Juul Labs has said it is planning another significant round of layoffs and considering halting sales across Europe and Asia. That could mean pulling out of as many as 11 countries and shrinking the company’s footprint to its core markets of the U.S., Canada and the U.K., according to a story in the Wall Street Journal.
Juul cut about one-third of its 3,000 workers earlier this year and already has halted sales of its vaporizers in several countries. The once fast-growing company has been scaling back its operations to combat a sharp drop in sales. It currently has about 2,200 employees, the story states.
It’s the third major shakeup since September as Juul attempts to revamp its strategy in the face of heightened scrutiny of vaping.
The bulk of the cuts will hit Juul’s marketing department. Juul said it would cut 150 jobs and phase out the position of chief marketing officer, adding to 500 reductions announced in October. In total, the company is slashing 650 jobs, or 15 percent of its global workforce.
“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,” Juul CEO KC Crosthwaite was quoted as saying.
The company’s future advertising efforts will focus on direct marketing. It’s still enforcing its strategy of avoiding TV, print and online marketing.
Juul said it will continue to invest in its product team as the company explores new technologies to combat underage use. The company has reportedly submitted to the U.S. Food and Drug Administration a new version of its vaporizer designed to unlock only for users at least 21 years old.
Juul’s value has deteriorated as concerns mounted about the health risks of vaping and U.S. regulators pushed for a crackdown on e-cigarettes. Juul was also criticized for selling flavored pods that became popular with teens. Altria, which invested $12.8 billion for a 35 percent stake in Juul in 2018, recently wrote down its investment by $4.5 billion.
Juul and Juul pods will now move into the substantive review phase of the premarket tobacco product application (PMTA) process. Juul Labs has received acceptance and filing letters from the U.S. Food and Drug Administration (FDA) for its battery and nicotine cartridges, the company announced Tuesday.
Juul Labs filed the applications last month and all PMTA applications are due to the FDA by Sept. 9. The company’s submission includes “comprehensive scientific evidence for the Juul Device and Juul pods in Virginia Tobacco and Menthol flavors at nicotine concentrations of 5 percent, 3 percent and information on data-driven measures to address underage use of its products.
“We will continue to follow the PMTA process and look forward to this next step as the FDA commences substantive review of the application,” said Juul Labs Chief Regulatory Officer Joe Murillo in a statement.
The e-cigarette industry continues to shift in the Covid-19 environment.
By Maria Verven
The market for nicotine in all its forms is undergoing seismic shifts. While sales of nicotine products have been up slightly in the first half of 2020, the greatest growth was in the sales of traditional cigarettes. And when traditional cigarettes win, e-cigarettes lose.
A TROUBLING TREND
Despite the fact that vaping is considered a much safer alter-native to smoking by reputable public health organizations, the data is showing a troubling trend: Some vapers are return-ing to traditional cigarettes.
“Over the last several months, we’ve observed an increase in the number of age 50 and older smokers in the ciga-rette category,” said Altria CEO Billy Gifford in an April investor call. “We believe these smokers had previously switched to e-vapor products but recently returned to cigarettes due to negative publicity and regulatory and legislative developments in the e-vapor category.”
These same factors were in evidence during Altria’s July investor call when they credited the U.S. Food and Drug Administration (FDA) flavor ban for “helping the overall cigarette category” and predicted that the FDA’s premarket tobacco product application (PMTA) process will pause the growth in the e-cigarette market for the reasonable future.
“This is really unfortunate and a sign of serious misinfor-mation and misperceptions about the large risk difference between smoking and harm reduction nicotine products,” said Konstantinos Farsalinos, a cardiologist, clinical researcher with the Onassis Cardiac Surgery Center in Athens and an e-cigarette expert.
“Drastic measures are needed so that smokers receive reasonable, unbiased and evidence-based messages to make informed decisions,” Farsalinos said.
“This dramatic change in the market coincides with the concerted attacks on vaping over the past year,” said David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette studies. “By undermining the low-risk alternatives to cigarettes, they protected the cigarette business.”
STEADY DECLINE SINCE LAST SUMMER
According to Nielsen data reported in July, traditional ciga-rettes represented 80 percent of all U.S. tobacco sales, with $60 billion in convenience store sales over the past 52 weeks. Meanwhile, U.S. sales of e-cigarettes represented only 5 percent of the market, with sales at $3.8 billion.
In 2019, the global e-cigarette market reached a value of $13 billion and was expected to reach $53 billion by 2024, according to VnyZ Research USA. The U.S. share of the e-cigarette market was predicted to reach $16.5 billion by 2024.
