JUUL Rising - And The Vaping Teenager

On June 29, 2018, Bloomberg reported that JUUL has raised $1.2 billion in a financing round of convertible notes sold to investors, valuing the startup company at $15 billion. (JUUL’s recent SEC filing indicates the offering is in fact $150,000,000, with $38,500,000 remaining unsold.  A billion dollars isn’t what it used to be.)   JUUL plans to use the cash to expand internationally. Outside the United States, its eponymous juul device is currently only available in Israel and the UK.

JUUL remains a minor player in the smoking and vaping industry compared to giants like Phillip Morris International, British American Tobacco, and Japan Tobacco, but through June of this year their share prices slumped by 23%, 24% and 15% respectively, and since January 2017 traditional cigarettes’ share of the smoking and vaping market has fallen by almost 4%.  

While JUUL’s share of the smoking and vaping market has risen only by some 3.5%, JUUL’s share of the vaping market has risen dramatically.  According to Nielson data appearing in a JUUL investor presentation, as of May 2018, JUUL had captured 68% of the U.S. e-cigarette market.  JUUL is definitely rising. 

Smoking tobacco cigarettes causes cancer, smoking them is an addiction, and the addiction is caused substantially by nicotine.  However, nicotine does not cause cancer.  JUULs do not deliver tobacco smoke, only nicotine vapor.  JUUL promotes JUULS as the alternative to tobacco cigarettes and thus the cure for smoking-related cancer. 

On the other hand, besides being addictive, nicotine appears to have adverse effects on brain development in teenage adolescents and a mixed bag of other effects on both teenagers and adults.

Since an FDA “deeming regulation” first proposed in 2014 and effective May 5, 2016, nicotine has been a “tobacco product,” making electronic nicotine dispensing devices (“ENDS”) “tobacco products” and subject to FDA regulation.  The deeming regulation is based upon the Tobacco Control Act passed in 2009.  The FDA appears to regard all vaping devices as ENDS and takes a particular interest in JUUL Pods due to its tremendous but illegal success among adolescents.

Juuls And The Vaping Teenager 

Juuls And The Vaping TeenagerJUUL’s problem is that JUULS are so hip and so tasty that high schools across the country are awash in JUULS and vaping teenagers.  In addition, the nicotine in JUULs comes from nicotine salts.  Most vaping devices use nicotine derived from air dried tobacco. Nicotine salts are derived from heat dried (aka flue dried) tobacco.  Tobacco cigarettes are made with heat dried tobacco.  

Nicotine salts are more potent than free base nicotine. In December 2015 JUUL obtained a patent upon the “nicotine salt formulation” used in JUULS.  Its patent for the “electronic vaporization device” used in JUULS was issued in July 1916. JUULs deliver a more potent nicotine hit than tobacco cigarettes and deliver it faster.

As “tobacco products,” sales of JUULS to minors are illegal in 45 states, and sales to anyone under 21 are illegal in 5.  Vaping teenage high school kids obtain JUUL Pods by illegal purchases at convenience stores, legal purchases by intermediaries over 18 or 21, or illegal purchases through the internet, where the claimed age of the buyer is questionable. The FDA responded to this apparent epidemic in July 2018 by a “blitz” on convenience stores and other likely retail violators, and by a request to JUUL for detailed information regarding its marketing strategy and its research about potential health consequences of using JUULs.

JUUL responded in early August by again proclaiming that its products are intended for adults only and its purpose is to encourage and assist tobacco cigarette smokers to stop smoking.  Next year JUUL will also release Bluetooth-connected JUULs in international markets which, according spokesperson Victoria Davis, “will create the foundation that could enable a number of technological advances to help further restrict access to young people.”  One option may be geofences preventing JUULs from working on school grounds. For the time being, JUUL has shelved plans to offer less potent liquid pods.

The public health controversy over JUULs continues to unfold as an aspect of the government’s war on cigarettes, begun in 2000 with the passage of the Family Smoking Prevention and Tobacco Control Act. JUUL’s founders and current executives proclaim that JUULs will displace tobacco cigarettes and provide a public health bonanza by dramatically reducing lung cancer. JUUL’s opponents point to a 2017 study in the American Journal of Medicine finding that non-smoking adults were four times more likely to start smoking tobacco cigarettes after a year and a half of vaping.  And addiction of any kind is unpopular, especially when it comes to kids as a vaping teenager

Some of JUUL’s investors are major financial players, such as J.B. Pritzger, Fidelity Investments, and Tiger Global Management, suggesting that JUUL’s future growth will continue at its present pace, for better or for worse.

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