Juul’s pipe dreams wilt­ing un­der fire

E-cig­a­rette firm’s hopes for so­cial change in ashes

The Morning Call - - BUSINESS CYCLE - By Marie C. Baca

Fif­teen years ago, two Stan­ford grad­u­ate stu­dents, Adam Bowen and James Mon­sees, pre­sented their prod­uct de­sign the­sis on “the na­tional fu­ture of smok­ing.” In a video of the pre­sen­ta­tion, Bowen and Mon­sees are heard de­scrib­ing their in­ter­est in de­sign for so­cial change and pon­der­ing aloud if it was “pos­si­ble to make a safe cig­a­rette.”

“The in­dus­try is ripe for in­no­va­tion,” said Mon­sees at the time.

To­day, Bowen and Mon­sees are chief tech­nol­ogy of­fi­cer and chief prod­uct of­fi­cer, re­spec­tively, of Juul Labs, a com­pany valued at $38 bil­lion. But in­stead of be­ing seen as an agent of so­cial change, Juul has increasing­ly found it­self la­beled — by politi­cians, reg­u­la­tors and health ex­perts — as one of the instigator­s of the teenage va­p­ing epi­demic. Fur­ther scru­tiny has been placed on va­p­ing gen­er­ally as reg­u­la­tors in­ves­ti­gate the role of con­tam­i­nants or coun­ter­feit sub­stances in hun­dreds of pos­si­ble va­p­in­gre­lated lung ill­nesses.

Juul has main­tained that its prod­uct is in­tended for adult smok­ers only.

So how did Juul go from its Sil­i­con Val­ley roots to be­ing as­so­ci­ated with Big To­bacco?

What is Juul?

Bowen and Mon­sees’ the­sis pre­sen­ta­tion gave rise to a San Fran­cisco-based com­pany that in­tro­duced its Juul e-cig­a­rette in 2015. Two years later, Juul was spun out into a sep­a­rate com­pany. Last year, Al­tria Group, the maker of Marl­boro cig­a­rettes, took a 35% stake, more than doubling Juul’s valuation to roughly $38 bil­lion.

Juul’s slim de­vice was en­vi­sioned dur­ing that the­sis pre­sen­ta­tion to de­liver nico­tine and fla­vor to the smoker through wa­ter va­por, min­i­miz­ing com­bus­tion. To limit the “of­fen­sive­ness” of tra­di­tional smok­ing for both the smoker and those nearby, the de­vice de­liv­ered the va­por in fla­vors like peach­straw­berry.

To­day, Juul dom­i­nates the e-cig­a­rette mar­ket with its de­vices, de­spite chal­lenges from other big com­pa­nies. In the three years af­ter it launched in 2015, the com­pany cap­tured 70% of the e-cig­a­rette mar­ket, ac­cord­ing to a Wells Fargo anal­y­sis of Nielsen sales data.

But the com­pany has drawn scru­tiny for mar­ket­ing prac­tices crit­ics say were aimed at teenagers and po­ten­tial health prob­lems re­lated to va­p­ing gen­er­ally.

What is va­p­ing?

An e-cig­a­rette or sim­i­lar de­vice heats liq­uid containing nico­tine, fla­vor­ing and other chem­i­cals, cre­at­ing a va­por for in­hala­tion. Juul’s prod­ucts, and those of many of its com­peti­tors, look sim­i­lar to a USB flash drive.

The process de­liv­ers fewer harm­ful chem­i­cals to smok­ers’ lungs than con­ven­tional cig­a­rettes, ac­cord­ing to the Cen­ters for Dis­ease Con­trol and Pre­ven­tion, though e-cig­a­rettes of­ten con­tain higher con­cen­tra­tions of nico­tine, an ad­dic­tive chem­i­cal. Some peo­ple also use va­p­ing de­vices to inhale THC, the psy­choac­tive chem­i­cal in marijuana.

But it’s still un­clear what health com­pli­ca­tions could be as­so­ci­ated with va­p­ing. The num­ber of cases of sus­pected va­p­ing-re­lated lung ill­nesses have grown quickly, to 354 po­ten­tial cases in 29 states. State and fed­eral health au­thor­i­ties are fo­cus­ing on the role of con­tam­i­nants or coun­ter­feit sub­stances as a likely cause.

