Federal Trade Comission - Tobacco Reporter

JT Extends Vector Tender

Japan Tobacco has withdrawn and refiled its premerger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) in connection with the JT Group’s pending acquisition of Vector Group.

On Sept. 4, 2024, the JT Group commenced a cash tender offer to purchase all outstanding shares of common stock of Vector Group for $15 per share.

JT withdrew and refiled its premerger notification and report form to provide the Federal Trade Commission with additional time for review. Following such refiling, the waiting period under the HSR Act will expire Oct. 3, 2024, at 11:59 p.m. Eastern Time.

The acquisition is expected to be completed by the end of JT Group’s current fiscal year, ending Dec. 31, 2024, subject to receipt of antitrust approvals and satisfaction of customary closing conditions.

September 19, 2024

U.S. Vape Market Tops $2.67 Billion

The combined sales of cartridge-based and disposable e-cigarette products to U.S. consumers by nine leading manufacturers increased by approximately $370 million between 2020 and 2021, while the total topped $2.67 billion, according to the Federal Trade Commission’s (FTC) third report on e-cigarette sales and advertising in the United States, which was released on April 3, 2024. E-cigarette companies also spent $90.6 million more advertising and promoting their products in 2021 than in 2020.

The FTC report examines two main types of e-cigarettes. Some have rechargeable batteries and changeable prefilled cartridges; others are disposable after running out of charge or e-liquid. Reported sales of cartridge products increased from $2.13 billion in 2020 to $2.5 billion in 2021; sales of disposable, non-refillable e-cigarette products increased from $261.9 million in 2020 to $267.1 million in 2021.

The 2021 report also provides details on some characteristics of e-cigarette products, including flavors and nicotine concentration, as well as the bundling of the components in cartridge systems. The data shows that in 2021, 69.2 percent of e-cigarette cartridges either sold or given away contained menthol-flavored e-liquids, and the rest were tobacco-flavored.

Disposable e-cigarettes are not covered by the flavor restrictions imposed by the Food and Drug Administration. In 2021 “other” flavored devices made up 71 percent of all disposable devices sold or given away, with the most-popular subcategories being fruit-flavored and fruit & menthol/mint flavored products. These two subcategories alone made up more than half of all disposable e-cigarette devices sold or given away in 2021.

According to the report, expenditures for the advertising and promotion of e-cigarettes increased from $768.8 million in 2020 to $859.4 million in 2021, with the three largest spending categories being price discounts, promotional allowances paid to wholesalers, and point-of-sale advertising. Together, these three categories accounted for almost two thirds of expenditures in 2021.

Finally, the report discusses steps that e-cigarette companies took in 2021 to deter or prevent underage consumers from visiting their websites, signing up for mailing lists and loyalty programs, or buying e-cigarette products online. These steps include the use of online self-certification to verify users were at least 21 years old and following state laws requiring an adult signature upon delivery of e-cigarette products.

April 5, 2024

FTC Drops Complaint After Altria’s Juul Exit

The U.S. Federal Trade Commission (FTC) on July 3 dismissed a complaint against Altria Group and Juul Labs relating to the cigarette maker’s 2018 investment in Juul, reports Reuters.

In late 2018, Altria paid $12.8 billion for a 35 percent state in Juul. The FTC said in 2020 that Altria’s investment violated antitrust law because the company acquired the position rather than continuing to compete against Juul in the market for closed-system e-cigarettes.

After Altria exchanged its entire investment in Juul for a global license to Juul heated tobacco intellectual property, the tobacco giant asked the FTC to drop its challenge.

Altria terminated its Juul stake after the investment lost much of its value in the wake of regulatory scrutiny and litigation relating to Juul’s marketing practices. On June 23, 2022, the U.S. Food and Drug Administration ordered Juul Labs to pull its e-cigarettes from U.S. store shelves, saying the e-cigarette manufacturer had submitted insufficient evidence that they were “appropriate for the protection of the public health.” After Juul challenged the marketing denial order (MDO), the FDA agreed to take another look at the company’s pre-market tobacco product application.

The agency said it had determined that there are scientific issues unique to the Juul application that warrant additional review.

