Juul Labs, Inc. Suspends Advertising, Replaces CEO as Major Tobacco Corporations Cancel Merger

Juul Goes on the Defensive

On September 25, Juul Labs, Inc. replaced its CEO with a veteran of Big Tobacco and suspended all advertising on TV, in print media, and online. The company also vowed to suspend political lobbying and reaffirmed its intention to fully comply with federal and state policies that target the e-cigarette industry.

As the largest e-cigarette company in the United States, Juul has weathered intense criticism and mounting restrictions from policymakers in the past few months as hundreds of cases of vaping-related respiratory illnesses and seizures, some of them fatal, capture public attention. Although there is no evidence that Juul or any other company is responsible for these problems, the latest measures from Juul represent the company’s efforts to improve its public relations and remain profitable. The challenges facing Juul have affected the entire tobacco industry by disrupting a merger between Altria Group, Inc. and Phillip Morris International, two tobacco corporations with major stakes in the “alternative cigarettes” business.

Warnings and Bans

In 2015, Juul Labs, Inc. started selling e-cigarettes. Two years later, Kevin Burns left Chobani, a Greek yogurt company, and joined Juul as CEO. The company went on to capture about 70% of the American e-cigarette market. Juul performed so well in 2018, with sales tripling from January to October, that Altria purchased 35% of the company for $12.8 billion. Altria is the owner of the Marlboro tobacco brand.

Juul owes much of its success to its flavored e-cigarettes, which account for 80% of its sales. Younger people are most likely to vape with flavored devices. Since much of Juul’s marketing was youth-oriented, “juuling” became so popular with teenagers last year that the U.S. Surgeon-General declared it an epidemic.

To protect adolescents from a potential source of nicotine addiction, the states of Michigan, Rhode Island, and New York banned the sale of flavored e-cigarettes last month while Massachusetts banned the sale of all vaping devices for the remainder of the year. Meanwhile, the federal Department of Health and Human Services imposed a ban on the sale of flavored e-cigarettes throughout the entire United States as cities and states across the country issue public health warnings about the dangers of e-cigarettes, which currently lack FDA approval. The state of California has even targeted Juul with a criminal investigation.

A New Leader and a Cancelled Merger

The new restrictions on the e-cigarette industry have caused Juul’s market valuation to collapse by over $10 billion. As uncertainty looms over the company’s future, Kevin Burns stepped aside as CEO to make way for an experienced tobacco executive whom many expect will be better able to guide Juul through its regulatory troubles. K.C. Crosthwaite, the former chief strategy and growth officer at Altria, will now lead the company.

I have long believed in a future where adult smokers overwhelmingly choose alternative products like Juul. Unfortunately, today that future is at risk due to unacceptable levels of youth usage and eroding public confidence in our industry. Against that backdrop, we must strive to work with regulators, policymakers and other stakeholders, and earn the trust of the societies in which we operate.

- K.C. Crosthwaite, Juul CEO

Under Crosthwaite’s leadership, Juul signaled its willingness to cooperate with policymakers last week by suspending its fundraising campaign to overturn city ordinances in San Francisco that prohibit e-cigarette sales.

Since Altria is Juul’s single largest shareholder, the recent clampdown on e-cigarettes has impacted Altria’s position in the tobacco industry. In August, Philip Morris International and Altria began negotiations for a $187 billion merger. The merger would have consolidated two of the world’s largest tobacco firms, resulting in a corporation with a market value three-times larger than British American Tobacco, the owner of Vuse, Juul’s competitor. Nevertheless, Phillip Morris International suspended merger negotiations with Altria on September 25 because of its investors’ concerns that Juul would be a liability.

The two companies still plan to collaborate on launching the iQOS, a cigarette-like device that heats, rather than burns, tobacco. Unlike e-cigarettes, the iQOS has FDA approval. Altria will sell the iQOS in the United States and Phillip Morris International will sell it overseas.

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