A bad week: Juul Labs Inc. lose its CEO and Altria (35% owner of Juul) loses its merger to Philip Morris

Its been a bad week for Juul Labs Inc. who losts its CEO and and even worse week for its 35% stake holder who lost its blockbuster merger.

Juul is now under great scrutiny as a result of the ongoing federal investigations and the ripple effects are being felt through-out the industry. Former Chief Executive Kevin Burns was replaced Wednesday by an executive at tobacco giant Altria which owns a 35% stake in the company. The change comes at a time when the company's board thinks the focus needs to be on regulatory matters.

K.C. Crosthwaite, Altria's chief strategy officer, is taking over as Juul’s CEO, effective immediately. Mr. Willard said that Mr. Crosthwaite, who heads up Altria’s IQOS efforts, would “work in a responsible way” with the FDA and other regulators to address youth vaping. Mr. Willard said he was still confident Juul could get approval from the FDA when the company submits applications for review next year.

Juul and the e-cigarette phenomenon in general was part of what drove Altria and Philip Norris Intl. to consider a potential merger that would have created a global player worth nearly $200 billion. Instead Juul is publicly stating that it wouldn’t lobby against the Trump administration’s proposed ban on most flavored e-cigarettes and would suspend all its broadcast, print and digital advertising in the U.S. (Citing the surge in underage vaping, the Trump administration earlier this month said it planned to ban all e-cigarettes except those formulated to taste like tobacco. The banned flavors, including mint and menthol, represent more than 80% of Juul’s sales.)

Altria CEO Howard Willard admitted the proposed ban on e-cigarette flavors would have a negative impact on Juul’s bottom line and limit its offerings next year.

“I continue to believe Juul will continue to be successful and a good investment for Altria in the long run,” Mr. Willard said in an interview, noting that Juul’s product has converted millions of adult smokers and is entering new markets abroad.

Now with a renewed luster the two parents of Marlboro plan to focus on the launch of their own cigarette alternatives in the U.S. Altria has developed a heat-not-burn device called IQOS. Unlike Juul, IQOS has been reviewed and authorized by the Food and Drug Administration.

U.S. health officials have warned the public to stop vaping while the Centers for Disease Control and Prevention investigates a rash of respiratory illnesses that have sickened hundreds of people and caused eight deaths. Juul hasn’t been linked to the illnesses.

Juul’s U.S. sales fell in August as officials raised the alarm about the illnesses, dropping to $278 million in the four weeks ended Sept. 7 from $294 million in the four weeks before that, according to a Wells Fargo analysis of Nielsen data.

“Vaping is at an inflection point,” Mr. Willard said at an industry conference Wednesday, citing the rise in teen vaping, federal investigations and the regulatory crackdown. “I find this very discouraging but I remain optimistic.”

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