Shares of Altria Inc. fell. down 9% on Wednesday, after a report that the Food and Drug Administration is preparing to order Juul Labs Inc. Ltd., in which Altria holds a significant stake, to drive e-cigarettes out of the US market.
The Wall Street Journal report quoted people familiar with the matter as saying the decision could come as early as Wednesday. The marketing refusal order will follow a nearly two-year review of data provided by the vaping company, which has sought a license for its tobacco and menthol flavored products to remain in the US market.
Juul has been under regulatory scrutiny since fruit flavors and marketing were blamed for the high rate of teen vaping nearly four years ago. The US Food and Drug Administration (FDA) has already banned the sale of flavors like creme brulee, which have proven popular with underage smokers.
See also: The Food and Drug Administration issued a plan to ban menthol in cigarettes and cigars
It paid $12.8 billion in 2018 to acquire a 35% stake in Juul that valued the company at $35 billion. Since then, Altria has reduced the value of the stake to $1.6 billion as of March 31.
Owen Bennett, Jefferies analyst, said the news was a “significant negative reading” for Altria, and comes at a time when US cigarette volumes are under pressure from deteriorating economic conditions and a shift to lower-risk products, or RRP.
“Altria’s outlook is made more challenging due to its nearly 50% cigarette share,” Bennett wrote in a note to clients. “At the same time, the FDA is looking to introduce measures (such as banning menthol cigarettes in the US) to speed up the transition to RRP. Altria is in a very difficult position in this regard because it needs to at least take its fair share of the RRP.”
In another blow to Juul, the US Food and Drug Administration has cleared the way for its competitors, including Reynolds American Inc. and NJOY Holdings Inc. To keep tobacco flavored e-cigarettes on the market. The regulator was expected to do the same for Juul. Reynolds American is part of British American Tobacco 0A76,
While NJOY is privately owned.
Juul has not commented on the Wall Street Journal.
“This now leaves question marks about the potential outcome of the BAT PMTA (Pre-Market Tobacco Application) for Vuse Alto,” Jefferies’ Bennett said. “You can show that this is also at risk because the most recent survey of tobacco among young people showed that it has a greater prevalence among minors than Juul.”
If the FDA also denied British American Tobacco’s order, it would be a “very strange decision,” as it would mean that the two largest brands would be out of the market, leaving only one player in the New Jersey popular pod division.
“If BAT is indeed approved, that would be a huge positive as it would be the biggest player in terms of physical distance (NJOY’s total market share is currently less than 1%),” he wrote.
Read: FDA Approves Vuse E-cigarettes Tobacco Flavor, Withholds Fruit Flavor Refill Cartridges
Juul has been the subject of investigations and investigations by a range of agencies and states, while school administrators and families have filed thousands of lawsuits against the company for allegedly targeting teens through its marketing. The company is also being investigated by federal prosecutors and the Food and Drug Administration.
See also: Juul Will Pay $22.5 Million To Settle Vaping Lawsuit In Washington
Related: Juul will pay $14.5 million to settle vaping lawsuit in Arizona
Altria shares are down 12% in the year to date, while the S&P 500 SPX,
It decreased by 21%.
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