Wolf Haldenstein Adler Freeman & Herz LLP are now seeking additional plaintiffs for a federal securities class action lawsuit that has been filed in the United States District Court for the Southern District of New York on behalf of investors that purchased RLX Technology Inc. The lawsuit was filed by Glancy Prongay & Murray LLP on behalf of investors.
The filed complaint alleges that the Registration Statement misrepresented and omitted, among other things, RLX’s exposure to China’s then-existing campaign to establish a national standard for e-cigarettes that would bring them into line with regular cigarette regulations, according to a press release.
“The truth was revealed when draft regulations were posted by the Ministry of Industry and Information Technology, before the market opened on March 22, 2021, eight weeks after RLX’s IPO, which confirmed e-cigarettes and new tobacco products would be regulated similar to traditional tobacco offerings,” the release states.
Following the news out of China, the price of RLX’s shares suffered an enormous decline. On March 22, 2021, RLX’s ADR closed at $10.15 per share, down nearly 48 percent from its previous close of $19.46 on March 19, 2021, the previous trading day.
RLX Technology is facing a class-action lawsuit started by an investor who claims the Chinese e-cigarette manufacturer overstated its financials and misrepresented potential regulatory risks when it filed the paperwork for its initial public offering (IPO) in the U.S.
Credit: Zerbor
The lawsuit, submitted Wednesday by shareholder Alex Garnett in the U.S. District Court for the Southern District of New York, alleges RLX’s registration statement from last October omitted the impact of ongoing efforts by Chinese regulators to tighten sales of electronic cigarettes, according to an article in The Wall Street Journal.
The case is captioned Garnett v. RLX Technology Inc., No. 21-cv-05125, and is assigned to Judge Paul A. Engelmayer. The RLX Technology class-action lawsuit charges that the company, certain members of its officers and directors, and the underwriters of its IPO with violations of the Securities Act of 1933.
Companies under rules established by the U.S. Securities and Exchange Commission have to disclose any known events or uncertainties that at the time of an IPO caused or were likely to not represent future earnings. RLX stock fell sharply in March after Chinese authorities announced their intent to more heavily regulate the Chinese vapor market. Garnett filed the lawsuit on behalf of other RLX investors.
The lawsuit alleges investors purchased RLX shares at artificially inflated prices, in part because the company omitted and misrepresented information in the registration statement. As the stock price dropped, RLX investors lost hundreds of millions of dollars, the lawsuit states.
At least two other law firms in recent weeks said they are investigating on behalf of investors to determine whether RLX failed to disclose relevant information to investors. Rosen Law Firm and Bronstein, Gewirtz & Grossman, among others, are reportedly seeking RLX investors who want to join the class-action suit.
RLX on June 2 reported revenue of CNY2.4 billion ($366.1 million), for the quarter ended March 31, up from CNY368.6 million the prior-year period. The company booked a net loss of CNY267 million, compared with a profit of CNY12.1 million during the prior-year quarter.
RLX Technology shares took a tumble back in March after China announced it would soon start regulating e-cigarettes, falling more than 40 percent. Over the past week, on expected high earnings, the company’s stock began to recover and was at $11.93 pre-market today after seeing a low $7.89 in March. Today, the company announced its unaudited financial results for the first quarter ended March 31, 2021.
Kate Wang / Credit: RLX
Net revenues were RMB2.4 billion ($366.1 million), up 48.2 percent from RMB1.62 billion in the fourth quarter of 2020. Gross margin was 46 percent, compared to 42.9 percent in the fourth quarter of 2020. GAAP net loss was RMB267 million, compared with RMB236.7 million in the 2020 fourth quarter. Non-GAAP net income was RMB610.5 million, representing an increase of 45.6 percent from RMB419.3 million in the fourth quarter of 2020.
“2021 began, on a solid note, with strong growth in key performance metrics of our business,” said Ying (Kate) Wang, co-founder, chair of the board of directors and CEO of RLX Technology, in a press note. “Specifically, our expansion in distribution network fueled a strong sequential growth, further demonstrating sustained user demand for our e-vapor product portfolio.”
“As the go-to brand of e-vapor products in China, we remain dedicated to investing in deepening our scientific research, improving our technology and product development, expanding our distribution network and retail outlets as well as enhancing supply chain and production capabilities.
