Insights

Why Altria Stock Plunged Today

What happened

Shares of Altria (NYSE: MO) fell 9% on Wednesday after The Wall Street Journal reported that the U.S. Food and Drug Administration (FDA) was planning to have Juul Labs pull its e-cigarettes from the U.S. market.  

So what

The FDA has been reviewing vaping products to determine whether they can continue to be sold in the U.S. Regulators are evaluating their safety profile. They are also weighing their potential benefits as a less harmful alternative to traditional cigarettes for adults versus their alarmingly high use among teens.

The FDA’s decision could be announced in the coming days, according to the Journal.

Now what

Altria paid $12.8 billion for a 35% stake in Juul in late 2018. At the time, the electronic cigarette maker had captured a leading share of the vaping market.

However, in subsequent years, critics claimed that Juul targeted teens with its marketing campaigns. Investigations and lawsuits followed. Juul responded by curtailing its use of social media and halting much of its advertising operations in the U.S. The company also stopped selling its sweet-flavored products. 

Those actions have pressured Juul’s sales. The e-cigarette producer’s revenue reportedly declined by 11% to $1.3 billion in 2021, resulting in a loss of $259 million. 

Altria, in turn, has revalued its equity stake in Juul to less than $2 billion. And should the FDA order Juul to remove its remaining e-cigarettes from the U.S. market, Altria would likely be forced to slash that valuation even further.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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