Wall Street Breakfast: Up In Smoke

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Wall Street Breakfast: Up In Smoke
Vape man. Portrait of a handsome young white guy in a modern black cap vaping and letting off puffs of steam from an electronic cigarette

The FDA is ordering JUUL products off the shelves in the U.S., dealing a major blow to the once high-flying company whose products have “played a disproportionate role in the rise in youth vaping.”

 

The official market denial order restricts the sale of its remaining Virginia tobacco and menthol-flavored pods, and only pertains to the commercial distribution, importation and retail sales of these products. That means no enforcement for individual consumer possession, or the use of JUUL and other vaping accessories.

 

Press release: “After reviewing the company’s premarket tobacco product applications (PMTAs), the FDA determined that the applications lacked sufficient evidence regarding the toxicological profile of the products to demonstrate that marketing of the products would be appropriate for the protection of the public health.

 

 

As with all manufacturers, JUUL had the opportunity to provide evidence demonstrating that the marketing of their products meets these standards. However, the company did not provide that evidence and instead left us with significant questions.”

 

Marlboro owner Altria (MO) bought a 35% stake in Juul for $12.8B in late 2018 to diversify its portfolio and join forces with a company that was threatening its traditional cigarette business.

 

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Things didn’t go so well, with the FDA banning flavored e-cigs in 2020, prompting JUUL’s market share to tumble from 70% to 42%, and then to 36% as of March 2022. Earlier this year, Altria valued its JUUL stake at $1.6B, an eighth of its original investment, and that’s before the FDA threatened its entire U.S. business (Altria shares are down more than 20% since the acquisition).

 

Commentary: Bank of America analyst Lisa Lewandowski expects the company to appeal the FDA decision since key competitors like British American Tobacco (BTI) and Japan Tobacco (OTCPK:JAPAY) have been granted U.S. market access. Additionally, Imperial Brands’ (OTCQX:IMBBY) blu product is presently appealing a market denial order akin to the one reportedly facing JUUL. Even if filed, such legal action could get drawn out and will leave products off of store shelves for a long period of time.