Juul Valuation Up In Smoke: Altria Writes Down Stake By 33%, Fidelity Slashes By 48%

Altria wrote down about 33% of its investment in e-cigarette maker Juul today in a $4.5 billion pre-tax charge against the company’s Q3 earnings. The writedown was widely expected after an ugly year for Juul, with the Trump administration planning to remove flavored e-cigarettes from the market and a vaping death toll in the U.S. and U.K. that has now risen to over 20 people. 

Juul is also facing a slew of lawsuits claiming that the company got minors hooked on nicotine and started an “epidemic” of teen vaping. The company is also under Federal scrutiny for its marketing practices. 

The company said the writedown wasn’t due to “one single event”, according to CNBC.

Altria had invested $12.8 billion for a 35% stake in the company last year, which valued Juul at about $38 billion. Regulators have still not approved Altria’s stake in the company and Altria said it expects an answer in the first quarter of 2020. 

The news comes one day Fidelity reportedly slashed the value of its Juul shares on its books by almost 50%. The Fidelity Blue Chip Growth Fund held almost 66% of Fidelity’s 4.1 million shares, according to Bloomberg. 

Robby Greengold, a Morningstar Inc. analyst who tracks Fidelity funds said: “Valuing privately held firms is arguably much trickier than more liquid stocks that are held by the public. Juul has been a big driver of returns for several Fidelity growth strategies.”

The Fidelity Blue Chip fund’s stake in Juul is made up of 2.67 million common and preferred shares and fell to $386 million from $738 million during September. In Q3, the fund fell 2.49%, blaming the largest drag on returns on Juul. 

Fidelity Blue Chip said in its quarterly fund review: “One stock decision in particular hurt by far more than any other: electronic cigarette maker Juul Labs. The valuation of Juul, which is not publicly traded, fell this period as the company faced myriad regulatory challenges.”

And things don’t look at though they will be getting any rosier for Juul anytime soon. A former employee of the company, in a lawsuit filed last week, accused Juul of selling over 1 million contaminated e-cigarette pods earlier this year without issuing a recall or notifying customers. 

Siddharth Breja, former senior vice president of global finance for the company, claims that he was retaliated against for raising concerns about the contaminated shipment. He also claimed that the company sought to resell pods that were nearly a year old at one point. He allegedly pushed for an expiration or “Best By” date on the company’s product.

“Half our customers are drunk and vaping like mo-fos, who the fuck is going to notice the quality of our pods,” Breja claims that CEO Kevin Burns said to him, in response.

Burns, who was replaced as CEO in September, denied making the statement, saying: “I never said this, or anything remotely close to this, period. As CEO, I had the company make huge investments in product quality and the facts will show this claim is absolutely false and pure fiction.”

Breja’s lawyer said: “Mr. Breja became aware of very concerning actions at the company, and he performed his duty to shareholders and to the board by reporting these issues internally. In exchange for doing that, he was inappropriately terminated. This is very concerning, particularly since some of the issues he raised concerned matters of public safety.”

Breja says that on March 12, he learned that some batches of mint e-liquid had been found to be contaminated. Approximately 250,000 of the kits, equating to 1 million pods, were shipped to retailers and sold. He says he was asked to charge the supplier of the liquid $7 million for the contaminated batches and, on the same day, “protested Juul’s refusal to issue a product recall for the contaminated pods, or at a minimum issue a public health and safety notice to consumers.” 

“The allegations concerning safety issues with Juul products are equally meritless, and we already investigated the underlying manufacturing issue and determined the product met all applicable specifications,” Juul said about the contamination allegation.