E-cigarette startup Juul Labs Inc., faced with a regulatory crackdown and criticism that its marketing has attracted underage users, plans to stop selling most of its flavored nicotine liquids at bricks-and-mortar stores, according to people familiar with the matter.
Juul plans to keep selling menthol- and tobacco-flavored products in stores, while all flavors, including cucumber and mango, will remain on its website, which has age-verification controls, the people said. The planned restrictions could heavily affect Juul Labs, according to analysts who say more than half of its sales come from flavors other than tobacco, mint and menthol.
The move comes as the Food and Drug Administration prepares to announce sharp restrictions as soon as next week on the sale of such products, part of its effort to combat use of e-cigarettes by teens and children. The new rules would be effective immediately.
The FDA also intends to pursue a ban on menthol cigarettes, agency officials said this week, though it could take years for the rule to take effect.
A fifth of high-school students had used e-cigarettes in the past 30 days, up more than 75% since last year, according to a federal survey. Much of that rise, the FDA said, is due to Juul Labs’ device, a thumb-drive shaped vaporizer that delivers a powerful dose of nicotine from liquid-filled pods.
While traditional cigarette firms such as Camel maker British American Tobacco PLC also sell flavored e-cigarettes, Juul Labs has leapfrogged them in the market with a device that has become a teen status symbol. After a sales surge in late 2017 that continued this year, Juul now commands more than 75% of the $2.5 billion U.S. e-cigarette retail market, according to a Wells Fargo analysis of Nielsen data.
The San Francisco company was valued at $16 billion when it completed a financing round that raised $1.25 billion this summer.
Along with success, it has attracted public ire. Critics say the fruity flavors and Juul Labs’ hip marketing campaigns on social media have made vaping attractive to teens. It is illegal to sell tobacco or e-cigarettes to buyers under 18, 19 or 21 years old, depending on the state. Young people, whose brains are still developing into their 20s, are particularly vulnerable to addiction, scientists say.
Alex Knapp began using Juul two years ago at age 17. He said he tried Juul at parties when it had started to become cool. “I loved it more than anything I ever tried,” he said. He gave about $50 to an 18-year-old friend to buy a Juul vaporizer for him at a convenience store.
Today, he estimates he takes four to five drags every half-hour and likes cool mint and mango flavors best. “I have it on me 24-7,” said Mr. Knapp, who dropped out of Texas Tech University this year to start a ride-sharing company.
A big number of Juul Labs’ U.S. sales come from minors, FDA Commissioner Scott Gottlieb said in an interview, citing an FDA analysis. He declined to be more specific. Juul’s youth sales are “at such levels that it’s hard for me to believe as a regulator that it wasn’t apparent to them,” Dr. Gottlieb said.
A Juul Labs spokeswoman said the company hasn’t seen the data Dr. Gottlieb cited, “but underage use is unacceptable to us.”
To keep the products out of teens’ and children’s hands, the FDA plans to restrict the sale of pod-style, flavored e-cigarettes such as Juul Labs’ to retail outlets that either bar minors from entry or have a separate section that children can’t enter, said a senior agency official. That will effectively stop their sale in most convenience stores and gas stations.
E-cigarettes in menthol, mint and tobacco flavors will remain on store shelves for now. FDA officials decided not to restrict those because they didn’t want to create a situation in which cigarettes were more attractive to smokers who prefer menthol, senior agency officials said.
Meanwhile, New York is planning to ban the sale of flavored e-cigarettes as early as next year.
Juul was sold at about 84,000 convenience stores as of Oct. 1, up from 29,000 at the end of 2017, according to Pamela Kaufman, a Morgan Stanley analyst.
A Juul Labs spokesman declined to comment on the effect the FDA’s new restrictions and the company’s voluntary actions could have on its sales.
In addition to pulling back from bricks-and-mortar stores, Juul Labs executives have embarked on a number of efforts to quell teen use, while saying they never intended to attract kids. The device, they say, is meant to be a less-harmful alternative for adult cigarette smokers. Cigarettes are linked to an estimated 480,000 deaths in the U.S. each year. The effects of e-cigarettes aren’t fully known but public-health officials agree that they are less deadly than cigarettes.
“We don’t want this to be a glamorous lifestyle product,” Juul co-founder Adam Bowen said in an interview in August. “This is a serious product with a serious purpose.”
At Juul Labs’ headquarters in San Francisco, Mark Jones, an associate general counsel, and a team of analysts spend 200 hours a week scouring the internet for evidence of underage use or sales to minors and asking the respective platforms to remove the content. In the first 10 months of this year, that has led to removal of about 14,000 items and 750 accounts from social media, the company said.
Juul Labs has hired Washington insiders to help it combat potential regulation. And it has revamped its marketing to feature former smokers in their 20s and older who switched to Juul, in full-page newspaper ads including ones in The Wall Street Journal.
The company also said it plans to launch a Bluetooth-enabled device in international markets next year that could be unlocked only by verified adults. Juul Labs said it would work with the FDA to “find a regulatory pathway” for its technology in the U.S.
Juul’s co-founders—Mr. Bowen and Adam Monsees, who met as graduate students at Stanford University—said they set out to develop a replacement for cigarettes that would appeal to tobacco users without the health risks of smoke. They wanted a product that would be “superior to cigarettes, such that cigarettes become obsolete,” Mr. Monsees recalled.
When they launched their device in 2015, Juul Labs was able to use marketing practices, including social media and billboard ads, that are restricted for big tobacco companies. Advertising on social media and other platforms pitched Juul as a cool lifestyle accessory with images of people in their 20s and 30s.
That branding appealed to teens, said Allen Adamson, co-founder of Metaforce, a brand-consulting firm. Teens are aspirational, he said: “They don’t look at the 14-year-old, they look at what the 24-year-old at the club is wearing.”
Sales of Juul, which had been growing slowly but steadily, suddenly took off late in 2017. The company had expanded manufacturing and distribution to meet demand, Mr. Monsees said.
At the same time, Juul-related posts on Instagram, Twitter and other social media exploded, according to an analysis led by researchers at Georgia State University’s School of Public Health. That likely reflected the brand’s growing popularity and aggressive promotion by the company, its retailers and fans, including kids, said lead author Jidong Huang, associate professor of health management and policy.
Juul Labs said that “99.7% of Juul mentions on Twitter” come from outside the company.
Appeared in the November 10, 2018, print edition as ‘Juul to Pull Sweet Flavor E-Cigarettes From Stores.’