In early September 2022, Juul Labs agreed to pay nearly $440 million to settle a two-year investigation by 33 U.S. states into the marketing of its vaping products, which critics have blamed for sparking a surge in underage vaping.

On Sept. 30, 2022, Altria announced it was ending its noncompete agreement with Juul.

July 4, 2023

Altria Asks FTC to Drop its Juul Challenge

Altria Group has asked the U.S. Federal Trade Commission (FTC) to drop its 2020 challenge of the company’s 2018 acquisition of a 35 percent share in Juul Labs, reports Reuters. On March 3, the tobacco giant announced it had exchanged its stake for a license to Juul’s heated tobacco intellectual property rights.

In its legal challenge, the FTC contends that the tobacco giant’s $12.8 billion investment in Juul violates antitrust law because the company acquired the position rather than continuing to compete against Juul in the market for closed-system e-cigarettes.

In February 2022, an administrative law judge dismissed the FTC’s claims, finding that the evidence failed to sustain the alleged violations.

The next step would have been for the full commission to decide whether to accept that decision and dismiss the FTC case.

However, Altria recently exited its investment and previously terminated a non-compete agreement with Juul that the FTC opposed.

“There is nothing left of the transaction to be challenged. Altria and JLI respectfully ask the commission to dismiss this matter as moot,” Altria Group and Juul Labs wrote in a filing to the FTC.

March 8, 2023

U.S. Cigarette Sales Down in 2020-2021

The number of cigarettes that the largest cigarette companies in the United States sold to wholesalers and retailers nationwide decreased from 203.7 billion in 2020 to 190.2 billion in 2021, according to the Federal Trade Commission’s most recent Cigarette Report. The report also states that in 2021, menthol flavored cigarettes comprised 37 percent of the market among major manufacturers, more than double the 16 percent market share they held in 1963.

The amount spent on cigarette advertising and promotion increased from $7.84 billion in 2020 to $8.06 billion in 2021. Price discounts paid to cigarette retailers ($6.01 billion) and wholesalers ($917 million) were the two largest expenditure categories in 2021. Combined spending on price discounts accounted for 86 percent of industry spending.

According to the Smokeless Tobacco Report, smokeless tobacco sales decreased from 126.8 million pounds in 2020 to 122 million pounds in 2021. The revenue from those sales rose from $4.82 billion in 2020 to $4.96 billion in 2021. Menthol flavored smokeless tobacco products comprised more than half of all sales and fruit flavored smokeless tobacco products comprised 2.7 percent.

Spending on advertising and promotion by the major manufacturers of smokeless tobacco products in the U.S. increased from $567.3 million in 2020 to $575.5 million in 2021. As with cigarettes, price discounts made up the two largest spending categories, with $308.2 million paid to retailers and $81.3 million paid to wholesalers in 2021. Combined spending on price discounts represented 67.7 percent of all industry spending.

Smokeless tobacco manufacturers also reported selling $804.8 million of nicotine lozenges or nicotine pouches in 2021, not containing tobacco, up from $422.7 million in 2020.

The Commission has issued the Cigarette Report periodically since 1967 and the Smokeless Tobacco Report periodically since 1987.

February 1, 2023

FTC Reports Surge in Flavored Disposables

Sales of flavored disposable e-cigarettes and menthol e-cigarette cartridges surged dramatically in 2020, according to the U.S. Federal Trade Commission’s (FTC) second report on e-cigarette sales and advertising nationwide.

This increase coincides with a federal ban on the flavored cartridges popular with young vapers, suggesting that youth e-cigarette use shifted to substitute products rather than declined.

The FTC has been reporting on tobacco sales annually since 1967 and smokeless tobacco sales since 1987. Last year, the agency expanded its studies of industry and published its first-ever report on e-cigarettes.

This year’s e-cigarette report covers sales and advertising data from 2019 and 2020, a period in which the Food and Drug Administration published an enforcement policy banning the sale of flavored e-cigarette cartridges other than menthol.

Overall, the report found that total e-cigarette sales, which had increased from $304.2 million in 2015 to $2.05 billion in 2018, grew to $2.7 billion in 2019 but then declined to $2.24 billion in 2020.

