Juul is in free fall
Just four years ago, Juul launched an ad campaign called Vaporized, featuring young people—women in crop tops and puckered lips, men in fitted black tees and swooping haircuts—against popping colored backgrounds next to its slim e-cigarettes. It was the beginning of the company’s rapid ascent. When tobacco company Altria took a 35% stake in Juul less than a year ago, the company was valued at $38 billion. But its fall from grace is happening far quicker.
(November 03, 2019), BuzzFeed reported that earlier this week a former executive filed a lawsuit against Juul alleging that the company knowingly sold more than a million contaminated mint-flavored pods. The news followed a generally rough day for Juul. Already the Wall Street Journal had reported on its plans to cut roughly 15% of its workforce. There was also an executive shake-up. The company has dispensed with CFO Tim Danaher and appointed Guy Cartwright, who joined the company in July to help with operations, as head of finance. Its chief administrative officer, Ashley Gould, and head of advanced technologies, David Foster, are also out. Its chief marketing officer, Craig Brommers, is gone. Juul has curtailed its advertising efforts and reportedly will not be hiring a new CMO. Brommers, who previously worked for Gap and Abercrombie & Fitch, was only hired in April.
CEO Kevin Burns stepped down in September, and the company hired a new one: K.C. Crosthwaite, head of growth at Altria, Juul’s biggest investor and a tobacco industry heavyweight. Crosthwaite has now taken steps to reconfigure the company’s trajectory, reimagine the c-suite, rein in potential losses, and navigate the shifting regulatory space.
“As the vapor category undergoes a necessary reset, this reorganization will help Juul Labs focus on reducing underage use, investing in scientific research, and creating new technologies while earning a license to operate in the U.S. and around the world,” Crosthwaite said in a prepared statement.
Juul’s cofounders, James Monsees and Adam Bowen, have also stepped aside from their respective positions as chief product officer and chief technology officer. They will now advise Crosthwaite as part of a founders’ office.
The series of ousters and the company’s decision to eliminate the CMO position entirely is a shocking turn of events, considering that in the first half of the year Juul spent $104 million in advertising, according to Adweek. It’s not just the dollars, either. Juul campaigns have made the act of surrounding oneself in halos of white smoke synonymous with cool (not unlike the cigarette ads of yore). But it had a greater promise. On the surface, here was a company that was going to make quitting smoking chic. What no one had considered was that e-cigarettes may be their own public-health problem, making Juul’s once-admired marketing efforts look like a weapon.
Regulators step in
Juul’s current turmoil comes amid a confluence of regulatory concerns with Juul and flavored vaping products.
The Food and Drug Administration has charted an enormous rise in youth vaping for years, with as many as 3.6 million kids vaping in 2018. In June 2019, San Francisco moved to ban the sale of e-cigarettes, citing this youth vaping crisis and the FDA’s failure to regulate e-cigarettes and vaporizers. Weeks later, the FDA started looking into the possibility that e-cigarettes, specifically Juul’s, were causing seizures. Shortly thereafter came news of a Federal Trade Commission investigation, which is seeking to discern whether Juul is targeting minors with its advertising (in 2016, the FDA put e-cigarettes in the jurisdiction of the Center for Tobacco Products, which means that, like cigarette makers, Juul can neither sell nor market to minors). All of this happened in August, the same month that Juul raised nearly $800 million in equity and debt to bolster global expansion.
While Juul was under scrutiny from the federal government, a vaping-related illness was sending hundreds to the emergency room and in some cases resulting in death. In response, the FDA warned teenagers against buying off-market vaping products. Meanwhile, the federal organization started targeting Juul more directly. In a warning letter, the administration sternly noted that Juul did not have federal approval to claim that e-cigarettes were a healthier alternative to traditional smoking.
Over the summer, the number of people suffering from the mysterious vaping illnesses climbed. In September, President Trump threatened to ban nearly all flavored vaping products. States have followed: Michigan, New York, Massachusetts, Rhode Island, Washington state, Oregon, and the city of Boulder, Colorado, have put various restrictions into effect, ranging from outright vaporizer bans to limits on flavored products. Media companies have pulled advertising of e-cigarettes. In October, Juul ceased selling many of the fruity flavors regulators believe are luring kids.
A big part of Crosthwaite’s mandate will be to prepare Juul to work with regulators. The company says that it has brought together several teams in the company under chief regulatory officer Joe Murillo to focus entirely on preparing an FDA pre-market tobacco product application (PMTA) for its newest devices. The PMTA will identify Juul’s benefits, risks, and audience—adult smokers looking to ditch cigarettes. The company is also using the application as a way to show it can keep e-cigs out of kids’ hands. In its latest device, the company is using Bluetooth to verify age and lock out geo-fenced areas such as schools. So far, it’s only available in Israel and Western Europe.
Vaping as a public health hazard
To date, Juul has not been implicated as a source of the vaping illness. Researchers are at work trying to untangle a complicated market where devices come from an array of sources and are sometimes modified by their users. As one researcher noted in the journal Nature, the variety of chemicals vapers interact with is “dazzling.”
As the company with the biggest market share, Juul is catching the brunt of the ire against vapes for making sexy a product that has unknown health effects. One could argue Juul’s rise is as much the fault of the FDA, which didn’t offer regulatory guidance on these products quickly enough. E-cigarettes are not new. Of course, Juul, likely because of the lax environment, was slow to make friends in Washington—perhaps too slow. The company didn’t invest meaningfully in lobbying efforts until recently. That the company is one-third owned by a giant tobacco corporation probably isn’t helping its image either.
Still, Juul was once welcomed as a tool for helping smokers to quit, and many who are critical of the e-cigarette bans are mourning the loss of what they see as a valuable asset in reducing smoking. It’s still unclear whether Juul really does inspire smokers to quit. A peer-reviewed survey of tobacco users revealed that three-quarters of respondents had Juuled in the last 30 days, and only a third were using Juul to quit smoking.
There are still more questions to answer about the health impact of vaporizers. A few studies have found traces of toxic metals in e-cigarette vapors. Researchers are also studying the impact of oil vapors on the lungs. This research may further condemn vapes—Juul’s and everyone else’s.
Perhaps the hardest-to-stomach element of this story is that in restricting the market for vaporizers and e-cigarettes, regulators in areas with the strictest rules may drive consumers to the black market, or to cigarettes—possibly worsening public health. There are glimmers of hope though. Some states are thinking critically about how to legislate e-cigarettes in more nuanced ways, mitigating their worst qualities. Colorado and California, for example, have been holding hearings to better understand how they might regulate the most toxic materials inside vaporizers, rather than the whole device.
After all, it’s proving difficult to simply put Juul back in its box and shelve it. People already like it too much.