InvestNow News 23rd Aug – Morphic – Juul: What were they smoking?
In Los Angeles for the first time in four years, Jack Lowenstein was stunned by the widespread use of the Juul electronic cigarette.
What happens when a massive old no-growth cash cow company meets a bustling start-up “disrupting” its core business?
The following involves two US companies we can never own because of our ethical screens: Altria and Juul. It is a warning on the damage a combination of big tobacco, venture capital and devil-may-care marketing may do to your financial as well as physical health.
On one level, the Juul electronic cigarette[1] is an amazing story of American invention and sales chutzpah, not to mention capital market wizardry.
The Juul was launched on June 1, 2015. In July 2018, it raised US$650m, giving it a private market valuation of US$15b. Five months afterwards, Altria[2] (MO US), formerly known as Philip Morris, one of the world’s largest tobacco companies, bought 35% of Juul for US$12.8b, the biggest investment ever in a US venture-backed company. This valued the business at US$38b[3]. At the time, Juul had 1,500 employees, outsourced manufacturing in China, and an annual revenue of about US$2b.
It is easy to see what attracted Altria to Juul. Conventional stick sales are in decline and its in-house e-cig strategy was sputtering. Meanwhile, Juul has cornered 75% of the US e-cig market and is starting to also promote itself as a smokeless delivery mechanism of marijuana, a substance in which Altria has also made venture capital investments!
Juul’s secret has been to make itself the cool ‘iPhone’ of the vaping world, with a sleek format that is about the length of an old-fashioned cigarette and about the width of digital memory stick. Better still, as it only burns nicotine salts – a tiny but highly potent part of the tobacco leaf – it is less harsh for new users and doesn’t produce the huge tell-tale cloud of water vapour of earlier e-cigarettes. Finally, it has used adolescent focussed social media marketing and, like other e-cigs, it has launched sweet, fruity flavours to enhance its appeal to new users.