Juul Employees Said to Get $2 Billion Bonus in Altria Deal

Juul Employees Said to Get $2 Billion Bonus in Altria Deal

Juul Employees Said to Get $2 Billion Bonus in Altria Deal

After investing in the emerging marijuana industry, Altria Group Inc., maker of Marlboro cigarettes, is poised to make a huge investment in e-cigarette startup Juul Labs Inc.to combat the decline in the number of traditional smokers and seek new growth drivers in the market.

The connection to Altria is expected to get Juul, which has risen swiftly over the last three years to become the U.S. market leader in e-cigarettes, more prominent distribution in convenience stores and other traditional retail channels, as well as such promotion as advertisements in traditional packs of cigarettes.

The move represents a 35-percent economic interest in Juul, valuing the San Francisco-based vapor company at $38 billion. "They see Juul as their failsafe in case the cigarette market keeps declining so that they remain profitable no matter what happens".

Altria executives said on the call that the deal has provisions that would prevent competitors from buying a large stake, but that nothing bars Juul from partnering with other companies internationally. "We strongly believe that working with Juul to accelerate its mission will have long-term benefits for adult smokers and our shareholders".

The U.S. Food and Drug Administration has denounced "an epidemic of regular nicotine use among teens".

But Juul, founded in 2015, has nevertheless found itself at the center of controversy over the appeal of its products to young people.

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The New York Times notes that the deal also gives Juul access to Altria's powerful lobbying and regulatory force.

The investment comes about two weeks after Altria stepped into the cannabis market with an investment of around $2 billion in Cronos Group, the Canadian medical and recreational marijuana provider.

As part of the deal, Altria will give Juul access to its valuable retail shelf space, meaning Juul products will be sold alongside brands like Marlboro, Parliament and Virginia Slims. The US-based company has captured 75 percent of the e-cigarette market, with expansion plans targeting Europe and Asia.

Federal data released this month showed a 78 percent increase in high school students who reported using e-cigarettes in the last 30 days, compared with the prior year, coinciding with the rise in Juul's popularity. Altria also has a deal to market Philip Morris's "heat not burn" device IQOS, already sold internationally, if it wins USA regulatory approval.

Altria also announced cost cuts of about US$500 million to US$600 million a year by the end of 2019.

For Juul, the tie-up more than doubles its valuation from just a few months ago, when it was worth US$16 billion after Tiger Global Management led a US$1.2 billion investment.

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