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Published: April 11, 2023
As regulation from the FDA and state legislatures struggle to keep pace with the technological advances and product diversity in the nicotine product market, business moves by one of the largest traditional tobacco companies may signal a shift away from a nicotine market leader towards other brands and product types.
Altria Group, Inc. has been making headlines in the e-cigarette market with its recent acquisitions and divestitures. In December 2018, Altria announced that it would acquire a 35% stake in Juul Labs, Inc. for $12.8 billion. The deal was seen as a major coup for Altria, as Juul was the dominant player in the e-cigarette market at the time. However, the deal was mired in controversy.
Juul faced mounting lawsuits and scrutiny in 2019, with many accusing the company of marketing its products to young people and downplaying the potential health risks of e-cigarettes. In July of that year, the FDA announced that it was investigating Juul’s marketing practices, and Altria also faced scrutiny from the FTC regarding potential antitrust violations. Juul also faced a barrage of lawsuits from individuals who claimed that the company’s products had caused them harm. In December 2022, Altria announced that it was writing down the value of its investment in Juul by $4.5 billion. The write-down was a sign that Altria was acknowledging the potential liabilities associated with Juul’s products.
In early 2023 Altria announced that it would divest its 35% stake in Juul at a value of $250 million. The decision to divest was likely due to the mounting controversies surrounding Juul, including the lawsuits and regulatory scrutiny. Juul’s legal troubles and its difficulties obtaining marketing approvals from the FDA have continued to be thorns in the company’s side since Altria’s decision to divest, as marketing denials and additional case settlements occurred throughout 2022 and 2023.
However, Altria wasn’t finished with the nicotine and e-cigarette markets. On March 6, 2023, Altria announced that it would acquire NJOY Holdings, Inc., a leading e-cigarette company, for $2.8 billion. NJOY is the second-largest e-cigarette company in the United States, behind Juul Altria’s decision to divest from Juul and acquire NJOY reflects the changing landscape of the e-cigarette market. The controversy surrounding Juul, including concerns about marketing to young people and its inability to get marketing approval from the FDA, made it a liability for Altria, which faced stock price declines while associated with Juul. Altria highlighted the marketing approvals of NJOY’s tobacco flavored products, lack of current litigation, and low youth usage as positive aspects of NJOY in comparison to Juul.
Another Player in the Market
Amid the controversy about vaping, oral nicotine, commonly seen in pouches, gums, and lozenges, continues to grow its market share. This sector was the strongest growth category in 2022 and appears to be poised to lead again in 2023, with products such as tobacco-free ZYN by Swedish Match, on! by Helix Innovations LLC (an Altria joint venture) and VELO by R.J. Reynolds Vapor Co. at the forefront of the market. Each of these products, whether derived from tobacco or made from synthetic nicotine, falls within the FDA’s regulatory framework, and as of yet none have received an approved marketing order from the FDA. As vaping products continue to face public scrutiny, these products may enjoy growth outside of the limelight as regulatory agencies deal with ENDS and other nicotine product regulation at their historical pace.
Florida’s Division of Alcoholic Beverages and Tobacco regulates nicotine products under chapter 569, part II, Florida Statutes. Nicotine products are defined as any product that contains nicotine which is intended for human consumption that otherwise regulated as a tobacco product by DABT or as a drug or device by the FDA. Within Florida, nicotine products can exploit an economic competitive advantage, as they are not currently subject to excise tax, whereas their closest retail comparator, “other tobacco products” such as dip, snuff, or chewing tobacco, are taxed at a combined 85% on every dollar of their wholesale sales price. While the Florida Legislature has considered flavor bans on these products, it has not yet passed any legislation limiting what varieties of products can be sold.
Nicotine products represent the next opportunity for growth for tobacco product retailers and manufacturers alike, as evidenced by their market growth, tax free status, and the movement of traditional tobacco powerhouses like Altria and RJR diversifying into the sector. However, because federal and state regulations around these items are still developing, if you have questions about this or any other regulated industry, please reach out to a member of our Regulated Industries team.