“In the first quarter, we opened our Quality Lab to further strengthen our quality assurance and control capabilities, and started developing our second and third exclusive production plants to enhance our production capabilities. We believe we are well positioned to further capture the growth potential in the e-vapor industry in China,” Wang concluded.
During an early morning earnings call, RLX CFO Chao Lu said the company is dedicated to investing in deepening its scientific research, improving its technology and product development, expanding its distribution network and retail outlets, as well as enhancing supply chain and production capabilities.
“Our robust results in the first quarter of 2021 exemplify our strong capabilities in meeting user demands for reliable, innovative and trustworthy products,” said Chao Lu, who joined the company in February. “Building on rapid revenue growth and continued efforts in improving operating leverage, our gross margin and non-GAAP net margin have remained steady in the first quarter. We will continue to pursue user value creation by enhancing our suite of product offerings and strengthening our brand leadership in the market.”
For the second quarter of 2021, RLX Technology expects net revenues to exceed RMB2.85 billion, and expects non-GAAP net income to exceed RMB720 million. The company’s expected GAAP net income will include share-based compensation expenses which depend on the company’s share price. The company currently also expects gross margin to remain steady.of
Wang graduated from Jiatong University with a degree in finance in 2005 and took a management trainee job at Proctor & Gamble in Guangzhou. In 2011, she moved to New York City to get her Master of Business Administration degree at Columbia.
After grad school, Wang spent a year at the Beijing office of Bain & Co. She then moved to Uber China, followed by the Chinese ride-sharing service Didi Chuxing, which merged with Uber China in 2016.
In 2017, Wang tried e-cigarettes to help her quit smoking, but she found the Chinese offerings available at the time to be terrible. She saw an opportunity and decided to focus on older smokers who were trying to quit, like her father, who was suffering the health consequences from his two-packs-per-day habit.
Through crowdfunding on JD.com, Wang raised $6 million in seed capital in June 2018, positioning the RLX Technology as a tech startup.
After a little more than a year of operation, RLX had garnered almost half of the largely unregulated domestic vaping market in China.
In January, RLX went public on the New York Stock Exchange and raised $1.4 billion.
However, when Chinese regulators in October 2019 banned internet sales of e-cigarettes to discourage underage vaping, 20 percent of the company’s business evaporated overnight.
Undeterred, RLX started building a physical store presence. In January 2020, RLX opened a flagship store in Shanghai. Today, RLX has more than 5,000 stores in 250 cities in China. The company requires ID and put facial recognition in place to prevent minors from shopping for e-cigarettes in RLX stores. RLX still has more than 60 percent of China’s growing e-cigarette market.
Despite the challenges, RLX’s sales grew 147 percent to $585 million in 2020, up from $19 million in 2018.
In March, however, Chinese regulators revealed a draft of rules that would reclassify e-cigarettes as tobacco products and bring them under the control of the State Tobacco Monopoly Administration (STMA). Such a move would greatly diminish vapor companies’ potential earnings. All tobacco products in China are sold through government-owned stores. In response to the news, the share price of RLX dropped 54 percent—erasing $16 billion from the company’s market cap.
Meanwhile, the U.S. Securities and Exchange Commission announced it would begin enforcing a law that Chinese companies listed on the New York Stock Exchange would have to provide audits or be de-listed.
In the worst-case scenario, Wang would be forced to sell at a price set by China Tobacco (which would likely jeopardize most, if not all, of her profit) and be forced to de-list in the U.S.
The WS-23 cooling agent has limited impact on the experiment animals at the tested dose, according to a study performed by RLX Technology and published in the Journal of Applied Toxicology.
The RLX Technology study showed that there were no deaths in any of WS-23 treated groups in the acute and subacute inhalation studies, with no remarkable changes occurred in body weight, organ weight, hematology and serum biochemistry and no toxic effects in the histopathologic analysis.
It was the first study published on the Science Citation Index (SCI) indexed journal conducted by the Chinese e-cigarette industry.
WS-23 is a well-known artificial synthesis cooling agent widely used in foods, medicines and tobaccos. As a common cooling agent in e-cigarette liquids, WS-23 has led to concerns about the inhalation toxicity with the proliferation of e-cigarettes in recent years. The study shows that at the tested dose level, inhalation of WS-23 will not bring toxic side effect to test animals.
