E-cigarette manufacturer Juul Labs has sold a 35% stake to tobacco behemoth Altria
Altria is pouring $12.5 billion into Juul in order to acquire the stake.
Juul has always presented itself as a company focused on reducing the amount of active adult smokers, so its willingness to associate with a tobacco giant has many questioning their motives.
Juul CEO Kevin Burns addressed critics: " 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. 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. We understand the doubt. We doubted as well."
As part of the deal, $2 billion will be distributed to employees in bonuses, or a whopping $1.3 million per employee. Altria has entered into a standstill deal with Juul - meaning it can't buy more than its current stake. The deal has made Juul one of Silicon Valley's most lucrative companies, surpassing even SpaceX and Airbnb. Moreover, Altria will allow Juul access to its retail shelf space and communications databases. Juul will also gain purview into Altria's distribution and logistics networks, along with its sales team, which is located in 230,000 places.
As the number of smokers shrinks, large tobacco companies are exploring alternatives like e-cigarettes to shore up their businesses. Public health experts are concerned that these major tobacco players will use their wide marketing influence to expanding the vaping market. Though vaping is often promoted as a safe alternative to tobacco products, its effects have not yet been sufficiently studied. Many people, particularly younger users, do not use vaping devices for their intended purpose - smoking cessation - and instead develop nicotine addictions they would not otherwise have had.
"Altria has no interest in reducing the number of people who smoke cigarettes," said Matthew Myers, the president of the Campaign for Tobacco-Free Kids, in a statement. "They see Juul as their failsafe in case the cigarette market keeps declining so that they remain profitable no matter what happens."
Altria's CEO Howard Willard said: "We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes by investing $12.8 billion in JUUL, a world leader in switching adult smokers. 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. Through JUUL, we are making the biggest investment in our history to achieve that goal. We strongly believe that working with JUUL to accelerate its mission will have long-term benefits for adult smokers and our shareholders."
