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Tobacco company Altria is getting close to taking a 35 per cent stake, which would value Juul at US$35 billion, making the electronic cigarette company one of the most valuable private companies in the United States. (Wall Street Journal)

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Talking point: Juul’s valuation would make the three-year old company worth US$4 billion more than Airbnb and three times more than Pinterest. The company has about 1,500 employees and US$2 billion in annual revenue. Some of that revenue comes from Juul’s popularity with children, who report enjoying the different flavours offered by the company and the ability to surreptitiously smoke in school (although administrators are trying to crack down). Last month, the U.S. Food and Drug Administration decided not to ban the sale of flavoured e-cigarettes, which would have been a blow to Juul.

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The parent company of Marlboro cigarettes will invest $2.4 billion in Toronto-based Cronos Group, giving the Virginia-based tobacco giant a 45 per cent ownership stake in the cannabis producer. Under the agreement, Altria can invest another $1.4 billion within four year, giving it 55 per cent ownership. (Wall Street Journal)

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Talking point: The transition to cannabis—as the global legal market expands—is a natural next step for Altria, whose traditional tobacco and e-cigarette sales have been declining in step with other companies’ in the industry. In February, Alliance One International bought majority stakes in two B.C. cannabis companies: Island Garden Inc. and Goldleaf Pharm Inc. In June, Imperial Brands invested in a U.K. medical cannabis company. This latest deal is the biggest of its kind to date, but almost certainly will not be the last.

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The stock of Cronos, the Canadian marijuana producer, rose 11.15 per cent on Monday, after it was reported that the U.S. tobacco company was looking to acquire it. Cronos’ gains bucked the wider Monday trend—the Horizons Marijuana Life Sciences ETF had fallen 2.97 per cent by the time the markets closed. Leading the drop was Aphria, a Canadian pot producer, which Gabriel Grego, founder of Quintessential Capital Management, claimed on Monday had paid inflated prices for firms in Argentina, Colombia and Jamaica linked to a company insider. Aphria said the allegations were “false and defamatory.” (CBC)

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Talking point: Cigarette makers and tobacco middlemen have been diversifying into the marijuana market, as the number of people smoking conventional sticks continues to decline. So have alcohol companies like Constellation, which now owns more than a third of Canopy Growth Corp.

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The San Francisco-based e-cigarette company will lay off 150 more employees than previously announced as it faces regulatory pressure in the U.S. The company will lose about 16 per cent of its workforce with the cuts, which are intended to “right-size” the business after a pace of adding about 300 staff per month. Juul told The Logic the cuts will focus on the marketing team, which has already suspended broadcast, print and digital advertising in the U.S. (The Mercury News, The Logic)

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Talking point: The cuts follow a US$14-billion decrease in Juul’s valuation after Altria, its biggest shareholder, wrote down its US$12.8-billion investment by US$4.5 billion. Last month, Juul stopped selling most of its flavoured products in the U.S.—which account for about 80 per cent of its sales in the country—in anticipation of legislation to ban the products, which are known to be attractive to young people and non-smokers. Lisa Hutniak, Juul’s head of communications in Canada, declined to answer The Logic’s questions about whether the cuts will affect the company’s business in Canada, where there have been proportionately fewer cases of vaping-related illnesses than in the U.S., and where lawmakers are taking a less urgent approach to regulation.

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The move is part of an action plan issued Thursday by eight government bodies to quell the “distinct increase” in e-cigarette use among teens. Last week, the country also banned all online sales of vaping products. (Bloomberg)

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Talking point: China’s e-cigarette market grew from an estimated US$451 million in 2016 to US$718 million in 2018. Losing the country’s online market and limiting the convenience of vaping could stymie that growth. The announcement follows a ban on the production, import and sale of e-cigarettes in India, another significant growth market for the vaping industry. And on Wednesday, U.S. Rep. Mark DeSaulnier introduced a bill to ban e-cigarette sales nationwide until the Food and Drug Administration completes pre-market reviews of the products. The threat of sweeping new regulations has rocked industry leader Juul, which lost US$14 billion in value after tobacco giant Altria wrote down its US$12.8-billion investment in the company by US$4.5 billion. The regulatory crackdown comes amid rising youth vaping rates and more people falling sick from a mysterious lung injury linked to vaping—as of Tuesday, 2,051 cases were reported, including 39 deaths.