These rosy projections now fly in the face of the steady decline in the growth of e-cigarette sales volume since Nielsen’s August 2019 report when it was up 60 percent year over year. Sales of traditional cigarettes have always eclipsed e-cigarette sales. But overall, e-cigarette sales have been down around 20 percent this year, according to Bonnie Herzog, managing director at Goldman Sachs and research analyst who has followed the tobacco industry for more than 20 years.
Much of the decline in e-cigarette sales may be due to the dramatic decline in Juul’s market, which was down around 33 percent after concerted attacks and bans on popular offerings. However, several other factors have clearly contributed to the impact on the overall market, including the vaping scare last year, media reports of a youth “epidemic” and the FDA’s flavor restrictions on the refill market.
In January 2020, the FDA announced it would enforce its policies banning unauthorized flavored e-cigarette products that it claims might appeal to youth—without regard to the appeal to adults who will otherwise smoke cigarettes—including fruit and mint flavors—indeed, any flavors except for tobacco and menthol.
The agency gave companies 30 days to remove fruit-flavored and dessert-flavored products from their shelves and apply for marketing authorization by Sept. 9. The FDA’s restrictions on the refill market, which repre-sents nearly 90 percent of the total category, had an immedi-ate and dramatic effect on the e-cigarette market, according to Herzog.
FDA THREATS CONTRIBUTE TO MARKET CONTRACTION
For months after the FDA’s announcement, the sales of e-cigarettes continued to trend downward by at least 13 percent in June 2020, with the possible exception of R.J. Reynolds’ Vuse. Vuse swiftly rose in popularity, taking second place only to Juul with nearly 16 percent market share. But Vuse is not without problems of its own.
Altria Group, which owns a 35 percent nonvoting stake in Juul Labs, which the Federal Trade Commission is seeking to scupper, filed a lawsuit in May against R.J. Reynolds Vapor Co. seeking “treble damages” (triple the damage amount) in its claim that Vuse violated nine of Altria’s patents involving heating technology, mouthpieces, batteries and liquid-filled pods. R.J. Reynolds had already filed its own patent infringement lawsuits against both Altria and Philip Morris International over the technology behind Marlboro HeatSticks, a competi-tor of Reynolds’ Eclipse line, that heats rather than burns the tobacco in cigarettes.
While Juul continues to reign supreme in the convenience store market, representing roughly 60 percent of sales, its market share has declined about 10 percent over the past year. Juul has taken much of the heat around the teen vaping “epidemic,” causing the company to stop advertising its prod-ucts in the U.S. and cease production of most of its flavors. In two rounds of layoffs, Juul slashed about 40 percent of its workforce, a direct result of its declining sales.
However, according to market research firm IRI, Juul remains the market leader in convenience stores and simi-lar outlets. Valued at $38 billion at the time of the Altria investment, Juul’s first-quarter sales reportedly reached $394 million. If the trend continues, Juul sales could fall somewhere between the $1.3 billion in sales reported in 2018 but significantly shy of the $2 billion in sales reported last year.
Credit: Haiberliu / Pixabay
Juul’s biggest hurdle may be this fall when the FDA starts reviewing Juul’s PMTA, which the company submitted in late July along with scientific studies showing its products are healthier alternatives for smokers as well as plans to prevent minors from using its products.
DISPOSABLE MARKET GAINS TRACTION
When one nicotine category slows, another tends to gain traction. This rule definitely holds true in the e-cigarette market where the contraction in the refill market allowed the much smaller disposable market to thrive.
Disposable devices openly exploited the loophole in the FDA’s regulations that banned fruit and dessert flavors in refillable cartridge-based e-cigarettes. For example, Puff Bar, one of the market leaders in the disposable category, boasts more than 20 flavors, including pina colada, pink lemonade and watermelon cartridges that are compatible with Juul devices.
Puff Bar, Stig and other small but fast-growing players like Fogg were the biggest winners, said Herzog, due to the fact that the disposable e-cigarette segment fell outside of the FDA’s flavor restrictions.
Based on convenience store data and retailer data but exclusive of online and vape store sales, Puff Bar is reportedly selling over 300,000 sticks a week with weekly sales of over $3 million.
However, pressure is mounting among House lawmakers to ban the fast-growing e-cigarettes that quickly replaced Juul as the most popular vapes among young people. And in July, the FDA sent warning letters to Cool Clouds Distribution (doing business as Puff Bar), HQD Tech USA, Myle Vape, Eleaf USA, Vape Deal, Majestic Vapor, E Cigarette Empire, Ohm City Vapes, Breazy and Hina Singh Enterprises (doing business as Just Eliquids Distro demanding they remove flavored disposable e-cigarettes that appeal to youth from the market because they lack the required premarket authorization.
