in which Altria shareholders laid into CEO Howard Willard at the company’s annual shareholder meeting last Thursday. Basically the $12.8 billion cash investment for a 35% stake Juul last year has been quite the upsetting move to the companies investors.
Seeing as Juul is under regulatory scrutiny and faces a number of lawsuits over teen e-cigarette use, the investors see this as instability for the future, and that makes them think old Howard might not have made the best move with the companies cash last year. Analysts and investors are worried Altria paid far too much for its 35% stake in the company, considering Altria agreed to have very little say over Juuls operations, especially in the face of pending regulatory scrutiny.
Willard on Thursday defended the terms of the deal, he said in a rather misinformed statement that the e-cigarette and eLiquid market wasn’t growing much before Juul entered it. This is because Altria’s own MarkTen products hardly gained traction, mostly because they were terrible, which prompted them to stop attempting to sell them entirely last fall.
“I’m very pleased for the opportunity to make the investment and believe it will pay dividends down the road,” he told analysts in that meeting. It will end up being a reaffirming lie, at least in this humble writers opinion, as how can any gigantic old company that fails to innovate manage to stay alive without profitable acquisitions of newer younger companies? Not to mention that Juul is enjoying the early adopters phase of the diffusion of innovations, but it's sliding along so fast it'll be just a blip in teenage history by the turn of the next couple of years.
Juul finds itself facing public and regulatory scrutiny from critics, and people who hype hysteria, who say the company fueled a teen vaping “epidemic.” A number of lawsuits accuse Juul of intentionally hooking teens on nicotine, and the Food and Drug Administration is investigating the company’s marketing practices. Plus last Wednesday, the North Carolina attorney general also sued Juul.
“Juul targeted young people as customers. As a result, vaping has become an epidemic among minors,” said North Carolina Attorney General Josh Stein, continuing; “Juul’s business practices are not only reckless, they’re illegal. And I intend to put a stop to them. We cannot allow another generation of young people to become addicted to nicotine.”
Willard in response to a shareholder question on how Altria would make itself less vulnerable to Juul’s legal risks said Altria was of course aware of early litigation when he made the investment in Juul. He said Altria is committed to reducing youth e-cigarette use, including with its support of raising the minimum tobacco buying age to 21. There's nothing suspicious about a company that has decades of advertising against itself by federal mandate making promises to continue to do the same with it's newer more popular products, right?
As I wrote about last week, a judge on Wednesday ruled the Food and Drug Administration needs to start reviewing applications for e-cigarettes. Former FDA Commissioner Scott Gottlieb in 2017 pushed the deadline to 2022, though the FDA earlier this year said it would move that up to 2021.
Willard said Altria will study the decision and he expects the legal process to continue through the next few months or possibly even years with appeals. Sounds like they are sticking with their classic scorched Earth policy only in defense mode this time.
What do you think about this? Do you shed any tears for this gigantic corporation feeling some acquisition pains? Will the vape world keep moving on, right past Juul and into refillable pod systems and nic salts?