Tobacco giant Altria Group Inc. said Thursday that it had devalued its investment in the vaping company Juul Labs by $4.5 billion, a move that reflects deepening turmoil in the electronic cigarette industry.
Henrico County-based Altria, parent company of Philip Morris USA, invested $12.8 billion in Juul in December, acquiring a 35% stake in the Silicon Valley startup.
Altria pointed to recent bans on vaping, a $7 billion industry, across the United States and the “increased likelihood” that the U.S. Food and Drug Administration would “remove flavored e-vapor products from the market.”
Still, Howard A. Willard III, Altria’s chairman and CEO, said on a conference call with analysts that while the e-cigarette industry was at a critical juncture, the company remained “committed to Juul’s success.”
“We must address underage use while also preserving options for the more than 20 million adult smokers who are interested in less harmful tobacco products,” Willard said.
“We continue to believe that raising the legal minimum age to purchase all tobacco products to 21 at the federal and state levels is the most effective action to reverse the rise in youth vaping.”
Juul declined to comment.
Altria swung to a loss in the third quarter as it wrote down the value of its investment in the San Francisco-based company.
Juul has argued that e-cigarettes would save lives by helping people stop smoking. Since last year, however, the company has been hit by new federal and state investigations into its marketing amid an explosion of underage vaping among teenagers. Separately, an outbreak of lung injuries tied to vaping has led to new government warnings and restrictions around e-cigarettes.
Altria executives said the cut to Juul’s value reflects recent vaping bans put in place by state and local authorities and expected restrictions by the federal government.
The U.S. attorney’s office in San Francisco, the Food and Drug Administration, the Federal Trade Commission and several state attorneys general have all opened investigations into how the company marketed its products. Three school districts have filed a suit accusing Juul of endangering students and getting them addicted to nicotine.
The FDA is expected to soon outline new restrictions on vaping flavors, a step intended to curb youth appeal.
Juul has made a number of voluntary concessions in an effort to weather the firestorm, including halting product advertising and pulling several of its flavored products.
The e-cigarette maker announced in October that it would suspend online sales of most flavored products in anticipation of a ban by the Trump administration.
Part of the appeal of Juul’s e-cigarettes was the array of flavors, like mango, cucumber and crème. A ban would not only hurt the company’s sales but also those of the small-business owners who are selling the products as part of a little-regulated $2.6 billion industry.
The mint and menthol flavors, among Juul’s best-sellers, are still being sold. The planned federal ban is expected to include them, despite lobbying from some trade groups to exempt them.
Vaping is a source of increasing concern for health officials.
An outbreak of illnesses and deaths linked to the practice continues to rise, while the exact cause remains unknown. Many of those affected had vaped THC, some had used both THC and nicotine, and others reported vaping only nicotine. THC is marijuana’s intoxicating chemical.
Altria bought the stake in Juul late last year, when the young company was exploding in popularity and valued at $38 billion. As part of the deal, Juul’s 1,500 employees shared in a bonus of $2 billion.
At the time, Altria, hurting from a decline in smoking, saw Juul as a way to shift its business away from traditional cigarettes.
In September, Juul replaced its chief executive with an Altria executive, K.C. Crosthwaite, who has sought to contain the damage. Crosthwaite has suspended Juul’s advertising and withdrawn its support for a San Francisco ballot measure that aimed to reverse the city’s ban on e-cigarette sales.
But the company continues to face problem after problem. A lawsuit filed in California earlier this week by a former Juul executive leveled new allegations against the company. The former finance executive alleged that the company disregarded quality and safety procedures, leading to the shipment of tainted mint-flavored pods.
The company said the lawsuit is “baseless.” And the company’s former CEO, Kevin Burns, rejected the account in a statement.
“As CEO, I had the company make huge investments in product quality, and the facts will show this claim is absolutely false and pure fiction,” Burns said through a representative.
Altria said Thursday that it posted a quarterly loss of $2.6 billion, or $1.39 per share, including the $4.5 billion pretax write-down, compared with net income of $1.94 billion, or $1.03 per share, a year earlier. Adjusted earnings of $1.19 per share beat the average Wall Street estimate of $1.14 per share, based on an analyst survey by Zacks.