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FDA Bans Most Flavored Vape Pods. Altria’s Juul Stake Could Benefit, Analyst Says

The Food and Drug Administration said Thursday it will ban all flavors of cartridge-based e-cigarettes, other than tobacco and menthol. An analyst at Bernstein Research thinks a big winner will be Juul Labs, which is 35% owned by Altria Group.

“As we work to combat the troubling epidemic of youth e-cigarette use, the enforcement policy we’re issuing today confirms our commitment to dramatically limit children’s access to certain flavored e-cigarette products we know are so appealing to them—so-called cartridge-based products that are both easy to use and easily concealable,” FDA Commissioner Stephen M. Hahn said in a news release. “We will continue to use our full regulatory authority thoughtfully and thoroughly to tackle this alarming crisis that’s affecting children, families, schools and communities.”

Makers of pod-based vape devices have faced growing regulatory scrutiny amid criticism that fruity flavors such as mango and fruit medley could be partly responsible for a rise in vaping among teenagers and young adults. The likelihood of a ban and regulation led Altria to include a $4.5 billion noncash pretax charge related to its 35% stake in Juul in its third-quarter earnings report in October.

The FDA noted that the 2019 National Youth Tobacco Survey on e-cigarette use showed more than 5 million U.S. middle school and high school students had used e-cigarettes within the previous 30 days, most using cartridge-based products.

Juul Labs stopped selling its popular mint and fruit-based flavors in the fall, while competitors including Njoy and British American Tobacco’s Vuse continued selling fruity flavors. Juul continues to sell flavors based on tobacco and menthol.

Bernstein Research analyst Callum Elliott thinks the biggest winner, aside from the fragmented sellers of tank-based vapes, will be Juul. In the months since Juul stopped selling all but menthol and tobacco flavors, its competitors have seen a notable boost in sales, according to Elliott.

Vuse Alto, which has flavors such as mixed berry and mint, saw a spike following Juul’s flavor pullback.

“This spike in growth for Vuse Alto, combined with Juul’s own pressures from the increasing scarcity of mint pods at retail mean that Juul’s market share of the pod-vaping market has come under significant pressure over the past few months,” he wrote.

Though he notes questions regarding the practicability and legality of such proposals using the FDA’s “enforcement discretion,” he sees it as an early victory of Juul.

Altria stock (ticker: MO) was down 1.4% to $49.20 Thursday afternoon, while American depositary receipts for British American Tobacco (BTI) were up 0.9% to $42.85. The Dow Jones Industrial Average was up 0.6%.

Connor Smith/Barrons