“Product safety has always been RLX’s top concern, and it is also the direction and commitment in our research and development,” said Xingtao Jiang, head of RELX Lab, which is part of RLX Technology, in a statement. Before the study was published, RELX Lab conducted vitro tests to prove the aerosol containing WS-23 is safe to use in the products.
RELX International will launch its next-generation e-cigarettes, the Infinity and Essential, in Colombia this month. The Infinity features RELX International’s latest innovations in product design, vapor quality, mobility and overall user experience. The Essential allows users to experience key elements of the Infinity’s design at a more accessible price point.
According to RELX, Infinity and Essential feature a full flavor and smooth puff due to the independently-developed Super Smooth Performance technology. With more than a year dedicated to the design process, this data-driven technology was developed by defining five key elements that constitute the perfect puff. This technology was perfected through 76 sensory tests and repeated refinements of the parameters measuring RELX Super Smooth Performance.
RELX International will launch its next-generation e-cigarettes, the Infinity and Essential, in Colombia this month. The Infinity features RELX International’s latest innovations in product design, vapor quality, mobility and overall user experience. The Essential allows users to experience key elements of the Infinity’s design at a more accessible price point.
Our goal is to help smokers who cannot or do not want to quit, to transition to a better alternative with confidence.
RELX International will launch its next-generation e-cigarettes, the Infinity and Essential, in Colombia this month. The Infinity features RELX International’s latest innovations in product design, vapor quality, mobility and overall user experience. The Essential allows users to experience key elements of the Infinity’s design at a more accessible price point.
According to RELX, Infinity and Essential feature a full flavor and smooth puff due to the independently-developed Super Smooth Performance technology. With more than a year dedicated to the design process, this data-driven technology was developed by defining five key elements that constitute the perfect puff. This technology was perfected through 76 sensory tests and repeated refinements of the parameters measuring RELX Super Smooth Performance.
The design of the Infinity device was optimized more than 40 times and more than 12,000 pods were tested to ensure leak resistance and high-quality standards. Patent applications have been submitted for more than 50 innovations used in the device, including its leak-resistant design, e-liquid pods and wireless charging case. In March 2020, the Infinity was awarded the Red Dot Award: Product Design 2020.
“I’m proud of the entire RELX global team for creating this beautifully-designed Infinity device with superior technology, and with a dedication to innovation that we are now known for worldwide,” said RELX International CEO Bing Du in a statement. “Ultimately our goal is to help current smokers who cannot or do not want to quit, to transition to a better alternative with confidence. The more budget-friendly Essential device also allows users to experience RELX’s premium quality features”.
China’s Ministry of Industry and Information Technology (MIIT) and the State Tobacco Monopoly Administration announced today the Chinese government’s intent to overhaul rules governing the vapor and electronic nicotine-delivery systems (ENDS) market. The news started a swift downfall of shares of RLX Technology, parent to RELX, China’s largest e-cigarette brand, on the New York Stock Exchange. At 2:45pm today, RLX was down nearly 45 percent to $10.69 per share after recent high of $19.46 per share on March 19.
Credit: RLX Technology
Draft regulations posted online by MIIT suggest it will seek to regulate these products similarly to ordinary cigarettes. The ministry is seeking public comments on the draft regulations until April 22. The implications of the draft regulations could be wide-ranging as, with an estimated 300 million smokers, China is considered the world’s largest market for tobacco product.
“In order to implement the decision-making and deployment of the CPC Central Committee and the State Council, further strengthen the supervision of new tobacco products such as e-cigarettes, and safeguard the legitimate rights and interests of consumers, we have drafted the Decision on Amending the Regulations on the Implementation of the Tobacco Monopoly Law of the People’s Republic of China,” the rule states. “The amendment is mainly to implement the requirements of the CPC Central Committee and the State Council on promoting the rule of law in the supervision of e-cigarettes , to clarify the legal basis for the supervision of new tobacco products such as e-cigarettes , and to do a good job in connecting with laws and regulations such as the Law of the People’s Republic of China on the Protection of Minors, so as to play an important role in strengthening the rule of law , stabilizing expectations and promoting the long-term.”
