In a memo circulated in April, Citigroup analysts warned investors that skyrocketing sales of a new e-cig called the Juul could negatively affect tobacco stocks, including those of Altria and British American Tobacco.
But Altria just announced a strategic move that could allow it to benefit from vaping's meteoric rise. On Thursday, the tobacco giant behind Marlboro cigarettes struck a deal with Juul Labs, the Silicon Valley startup behind the Juul, to take a big stake in the company.
Altria is investing $12.8 billion in Juul and will own 35% of the vape maker. The move makes Juul worth $38 billion, more than Silicon Valley startups such as Airbnb, Pinterest, and Lyft. The company had been previously valued at roughly $16 billion earlier this year.
Altria said Juul would become its only e-cigarette offering and that the company would promote the devices alongside its combustible cigarettes and other nicotine-containing products.
"We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes," Altria CEO Howard Willard said in a statement.
Read more: There's a new vape pen taking over America — and it has Wall Street worried about tobacco stocks
While about 34 million adults still smoke cigarettes in the US, the number has been in decline for years. Vaping is far less popular but still gaining fast, with 6.9 million adults using e-cigs.
Altria's stock declined 16% in November after the US Food and Drug Administration moved to ban menthol cigarettes, saying they're a common on-ramp for new smokers because they mask the harshness of cigarettes. The FDA also imposed new rules on vaping designed to stop kids from getting hooked.
The menthol ban and smoking decline are sending Altria in search of new products to sell its customers. Altria said the deal would help it reach more adult smokers interested in alternatives to combustible cigarettes, though it plans to continue to "compete vigorously in all other tobacco product markets."
Vaping has taken off in recent years, in part on the hope that the devices — which deliver nicotine and flavors to a user's lungs — could help smokers switch or at least offer a healthier alternative to combustible cigarettes. But data released by the US government earlier in November showed a big uptick in teenage e-cig use, leading to the FDA crackdown.
And while there's some limited data to suggest that vaping can help adult smokers switch, e-cig use comes with risks of its own.
- Read more:
- The US surgeon general just issued a rare advisory about e-cigs like the Juul — here's why vaping is so dangerous
- See how Juul turned teens into influencers and threw buzzy parties to fuel its rise as Silicon Valley's favorite e-cig company
- $15 billion startup Juul used 'relaxation, freedom, and sex appeal' to market its creme-brulee-flavored e-cigs on Twitter and Instagram — but its success has come at a big cost
- We just got our first look at how many minors are using Silicon Valley's favorite e-cig, and it doesn't look good