Credit: Sarah J- Pixabay
The FDA also cited Puff Bar and HQD Tech USA for stating that their products were modified-risk tobacco products without having received FDA permission to make such claims. The FDA also recently blocked imports from EonSmoke and Relx, two Chinese manufacturers of flavored dispos-able e-cigarettes. Over the past several months, the FDA has banned at least 74 entries of disposable electronic nicotine-delivery system (ENDS) products from being sold in the U.S. that were in violation of the Federal Food, Drug and Cosmetic Act.
“The FDA continues to prioritize enforcement against e-cigarette products, specifically those most appealing and accessible to youth,” said FDA Commissioner Stephen M. Hahn. “We want to make clear to all tobacco product manu-facturers and retailers that, even during the ongoing pan-demic, the FDA is keeping a close watch on the marketplace and will hold companies accountable.”
NEGOTIATING THE ROADBLOCKS
Clearly, the vapor market is being held hostage by the FDA as well as local regulatory bodies. Only those that can successfully navigate the regulatory roadblocks will be able to survive. A key deadline is approaching on Sept. 9, the date when manufacturers must submit a PMTA for FDA approval. After that date, the clock starts ticking; manufacturers will have up to a year from that date to secure FDA compliance or they must sell off their vapor products. The biggest hurdle for companies is the requirement that they must prove that their products demonstrate a net ben-efit to public health.
Only those with deep pockets can possibly jump through the FDA’s hoops to demonstrate that their products provide a healthier alternative to smokers who make the switch. Despite the costs, at least 30 applications for FDA approval of vapor products are pending—with no guarantee that these applications will be approved.
It’s a safe bet that the e-cigarette brands associated with the tobacco giants, including Altria with its minority stake in Juul, R.J. Reynolds Vapor Company with its Vuse, and Imperial Brands, which owns Blu, will be among the first in line to seek FDA approval. Sweanor sees the situation in stark terms.
“If we want to see low-risk alternatives destroy the exceedingly lucrative but devastatingly lethal cigarette business, policies that hand the market to Big Tobacco [are] like giving control of the alternative energy market to Exxon,” he said. V
The original “Vaping Vamp,” Maria Verven owns Verve Communications, a PR and marketing firm specializing in the vapor industry.
Juul Labs has submitted a Premarket Tobacco Product Application (PMTA) to the U.S. Food and Drug Administration (FDA) for the company’s Juul system, an electronic nicotine delivery system (ENDS) product. The company’s submission includes comprehensive scientific evidence for the Juul device and Juul pods in Virginia Tobacco and Menthol flavors at nicotine concentrations of 5.0 percent and 3.0 percent, as well as information on its data-driven measures to address underage use of its products.
With its PMTA submission, Juul Labs has provided a scientific foundation for the FDA to evaluate whether these products are “appropriate for the protection of the public health” with respect to the risks and benefits to the population as a whole. The application includes detailed scientific data from over 110 studies totaling more than 125,000 pages evaluating the product’s impact on both current users of tobacco products and nonusers, including those who are underage.
As part of the PMTA process, Juul Labs has built a comprehensive research program focused on examining the public health impact of the Juul system. This includes research addressing the harm reduction potential of the product, including its ability to convert adult smokers from combustible cigarettes. This research is supplemented with information on the controlled design and repeatable manufacturing processes associated with the Juul system, as well as data-driven measures to limit unintended consequences to the overall population, including initiation among nonusers.
“In order to earn a license to operate in society, we need to be a science and evidence-based company, engage in open and transparent dialogue with our stakeholders, and take methodical and responsible actions to advance the potential for harm reduction for adult smokers while combating underage use. Our PMTA submission is a key part of that approach,” said Juul Labs CEO K.C. Crosthwaite.
“Juul Labs has committed all necessary resources to deliver the best possible PMTA based on rigorous scientific research and data-driven measures to address underage use,” said Joe Murillo, chief regulatory officer at Juul Labs. “We respect the PMTA process and believe it is the right forum to determine the role ENDS products can play in transitioning and completely switching adult smokers from combustible cigarettes to potentially less harmful alternative products while combating underage use.”
Late last year, the company, under Crosthwaite’s leadership, committed to resetting the vapor category and seeking to work cooperatively with regulators, legislators, attorneys general, public health officials, and other stakeholders to combat underage use and transition adult smokers from combustible cigarettes. As part of that process, the company reduced its product portfolio, halted television, print, and digital product advertising, built up its science and evidence-based capabilities, and supported the U.S. Administration’s final flavor policy for ENDS products, while taking a methodical approach to its global presence.
Juul Labs has built up its science and evidence-based capabilities and will use its research and data to explore additional pathways in other countries. The company will continue to share its research with regulators and the public health community globally through peer-reviewed journals, conferences, and one-on-one meetings.