RLX Technology raised $1.4 billion during its initial public offering (IPO) in January this year. It sold 116.5 million shares with a target price of between US$8 and US$10 a share. Its successful market debut turned its 39-year-old founder, Wang Ying, into a billionaire overnight with an estimated net worth of $24.8 billion.
In its prospectus, RLX stated that vaping products only have a 1.2 percent penetration rate in China, compared with 32.4 percent in the U.S. According to the China-based Electronic Cigarette Industry Committee, China’s 2020 e-cigarette sales were an estimated 14.5 billion RMB yuan ($2.2 billion), an increase of 30 percent from 2019 (11.2 billion RMB yuan). According to Grandview Research, the US e-cigarette market in 2019 and was valued at $5.34 billion and is expected to reach $6.50 billion in 2020.
RELX recently announced its partnership with 110 authorized distributors to supply its products to over 5,000 RELX-branded partner stores, and over 100,000 other retail outlets nationwide, covering over 250 cities in China, according to its prospectus. Revenue for the company nearly doubled in the nine months ended September 30, 2020 to $324 million, with a net income of $16 million, the latest figures available at the time of this writing.
But tobacco companies are increasingly facing scrutiny from regulators in China. Currently, the only regulatory actions taken by Chinese authorities are in 2018, the country made it a crime to sell a vapor product to anyone under 18 years of age and then, in November 2019, an online sales ban was implemented in order to further prevent youth initiation. In 2020, the country passed the Law of the People’s Republic of China on the Protection of Minors. That law is aimed at preventing parents or other guardians from “indulging or instigating minors” to smoke or vape.
CNTC is a source of major funding for the Chinese government. Its contribution accounted for an estimated 5.45 percent of the country’s tax revenue in 2018. That amounts to 10.8 trillion yuan ($1.5 trillion), according to media reports. If CNTC were to enter the vapor market, the monopoly’s existing 5 million domestic retail outlets could present a major challenge for private vape shop owners.
Wang told Reuters in a recent news article that she’s “not worried” about the government’s impact on the sector. The products will continue to remain available, she said, “as long as there’s proof that this is a good solution for smokers.”
The China-based vapor company RLX Technology Inc. has hired Lu Chao, Citigroup’s top Asia health-care investment banker, as its chief financial officer, according to people with knowledge of the matter.
Credit: RLX Technology
Lu, a managing director and head of Asia health-care investment banking at Citi, is expected to join the U.S.-listed e-cigarette maker as soon as March, the people said. Lu will help RLX Tech to identify expansion and investment opportunities in the health care industry that could apply its vaping technology, said the people, who asked not to be named as the information is private. He will still be based in Hong Kong, they said, according to an article by Bloomberg.
Lu, a Princeton University graduate, joined Citi in December 2013, according to his LinkedIn profile.
The company, which is known for its RELX-branded devices, raised about $1.4 billion in an initial public offering in the U.S. last month, according to data compiled by Bloomberg. Lu was a lead banker on the deal, the people said, as Citi and China Renaissance Holdings Ltd. arranged the offering.
Shares in RLX Tech have risen more than 75 percent since its January debut, giving the company a market value of about $32.7 billion.
Representatives for Citi and RLX Tech declined to comment.
The Chinese vapor company, known for its RELX-branded devices in China, had earlier considered Hong Kong as a listing venue, but it ultimately opted for the U.S.
Founded in 2018, RLX is China’s largest e-cigarette maker. The vaping industry has boomed in China even as the country banned online sales of e-cigarettes just over a year ago. The company said it plans to file a premarket tobacco product application (PMTA) with the U.S. Food and Drug Administration (FDA) to legally sell its products in the world’s largest vapor market.
China is the world’s largest potential vaping market, with an estimated 286.7 million adult smokers in 2019, RLX said in its prospectus. But vaping products only have a 1.2 percent penetration rate, compared with 32.4 percent in the U.S.
RLX’s revenues increased to CNY2.2 billion ($340 million) in the first nine months of 2020 from CNY1.14 billion a year earlier. It started turning a profit in 2019 and recorded net income of CNY109 million in the nine months to Sept. 2020.
The company plans to price the IPO on Jan. 20 after the U.S. market closes, according to a term sheet. Citigroup and China Renaissance are joint bookrunners for the offering.
Earlier reports suggested the company planned to raise up to $100 million in its IPO.