Of­fi­cials have urged Amer­i­cans to stop va­p­ing un­til the of­fi­cials fig­ure out what’s go­ing on. Juul said it com­mends the in­ves­ti­ga­tion and is mon­i­tor­ing re­ports of the ill­nesses.

Why the crack­down?

Juul’s de­vices — as well as its com­peti­tors’ — are ex­traor­di­nar­ily pop­u­lar with teens. The U.S. Food and Drug Ad­min­is­tra­tion found a 75 per­cent in­crease in e-cig­a­rette us­age among high school stu­dents be­tween 2017 and 2018, lead­ing the agency to de­clare an “epi­demic” of teenage va­p­ing. It also cracked down on re­tail­ers sell­ing to un­der­age teens.

In June, San Fran­cisco be­came the first ma­jor U.S. city to ban e-cig­a­rette sales, an ef­fort to pre­vent “an­other gen­er­a­tion of San Fran­cisco chil­dren from be­com­ing ad­dicted to nico­tine.” The ban goes into ef­fect early next year and ap­plies to both brick-and-mor­tar stores and prod­ucts shipped to San Fran­cisco ad­dresses. On Wed­nes­day, Michi­gan be­came the first state in the na­tion to ban fla­vored e-cig­a­rettes, a step the gov­er­nor said was needed af­ter the state health de­part­ment found youth va­p­ing con­sti­tuted a pub­lic health emer­gency.

As the mar­ket leader, Juul has borne the brunt of ac­cu­sa­tions that it has drawn younger users with its sweet-fla­vored prod­ucts. Ear­lier this year, re­searchers at Stan­ford’s med­i­cal school con­cluded that “Juul’s ad­ver­tis­ing im­agery in its first 6 months on the mar­ket was patently youth-ori­ented,” and that its use of so­cial me­dia plat­forms and in­flu­encers may have targeted the mar­ket. At a House sub­com­mit­tee meet­ing this sum­mer, law­mak­ers ac­cused the com­pany of “de­ploy­ing a so­phis­ti­cated pro­gram” to tar­get chil­dren and teenagers at places that in­cluded schools and sum­mer camps.

Juul’s re­sponse

Juul has ve­he­mently de­nied the al­le­ga­tions. In a state­ment, Juul spokesman Ted Kwong said the com­pany has “taken the most ag­gres­sive ac­tions of any­one in the in­dus­try to com­bat youth us­age.” The com­pany has re­moved all sweet fla­vored Juul pods — ex­clud­ing to­bacco and men­thol fla­vors — from the shelves of tra­di­tional re­tail­ers like 7-Eleven and Chevron gas sta­tions, though sweet fla­vors are still avail­able on­line through Juul’s e-com­merce site. Kwong also says it has strength­ened its on­line age-ver­i­fi­ca­tion process and shut down its Face­book and In­sta­gram ac­counts.

Juul said the pro­gram ref­er­enced by the House sub­com­mit­tee panel was short-lived and de­signed to ed­u­cate young peo­ple about the dan­gers of nico­tine ad­dic­tion. The com­pany says that its early mar­ket­ing cam­paigns were fo­cused on smok­ers ages 25-34, and that Juul has since switched its tactics to fo­cus ex­clu­sively on sto­ries of adult smok­ers who have switched to their prod­ucts from com­bustible cig­a­rettes.

Juul is work­ing with re­tail­ers to im­ple­ment strict age-ver­i­fi­ca­tion stan­dards, au­to­mat­i­cally lock­ing a point-of-sale sys­tem when a Juul prod­uct is scanned and re­mains locked un­til a valid of-age ID is scanned. All Juul re­tail­ers must have the new sys­tem im­ple­mented by May 2021.

RICHARD B. LEVINE/SIPA USA 2018

Juul has been la­beled by politi­cians, reg­u­la­tors and health ex­perts as an in­sti­ga­tor of the teenage va­p­ing epi­demic.

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