Hawaii Attorney General Clare E. Connors has filed a lawsuit against Juul Labs seeking penalties, damages and injunctive relief for violations of the state’s Unfair and Deceptive Acts and Practices Law.
The complaint alleges that, for a period of more than five years, the defendants misleadingly marketed Juul e-cigarettes, intending to hook users on the product in the same manner used by tobacco companies in the marketing of cigarettes.
According to the attorney general, the defendants used marketing strategies that targeted teenagers, making Juul products seem desirable, all while falsely understating the nicotine content of the product and its addictiveness.
“In marketing their e-cigarettes to Hawaii’s children, these companies ripped pages directly out of the tobacco company playbook and resurrected Joe Camel for a 21st Century audience,” said Connors. “By misrepresenting nicotine content and by presenting their products as healthy alternatives to cigarettes, they deceived the public and created a new generation of nicotine addicts.”
The state seeks civil penalties of up to $10,000 per violation and damages along with an injunction requiring the defendants to halt their deceptive advertising practices and fund mitigation programs, including vaping-cessation programs.
Altria Group Inc.’s e-cigarette and smokeless tobacco divisions filed suit Thursday against competitor R.J. Reynolds Vapor Co. for patent infringement on e-cigarettes and associated products.
Altria owns a 35 percent stake in e-cigarette industry leader Juul Labs Inc., a direct competitor of Reynolds’ Vuse brand of e-cigarettes.
According to a lawsuit filed in the U.S. District Court for the Middle District of North Carolina, Reynolds Vapor, owned by Reynolds American Inc., violated nine patents held by Altria Client Services in producing its Vuse Vapor e-cigarette line, according to a story on Virginiabusiness.com. The suit contends that Reynolds’ Vuse brand of e-cigarettes — including the Vibe and Alto — uses heating technology, mouthpieces, batteries and liquid-filled pods covered by Altria’s patents for its Juul e-vapor products.
Based in Winston-Salem, North Carolina, Reynolds American Inc. is owned by British American Tobacco plc, which is headquartered in London. “Reynolds Vapor has infringed on Altria’s intellectual property and we are seeking financial damages for each of these violations,” Altria Client Services spokesman George Parman said Thursday, according to the story.
The suit comes weeks after Reynolds filed its own patent-infringement suit against Altria and Philip Morris International Inc. in Richmond’s federal court over its heat-not-burn cigarette line, Marlboro HeatSticks, a competitor of Reynolds’ Eclipse line.
Altria seeks unspecified monetary compensation but asks for “treble damages” — in other words, triple the amount — for “defendant’s willful infringement” of the patents, as well as awards of compensation, supplemental damages after discovery cutoff and attorneys’ fees and expenses. The plaintiffs ask for a trial by jury. No hearing has been set.
Juul Labs said today it would end operations in South Korea, a year after it entered the market. The company states the cause was its inability to gain market share amid government health warnings.
In a statement, Juul Labs stated that since the beginning of the year it was working through a restructuring process aimed a re-establishing a viable business in South Korea by significantly reducing costs and making changes to its products.
“However, these innovations will not be available as anticipated,” the statement said. “As a result, we intend to cease our operations in South Korea.”
In October last year, South Korea’s health ministry advised people to stop vaping because of growing health concerns, especially after a case of pneumonia was reported in a 30-year-old e-cigarette user that month, according to Reuters news article.
The announcement prompted convenience store chains and duty free shops to suspend the sale of flavored liquid e-cigarettes, including those made by Juul Labs.
In December, South Korean health authorities said they had found vitamin E acetate, which may be linked to lung illnesses, in some liquid e-cigarette products made by Juul Labs, but the company denied using the material, according to Reuters.
Juul Labs launched a product portfolio that was specifically developed for the Korean market in May 2019, but “our performance has not met expectations in terms of meeting the needs of our Korean adult smokers to successfully transition from combustible cigarettes,” according to the statement. “We have learned through this process and are focused on innovating our product portfolio.”
Juul Labs is also reportedly ready to withdraw from a handful of EU markets as well, claiming the regulatory environment has become overly hostile to the device.
According to BuzzFeed News, Juul will soon remove its products from shelves in Austria, Belgium, Portugal, France, and Spain.
The news outlet reports the European Union’s strict requirement that e-cigs contain no more than 20 milligrams of nicotine makes it difficult for Juul to do business there.
Austria, Belgium, and Portugal are very small markets for Juul, but the leading e-cig manufacturer generates significant sales from France and Spain. It will exit France by the end of the year, but withdraw from the other countries in July, paring its presence in global markets to a narrow selection that includes Germany, Italy, Russia, and the U.K.
