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 deal, if it materializes, would give Altria, Marlboro’s parent company and one of the largest makers of tobacco products, a 35 percent stake in Juul, the Wall Street Journal reports, citing people familiar with the matter.
The deal would take Juul’s valuation to approximately US$38 billion, surpassing that of several high-profile startups in Silicon Valley such as home-sharing giant Airbnb and Elon Musk’s space venture SpaceX, the Journal said.
The US$12.8 billion cash injection into Juul has already been approved by Altria’s board of directors, CNBC reported, citing sources.
The market has seen a surge in the sales of the USB-drive-shaped nicotine vaporizer, the flagship product of Juul, which split from parent company Pax last year.
Benefiting from a rise in the number of youths taking to e-cigarettes, the startup is on track for US$2 billion in annual revenue. The US-based company has captured 75 percent of the e-cigarette market, with expansion plans targeting Europe and Asia.
According to Crunchbase data, Juul has raised US$761 million in three previous funding rounds, including a US$650 million investment in July led by venture capital firm Tiger Global Management.
A deal with Altria would give Juul access to better shelf space at retailers and marketing access to millions of cigarette smokers, WSJ said.
Sources told CNBC that Altria would add Juul coupons to Marlboro and other cigarette packs, the deal terms suggested.
Sales of cigarettes are falling and its customers have increasingly turned to alternative products.
In early December, Altria Group announced it would buy a 45 percent stake in Canadian cannabis company Cronos Group for about US$1.8 billion.
Multiple reports suggested that some Juul employees have been upset about the rumored Altria investment.
The deal was seen by some as a betrayal of the startup’s mission to eliminate the use of combustible tobacco and provide smokers worldwide a true, less-harmful alternative to cigarettes, although the company’s own research shows its device has hooked people who had never smoked or had quit smoking.
Amid the rise in teen vaping, Juul has been criticized by regulators, educators, lawmakers and public health officials over the popularity of its products among children and teenagers.
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