July 1st, 2019
By Edward L. Sweda, Jr., PHAI Senior Attorney
Five months before Howard A. Willard III presided for the first time over the Altria Group annual shareholders meeting in Richmond, Virginia, the company carried out a business plan that dominated the discussion at the meeting. On December 20, 2018, Altria Group announced it had spent $12.8 billion to purchase a 35% share of San Francisco-based Juul Labs, Inc. While that expenditure was not enough to buy an outright controlling interest in the company, it was more than enough to provide major controversy throughout the one-hour shareholders meeting on the morning of May 16, 2019.
Willard, Altria’s chairman and Chief Executive Officer, called 2018 a “strong year for the core tobacco business” and touted the JUUL investment, couching it as having been done to provide JUUL to adult smokers.
2018 was also a year that saw a dramatic surge in youth use of e-cigarettes, including JUUL. According to the 2018 National Youth Tobacco Survey, current e-cigarette use among middle and high school students rose dramatically between 2017 and 2018, with over 3.6 million young people currently using e-cigarettes in 2018. This marked a stark reversal of downward trends of such use in previous years.
In the shareholder meeting’s question and answer session, this author noted that, since the December purchase, “a federal class action lawsuit has been filed in Sarasota County, Florida, on behalf of a girl and her parents accusing JUUL of intentionally targeting teenagers for addiction and falsely denying doing so. The lawyers are using Florida’s anti-racketeering statute, alleging the company committed fraud, product liability and deceptive trade practices. In late April, the Public Health Advocacy Institute (for which I work) sent a demand letter to JUUL on behalf of three youths in Massachusetts. The three of them have become addicted to nicotine by using JUUL, and allege a violation of the state Consumer Protection Act. Specifically, the allegations involve breach of the implied warranty of merchantability regarding the design of the product to addicting non-smoking minors and also unfair marketing to teenagers.
“And the plaintiffs here are seeking the establishment of a program for the prevention and treatment of nicotine addiction in young people who use JUUL. And then, of course, just yesterday, the North Carolina Attorney General, Josh Stein, sued JUUL, saying that it had misrepresented the potency and danger of nicotine in its products. He is seeking injunctive relief, the disgorgement of profits and limiting some of the flavors used by JUUL.
“So my question is, what specific steps will Altria Group take to protect its $12.8 billion investment in JUUL by making JUUL less vulnerable to lawsuits of this type?”
Willard responded by acknowledging that, in December, Altria was aware of litigation against JUUL. Then he gave the standard assurance that “we are very committed to helping address the increase in e-vapor use and to encourage JUUL to make sure that their marketing is only to adult cigarette smokers.”
Another shareholder approached the issue of the $12.8 billion investment in JUUL from a different angle. Dr. Andrew Kramer cited three major criticisms of the deal “One that we paid too much. Two, more often, to me, is that here’s no path to control. And lastly, we’re restricted from distributing any other nicotine vaping systems that limits our – that prohibits our ability to build a diversified portfolio in that space.” Willard rejected Kramer’s analysis, calling the deal a “very attractive investment” for Altria.
Jonathan Chafee of Cattaraugus County, New York, asked why Altria had changed its position on raising the purchase age for tobacco products to 21 from two years earlier, when then-CEO Martin Barrington had said that local laws to raise the age to 21 would not help prevent youth use of tobacco because they would just travel to a community without such a law. Willard justified that switch in position by noting the rapid increase in youth use of e-vapor products in 2018.
Olivia Lang of New York asked what Altria sees as its ethical obligation to help their customers make better informed decisions about using products that harm their health. Willard cited the company’s “significant opportunity with products like IQOS and the new e-vapor products like JUUL to convert adult cigarette smokers down the risk continuum.”
Two shareholder resolutions were presented. The first one, supported by Sister Nora Nash, a sister of St. Francis of Philadelphia, called on Altria Group to disclose publicly the nicotine levels of the company’s cigarette brands. Sr. Nash said that “Altria needs to hear the calls of the thousands of people who will die this year from the horrible effects of smoking cigarettes and other products.”
The second resolution was presented by Cathy Rowan the director of socially responsible investments for Trinity Health and a member of the Interfaith Center for Corporate Responsibility. It called for a report on Altria’s policy and procedures governing direct and indirect lobbying, the company’s payments for such lobbying, Altria’s membership in and payments to any tax-exempt organization that endorses model legislation and a description of Altria’s oversight of this activity.
The first resolution garnered 3.9% YES votes, while the second resolution got 27.9% YES votes.
Young people from New York and Nebraska attended the meeting while many more were outside the Richmond Convention Center, chanting slogans such as “People Over Profits” and holding signs with messages including “We will not be FUULed! 1 Pod = 1 Pack”, “Who do you think these flavors are targeting? Fruit Medley” and ”13 is the average age of a new smoker.” Approximately 85 teen leaders came to Richmond to confront Altria Group management over the company’s outrageous conduct.
The youth who came to Richmond for this meeting were able to see through the multi-billion dollar corporate smokescreen and returned to their communities with the powerful messages they delivered to the management of Altria Group, Inc.