another Altria subsidiary, is the No. 1 U.S. cigarette maker.

After a visit from Altria's chief lobbyist this spring, leaders of the state Senate removed a proposed 15 percent tax on electronic cigarettes from the bill that raised the state cigarette tax 50 cents a pack, to $1.10. The company's apparent objectives were to limit the tax to that amount and keep it from applying to e-cigs and smokeless tobacco. It has a smokeless plant in Hopkinsville.

After the session, Altria reported spending $379,760 to lobby it. That was more than double the sum spent by any other business, and about three times more than the average the company spent in each of the previous four legislative sessions, according to the Kentucky Legislative Ethics Commission.