Vaping is not dead, it's just about premature aging

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By Robert Cyran

NEW YORK, Sep 18 (Reuters Breakingviews) – Juul Labs has discovered the source of premature aging. The electronic cigarettes it sells were thought of as a safer alternative to tobacco, but now parliamentarians are treating them as a threat. Growing markets, such as China and India, are receding, and the $ 38 billion valuation Juul received last year has probably vanished. However, all this does not mean that vaping is dead, or that electronic cigarettes are not profitable.

Converting smokers to vaping remains a victory for public health. Tobacco kills almost half a million Americans a year, and electronic cigarettes have much less of the toxic compounds that tobacco combustion produces. The problem is young customers who acquire the habit. The percentage of high school students using electronic cigarettes skyrocketed from 11.7% in 2017 to more than 20% in 2018, says the head of public health. It is also necessary to take into account in the health (and financial) calculation six deaths and several hundred mysterious cases of lung diseases linked to vaping.

Juul's assessment now emits black smoke. San Francisco and India are among the places that have blocked the sale of electronic cigarettes, and the company's products disappeared from Chinese e-commerce websites days after its launch last week. This is not good news for the manufacturer of Marlboro Altria, who paid $ 12.8 billion for a 35% stake in Juul last year. That valuation, equivalent to about 60 times the EBITDA (gross operating result), according to Bernstein's estimates, is six times higher than that of Altria, according to Refinitiv data. Altria investors have lost 14% of their money since they closed the deal with Juul in December. British American Tobacco is above that figure, and something else.

However, not everything is lost for Juul and his co-owner. It is true that the regulation is likely to focus on taxation, since a 10% increase in cigarette prices reduces consumption between 3% and 5%, according to a review of studies conducted by the International Agency for Cancer Research; and the greatest reductions occur among young users. This would return vaping to its origins as a product for smokers looking to quit, with slower growth, but also with greater barriers to entry. Raising awareness about the risks of electronic cigarettes should also attract smokers to recognized brands. Juul can remain the best in its market; It simply won't be the market that Altria originally expected.

(The author is a Reuters Breakingviews columnist. The opinions expressed in this column are the sole responsibility of the author)

(Edited by John Foley and Leigh Anderson; translated by Tomás Cobos in the Madrid newsroom)

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