The sale of disposable e-cigarettes—which are exempt from the FDA’s 2020 policy—increased substantially, with “other” flavored disposable products making up 77.6 percent of all disposables sold in December 2020. The FTC’s data did not show an increase in disposable sales. The FTC report notes that the 2020 decline may not represent the market given major industry shifts.

Similarly, the report found that the sale of the remaining non-FDA-banned flavored cartridge, menthol, increased significantly, to 63.5 percent of all cartridges sold in 2020.

The report also noted record-high e-cigarette discounting and a doubling of nearly free e-cigarette samples.

“This report shows that youth are still at risk from flavored or deeply discounted e-cigarettes,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement.

“Marketers of e-cigarettes have proven skillful at evading FDA regulation and hooking youth on addictive products,”

September 1, 2022

FTC: Jump in U.S. E-Cigarette Sales

The Federal Trade Commission’s (FTC) first-ever report on e-cigarette products reveals surging e-cigarette sales and advertising.

The report, which is based on industry data provided for the years 2015 to 2018, shows that total e-cigarette sales, including both disposable units and those using changeable cartridges, increased more than sixfold from $304.2 million to $2.06 billion in those three years alone. The sales of fruit and other flavored e-cigarette cartridges preferred by youth increased sevenfold over that time, and nicotine concentrations in disposable e-cigarette products also increased.

“The commission’s inaugural e-cigarette report paints a disturbing picture, especially with e-cigarettes driving an unprecedented increase in youth use of tobacco products,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement. “The data show that this increase coincided with dramatic spikes in the market share of flavored products, higher concentrations of nicotine and an industry attempt to evade a ban on free sampling.”

March 21, 2022

FTC Complaint Against Altria’s Investment in Juul Dismissed

A U.S. Administrative Law Judge has dismissed the Federal Trade Commission’s (FTC) claims against Altria and Juul Labs arising out of Altria’s 2018 minority investment in Juul. Following a three-week trial, the judge found that the evidence failed to sustain the alleged violations.

The judge’s decision is subject to review by the FTC. Any decision by the FTC may be appealed to any U.S. Court of Appeals.

“We are pleased with this decision and have said all along that our minority investment in JUUL does not harm competition and does not violate the antitrust laws,” said Murray Garnick, executive vice president and general counsel of Altria, in a statement

In April 2020, the FTC issued an administrative complaint against Altria and Juul alleging that Altria’s 35 percent investment in Juul and the associated agreements constitute an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act of 1890 and Section 5 of the Federal Trade Commission Act of 1914, and substantially lessened competition in violation of Section 7 of the Clayton Antitrust Act.

A public version of the decision is expected to be made available late this month.

February 15, 2022

Morgan Stanley: Antitrust Loss May be Win for Altria

The Federal Trade Commission (FTC) may issue its initial decision in the Altria Group/Juul Labs antitrust case by Feb. 17, according to Morgan Stanley. The investment bank expects the FTC to instruct Altria to divest its stake in the e-cigarette manufacturer.

While Morgan Stanley expects the market to react negatively if the FTC finds that Altria’s investment violates antitrust law, it sees little downside to Altria from an adverse ruling.

Altria would likely appeal the decision, which could result in a multiyear legal process, first with the full Commission and then at the U.S. Court of Appeals. Altria would be able to retain its stake in Juul during this process.

What’s more, Juul’s impaired valuation—the company was worth $1.7 billion in the fourth quarter of 2021, down from $12.8 billion—underscores Juul’s tempered growth prospects.

Also, continuing the legal process leaves open the possibility that the companies can reach a favorable settlement.

Alternatively, if Altria does not contest the FTC’s decision and sells its stake in Juul, it would benefit from crystallizing its loss on the original investment, according to Morgan Stanley, and could apply the tax shield to offset capital gains elsewhere

The case dates to April 2020, when the FTC filed an administrative complaint against the companies, alleging that Altria’s investment in Juul violates federal antitrust laws and seeking to unwind Altria’s investment.

The case has been before the administrative law judge since June 2021, with Altria and Juul defending their relationship and presenting extensive evidence and witnesses in support of maintaining Altria’s investment.

The administrative law judge’s initial deadline to decide was Dec. 22, 2021, but the judge filed an extension twice due to the complexity of the issues and extensive amount of materials in the case.

February 8, 2022

Tag: Federal Trade Comission