Shares of Altria (NYSE:MO) are plummeting by more than 8% after the Food and Drug Administration (FDA) announced that it is preparing to order Juul e-cigarettes off the U.S. market. According to sources close to the matter, the announcement could come as soon as today. In 2018, Altria dished out almost $13 billion to acquire a 35% stake in the e-cigarette company.
Back in 2018, Juul had the largest market share in the e-cigarette industry. Today, it has the second-largest market share, behind Reynold’s Vuse e-cigarette.
With that in mind, let’s get into the details of the FDA Juul ban and its effect on MO stock.
MO Stock: FDA Wants Juul Off U.S. Shelves
The Wall Street Journal reported that a marketing denial order toward Juul follows an almost two-year review of Juul’s own data. The company was pursuing authorization for its tobacco and menthol markets in order to stay shelved in U.S. stores.
In 2019, Juul stopped selling fruity and sweet flavors in order to appease the FDA. In 2020, the agency officially banned all fruity and sweet e-cigarette cartridges. Sales of the company’s products have declined significantly since then. In 2021, Juul reported a net loss of $259 million on sales of $1.3 billion. The sales figure represents an 11% sales decline year-over-year.
So, why exactly is the FDA so opposed to Juul? Since its inception in 2015, the small device has increasingly become popular with teens and kids. Despite the legal age of 21 to purchase nicotine, teens and kids have still been able to get their hands on the device.
The National Institute on Drug Abuse’s Monitoring the Future (MTF) group found that 18% of eighth, tenth and twelfth graders reported vaping nicotine in the past month during 2020. From 2017 to 2019, that figure roughly doubled for the three classes, spurred by the popularity of Juul. However, the percentage of teens and kids who vape nicotine as of 2020 has stayed constant compared to 2019 due to the FDA’s stringent policies.
Using e-cigarettes may also be seen as a gateway device to smoking cigarettes. Furthermore, the FDA is currently working on a plan to eliminate nearly all nicotine in cigarettes. If successful, the implications of this plan would be massively bearish for Altria. Low-content nicotine cigarettes are less harmful and addictive than high-content cigarettes, but both contents contain carcinogenic compounds. Meanwhile, U.S. cigarette sales this year are expected to drop to $95 billion, down $4 billion from the previous year.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.