Sep 12, 2019 - Health

Trump's vape ban plan may complicate megamerger

Logos of Altria and Philip Morris

Illustration: Sarah Grillo/Axios

Yesterday's announcement of President Trump's intentions to ban all flavored e-cigarette products from U.S. markets, even if sold online or in smoke shops, creates massive complications for the proposed merger between tobacco giants Altria and Philip Morris.

Why it matters: Both companies have made major moves into e-cigarettes, which they view as the best way to remain viable in a U.S. market that has moved away from combustible products. The ban could shake the merger.

By the numbers: Both Altria and Philip Morris shares were down at the open, but only slightly. Altria late last year paid $12.8 billion for a 35% stake in Juul, which also is under new fire from the FDA for its marketing practices.

  • This isn't necessarily a death blow for Juul, which didn't have advance warning of the White House event, but it's not a flesh wound either. At the very least, it puts Altria's deal in the same valuation league as SoftBank's last round for WeWork.

What they're saying: In a statement, Juul said: "We strongly agree with the need for aggressive category-wide action on flavored products. We will fully comply with the final FDA policy when effective."

  • Trump yesterday said that "people are dying with vaping," apparently referring to a number of lung disease cases, but that's not what's driving FDA action here. Namely because the CDC reports that no e-cigarette product or compound has been formally linked yet to the illnesses, and investigators have said that the culprit may be black-market THC oil pods.

Context: The key issue here is youth vaping, which has been shown to increase the likelihood of transitioning to traditional cigarettes (among kids who never before smoked). Remember that most vape pods contain tons of nicotine.

  • Last year the FDA cited a survey on youth tobacco use when deciding to ban fruit-flavored products from retail and convenience store shelves.
  • Health officials yesterday said that data from this year's survey showed that the move didn't slow vaping adoption, thus the proposal to ban all flavors (including mint and menthol) from all channels.

Yes, but: There continues to be a massive policy disconnect here in that combustible cigarettes (including menthol ones) continue to be sold in the same stores that the FDA says can't adequately police youth purchases of e-cigarettes. It's like closing the gateway but keeping open the side path.

The bottom line: Altria and Philip Morris shareholders will be hesitant to ratify a merger agreement with so much uncertainty over what both companies have said is their product path to modernization.

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