Juul’s Valuation Cut by Darsana—Will Others Follow?

Many hedge funds have been reaping the benefits of a rise in Juul Labs’ valuation, especially following Altria Group’s (MO) investment. In December 2018, Altria announced its acquisition of a 35% stake in Juul by investing $12.8 billion. With this deal, Juul received access to Altria’s retail shelf space.

Altria’s investment boosted Juul’s valuation

With Altria’s investment, the valuation of e-cigarette maker Juul surged. At the time of the investment, Altria’s management was expecting US sales of e-vapor products to increase at a compound annual growth rate of 15%–20% through 2023. However, it seems they didn’t foresee the potential issue of vaping-related illnesses and deaths.

Vaping-related health risks

This issue has turned the tables for the e-cigarette maker. Previously, vaping was seen as a potentially healthy alternative to smoking, as it helped users quit. It turns out it isn’t that healthy. In fact, recent deaths and severe illnesses caused by vaping devices are threatening the vaping business. We highlighted in Cannabis and Vaping Concerns: Will the Dream Go Up In Smoke? that after the reports of a first death related to vaping in August, more deaths were reported in different US states.

Vaping and cannabis

Vaping still involves inhaling the vapor from an e-cigarette device. The liquid that makes the vapor can contain nicotine, marijuana, or other drugs.

Vaping was also seen as having huge potential in the cannabis industry. In the cannabis space, Canopy Growth (CGC) (WEED) recently acquired Storz & Bickel, a German vaporizer company, for 145 million euros. Aphria (APHA) was also aiming to gain from the vapes and concentrates business, which it expects to capture 30% of the Canadian adult-use market by 2021. Tilray (TLRY) is also marketing an array of vaping products to its customers.

FTC, FDA, and Trump on vaping

In August, CNBC reported that the FTC (Federal Trade Commission) was investigating e-cigarette maker Juul’s involvement in deceptive marketing strategies. The FDA (Food and Drug Administration) is also concerned that Juul’s devices could cause seizures, according to a Bloomberg report. On September 11, CNBC reported that the Trump administration was readying a ban on vaping due to rising health concerns. These issues have caused Juul’s potential value to decline significantly. Altria stock is also losing value due to its huge stake in the e-cigarette maker. It’s seen a decline of 15.7% in its value year-to-date.

Darsana writes down Juul investment

On October 4, the Wall Street Journal reported that Darsana Capital Partners wrote down the value of its investment in Juul Labs by one-third to $24 billion. Other hedge funds such as Tiger Global and Marianas Fund Management have reaped huge benefits from the rise of vaping and Juul Labs in the last year or so. It seems like it could be time to write down those gains as the vaping game reverses.