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Surveys of nearly 100,000 Canadians ages 11 to 25 found an overall increase in youth vaping rates between 2014 and 2017—before federal laws were enacted banning sales to minors. Provinces that prohibited e-cigarette sales to minors during the test period saw a 4.4 per cent increase in youth vaping, compared to a 9.7 per cent increase in provinces without bans. (The Logic)

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Talking point: Hai Nguyen, the study’s lead researcher, suggested that banning flavoured e-cigarette products, among other measures, would be a more effective way to reduce youth vaping than simply banning sales to minors, noting that kids find other means of accessing the products. Meanwhile, Reuters reported on Tuesday that industry leader Juul Labs—which claims its target market is adult smokers trying to quit—knew soon after launching products that kids were getting addicted to its products, but didn’t change course. The company is now facing intense pressure from regulators and investors—last week, tobacco heavyweight Altria wrote down its US$12.8-billion investment in Juul by US$4.5 billion.

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Mergers and acquisitions (M&A) activity in Canada hit a five-year low, reaching just US$157 billion, down from US$200.6 billion for the same period of 2018. (Reuters)

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Talking point: The dip coincides with economic uncertainty fuelled by  trade conflicts, which David Rawlings, CEO for Canada at JPMorgan Chase, said has made companies more apprehensive about M&A. A slowdown in cannabis deals also contributed to the overall decline. The industry saw an explosion of M&A in 2018, including Altria’s 45 per cent stake in Cronos for US$1.8 billion and Constellation Brands’ increased stake in Canopy Growth for US$4 billion. Political uncertainty around cannabis legalization in the U.S. has stymied deal activity, according to Jonathan Sherman, a lawyer with Cassels Brock’s cannabis group. Meanwhile, Constellation’s Canopy purchase has yet to pay off. On Thursday, the company reported losses of US$2.77 per share and US$484.4 million total in its latest quarter, weighed down by US$54.7 million in losses from its business with Canopy.

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The prohibition was removed from a planned 2015 rule that gave the Food and Drug Administration oversight of e-cigarettes after the Obama administration’s Office of Management and Budget (OMB)—which assesses the economic impact of new regulations—consulted with more than 100 people over 46 days. That included 44 meetings with tobacco company lobbyists. (Los Angeles Times)

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Talking point: Cecilia Muñoz, a former White House official, said that at the time, the “science wasn’t clear” on the effects of flavours on youth vaping. Since flavours made up a significant portion of vaping sales it would be unfair to stop businesses from selling them, she said. But the final rule excluded 15 pages of supporting documentation on how flavors affected youth vaping rates. The FDA is once again planning a ban on flavoured vaping liquids, but this time President Donald Trump is backing the move. And while tobacco giant Altria opposed the rule in 2015, Juul, in which it made a major investment, has promised not to lobby the government this time.

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Kevin Burns has stepped down in favour of K.C. Crosthwaite, who was chief growth officer at Altria, the tobacco giant that is one of the company’s major investors. Altria and Philip Morris ended talks of a US$187-billion merger. Juul also said it will stop advertising its products on television, in print and digitally, and will not lobby the U.S. government on the Food and Drug Administration (FDA)’s upcoming vaping regulations. “Juul Labs is a global company and this announcement impacts the U.S. only,” StrategyCorp’s Jeff Lang-Weir told The Logic on behalf of Juul Canada. (The Logic)

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Talking point: The three companies’ decisions reflect the challenges facing vape firms in the U.S., where the Trump administration is planning to ban all flavoured products. Juul is facing multiple investigations, including by the Federal Trade Commission, the FDA and criminal prosecutors. Altria is hedging its bet on Juul by proceeding with the launch of an FDA-approved heated tobacco device in partnership with Philip Morris. Health Canada has not announced any new investigations or policies in response to the U.S. government actions. The agency is currently considering new regulations to restrict vape advertising on social media and at the checkout in stores, as well as banning more flavours. Juul is also not changing its Canadian plans—it will continue to lobby and advertise in Canada.