Altria Invests $12.8 Billion in JUUL

JUUL to remain fully independent while having access to Altria’s infrastructure.

Altria Group Inc. has closed a $12.8 billion investment in JUUL Labs Inc., the U.S. leader in e-vapor. The service agreements will accelerate JUUL’s mission to switch adult smokers to e-vapor products. Altria’s investment represents a 35% economic interest in JUUL, valuing the company at $38 billion. JUUL will remain fully independent.

“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,” said Howard Willard, Altria’s chairman and CEO. “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 toward that goal. We strongly believe that working with JUUL to accelerate its mission will have long-term benefits for adult smokers and our shareholders.”

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“Altria’s investment sends a very clear message that JUUL’s technology has given us a truly historic opportunity to improve the lives of the world’s one billion adult cigarette smokers,” said Kevin Burns, CEO of JUUL. “This investment and the service agreements will accelerate our mission to increase the number of adult smokers who switch from combustible cigarettes to JUUL devices.”

In a JUUL press release, Burns noted, “We understand the controversy and skepticism that comes with an affiliation and partnership with the largest tobacco company in the U.S. 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. We made it very clear that any investment would need to meet demanding and specific criteria to ensure that they are committed to our mission…”

JUUL will remain fully independent and will have access to Altria’s best-in-class infrastructure and services. As part of the service agreements:

Altria will provide JUUL access to its premier innovative tobacco products retail shelf space, allowing JUUL’s tobacco and menthol-based products to appear alongside combustible cigarettes. JUUL’s flavored products will continue to only be available on

Altria will enable JUUL to reach adult smokers with direct communications through cigarette pack inserts and mailings to adult smokers via Altria companies’ databases.

Altria will apply its logistics and distribution experience to help JUUL expand its reach and efficiency and JUUL will have the option to be supported by Altria’s sales organization, which covers approximately 230,000 retail locations.

Wells Fargo Weighs In
“We view the deal to be very positive as we think JUUL will greatly expand Altria’s addressable market not only in the U.S. but also internationally and presents a compelling and potentially highly synergistic opportunity with Altria’s pending 45% stake in cannabis producer Cronos…” said Wells Fargo Senior Analyst Bonnie Herzog.

“Also, we estimate this deal could turn accretive in late 2020 but it will depend on timing of anti-trust approval. While not exactly apples-to-apples, we note that the purchase price is higher than what Altria paid for its smokeless business (UST) in Sept 2008 (12.2x) and what Reynolds paid for Lorillard in July 2014 (13.1x). Bottom line – We believe taking this stake in JUUL was the absolute right decision as it rounds out Altria’s reduced-risk portfolio strategy. We reiterate our Outperform rating on Altria,” Herzog concluded.

Strong Product Pipeline
Fueled by its unique and innovative Silicon Valley approach to product development and founded by former smokers, JUUL has rapidly built an industry-leading position by satisfying adult tobacco consumers with its differentiated e-vapor products.

JUUL has quickly grown both revenue and share, and today represents approximately 30% of the total U.S. e-vapor category. JUUL has a deep innovation pipeline and currently operates in eight countries, with rapid international expansion plans.

“This is a unique and compelling opportunity to invest in an extraordinary company, the fastest growing in the U.S. e-vapor category. We are excited to support JUUL’s highly-talented team and offer our best-in- class services to build on their tremendous success,” added Willard.

Tobacco Harm Reduction Goal
In 2000, Altria became the first and only company in the industry to support FDA regulation of tobacco products, an important step to providing accurate and scientifically-grounded communications about reduced-risk products to smokers.

Today, the FDA has regulatory authority over all tobacco products, and the FDA distinguishes between the harm associated with combustible versus non-combustible products.

Altria will participate in the e-vapor category only through JUUL. The investment complements Altria’s non-combustible offerings in smokeless and heat-not-burn, upon FDA authorization of IQOS.

Underage Tobacco Prevention
Altria and JUUL are committed to preventing youth from using any tobacco products. As recent studies have made clear, youth vaping is a serious problem, which both Altria and JUUL are committed to solve. As JUUL previously said, “Our intent was never to have youth use JUUL products. But intent is not enough, the numbers are what matter, and the numbers tell us underage use of e-cigarette products is a problem.”

As a result, JUUL recently began implementing a number of actions to prevent underage vaping, including stopping the sales of flavored products to retail stores, enhancing age-verification for its online sales, eliminating social media accounts and developing further technology solutions.

JUUL believes that it cannot fulfill its mission to provide the world’s one billion adult smokers with a true alternative to combustible cigarettes if youth use continues unabated. Together, JUUL and Altria will work to prevent youth usage through their announced initiatives, further technological developments and increased advocacy for raising the minimum age of purchase for all tobacco products to 21.

Positioning Altria for Long-Term Growth
Building on Altria’s previously announced growth investment in Cronos Group Inc. (Cronos Group), Altria believes its investment in JUUL strengthens its financial profile and enhances future growth prospects.

Altria continues to position its business to return value for shareholders over the long-term through earnings growth and dividends. Altria expects its growth to be driven by maximizing income from its wholly-owned operating companies and increasing contributions from its equity and strategic investments. Altria’s service companies will contribute their strong capabilities to enhance value creation in both its wholly-owned subsidiaries and, when appropriate, its investments.

Strategic Rationale
   Provides significant stake in the largest and fastest growing e-vapor company with a highly-talented management team, successful in-market products and strong innovation pipeline.

JUUL will remain independent and retain complete operational autonomy to capitalize on its entrepreneurial success.

Provides exposure to strong revenue and volume growth opportunity with attractive unit economics.

Investment in the leading U.S. e-vapor company complements Altria’s non-combustible product portfolio.

Exposure to significant international growth plans and global e-vapor profit pool.

Better positions Altria with adult smokers interested in alternatives while continuing to compete vigorously in all other tobacco product markets.