Stanford pals hit jackpot with e-cigarettes
But $15-billion giant behind Juul has drawn federal scrutiny with its market dominance.
Adam Bowen and James Monsees were pursuing master’s degrees in product design at Stanford when they decided to do something about their smoking addictions.
That was the beginning of what eventually would become Juul Labs Inc., now a $15-billion e-cigarette maker with a product so popular it’s used as a verb.
“They’re becoming synonymous with the e-cigarette market,” Bloomberg Intelligence analyst Ken Shea said of San Franciscobased Juul. “They’re a phenomenon of a company.”
Bowen, 43, and Monsees, 38, founded Ploom in 2007, sold the name eight years later to Japan Tobacco Inc. and renamed their company Pax Labs Inc. Around the same time, the pair introduced an e-cigarette shaped like a USB drive and called it the Juul. Last year, Juul was spun out from Pax and has gone on to swallow the market.
Its growth has been meteoric, with Juul’s dollar share of e-cigarette sales soaring to 53% from 16% at the end of 2017, according to data from market researcher IRI. Reynolds American Inc.’s Vuse Ciro is next biggest with just 10%, down from 22% at the end of last year.
Bowen and Monsees came up with their big idea while taking a smoke break one night in 2004 as they faced a deadline on their thesis proposals for their master’s degrees in product design, according to a 2012 profile in Stanford Magazine.
The men, who declined to comment for this article, each owned 5.6% of Juul after a July funding round that gives them stakes worth $843 million apiece. That figure is poised to grow along with e-cigarette sales, which have almost tripled in the last year. Although e-cigs make up just 3% of tobaccoindustry sales today, Shea said he expects they will be as much as 25% within a decade.
Wells Fargo & Co. analyst Bonnie Herzog, who called Juul the “brand to beat,” led a survey that found it’s attracting new tobacco users rather than drawing them from traditional cigarettes and other e-cigarette brands. Juul’s stated mission is to help adults quit smoking cigarettes.
It’s hard to say why Juul has become so popular when e-cigarettes have been around for more than a decade.
“Some products just go viral,” Shea said, citing the Cabbage Patch Kids craze of the 1980s as an example.
But dolls aren’t addictive.
Most of Juul’s single pods contain the same amount of nicotine as a pack of cigarettes. That’s one of the highest levels of nicotine content in the U.S. e-cigarette market, according to the Centers for Disease Control and Prevention. Juul also comes in flavors such as mango, cucumber, fruit and creme, which may appeal to children, in addition to people trying to quit smoking.
Flavors in e-cigarettes have become the focus of a U.S. Food and Drug Administration investigation into underage e-cigarette use, which Commissioner Scott Gottlieb called an epidemic. In September, the FDA threatened to pull such products from the market if the industry doesn’t do more to combat growing use among children and teens. Tobacco giant Altria Group Inc. said last week that it’s temporarily pulling some pod-based products from store shelves.
Altria launched its own ecigarette line after creating its NuMark unit in 2011, but it was in the company’s best interest for the product to never become popular because it threatened sales of traditional cigarettes, which are “its bread and butter,” Shea said. “Much to their chagrin, Juul has taken off like a rocket.”
Juul is under particular scrutiny because of its market dominance. In early October, FDA inspectors took more than 1,000 pages of documents on sales and marketing from its headquarters.
While the pressure from the FDA is a concern, most retailers don’t think it will have a “meaningful or lasting impact on either Juul or the broader vapor category,” according to the Wells Fargo report.
Juul is also sold in Canada and Britain and just entered the Russian market. The company is appealing a ban imposed by Israel on pods with the highest amounts of nicotine.