How JUUL Explains What’s Wrong With Our World

by  Intercept Dec 27, 2018

Twelve years ago, e-cigarettes couldn’t be found in America. Three years ago, Juul didn’t exist. But last Friday, Marlboro manufacturer Altria bought a 35 percent stake in the vaping juggernaut for $12.8 billion. The deal values Juul at $38 billion, a similar market capitalization to that of Target, MetLife, Delta Air Lines, and Ford. Fifteen hundred Juul employees split a $2 billion dividend as a result, becoming instant millionaires overnight.

Juul was an inviting target for Altria because it has captured close to three-quarters of the total e-cigarette market, according to Nielsen data, up from only 2 percent in 2016. Revenues for Juul increased almost 800 percentfrom 2017 to 2018, with its most explosive growth happening among teenagers. While e-cigarettes don’t contain cancer-causing tobacco, they do hook users to a drug that’s hard to quit. By one measure, nearly 20 years of falling cigarette use among 12th-graders has been wiped out by the rise of Juul.

The return to nicotine addiction among adolescents is happening alongside the rapid-fire monopolization of a brand-new market. While traditional tobacco companies all tried their hand at e-cigarettes, there was no legacy of dominant players in the sector and no major barrier to rivals. The fact that an industry established a decade ago so quickly whittled down to one dominant player, which an incumbent cigarette giant then bought into, suggests that our Second Gilded Age is a monopoly-creation machine.

We’re on the verge of witnessing Big Tobacco co-opt the very sector that was supposed to kill it off.

This is not how markets are supposed to work. Regulators had — and still have — multiple opportunities to prevent both concentration in the e-cigarette market and profiteering off children. But competition authorities have taken such a hands-off attitude toward the economy, that we’re on the verge of witnessing Big Tobacco co-opt the very sector that was supposed to kill it off.

When launched in 2015, Juul was another of Silicon Valley’s attempts to “disrupt” an established market — in this case, cigarettes. The company, based in San Francisco, positioned itself as a savior for public health, because unlike cancer-causing tobacco sticks, vaporizer devices distribute nicotine without tar or other carcinogens. In fact, the original intention of e-cigarettes when patented by a Chinese pharmacist in 2003 was to convert tobacco users. Juul claims it “has helped more than one million Americans switch from cigarettes.”

By the time Juul came on the market, the major cigarette companies were all experimenting with their own e-cigarettes. Lorillard acquired a brand named blu, which at the time was the market leader. Altria acquired Green Smoke and launched its brand MarkTen. R.J. Reynolds created Vuse. British American Tobacco had a brand called Vype. There were also numerous other competitors, including Ruyan, E-Swisher, Logic, and NJOY. But because America has effectively abandoned competition policy, it took only two years for Juul to take over the market. Altria discontinued its own e-cigarette brands this month, prior to taking a stake in Juul.

JUUL DEVICES LOOK like thumb drives and can be recharged in a USB port. Users insert “pods,” which contain as much nicotine as a pack of cigarettes. Flavors include traditional tobacco styles like menthol, but also mango, fruit, cucumber, and creme. The vapor is odorless and evaporates quickly. The company maintained an active social media presence promoting vaping, with fan accounts driving the virality even further.

You could say that Juul just built a better mousetrap, but all of Juul’s elements seem designed to appeal to teenagers, who can conceal the devices easily, take quick puffs at school or at home, and enjoy the dessert-like flavors. Because the prices are fairly high — $20 a device, and $30 for a four-pack of pods — Juul’s spread has been largely limited to affluent teens. But “juuling” has become a verb, a sure sign that the brand has taken over a market.

And while juuling isn’t as dangerous as smoking tobacco, it carries its own health risks while delivering a highly addictive substance that a savvy company can translate into overwhelming profit. Instead of the original intent to convert adult smokers, Juul appears to be tapping into a generation of new nicotine users.

The Federal Trade Commission has the authority to halt marketing addictive products to children and teens. Under the Family Smoking Prevention and Control Act, the Food and Drug Administration also has authority to regulate the sale and marketing of tobacco products, which includes e-cigarettes. For example, the agency could have made e-cigarettes only available by prescription, as proposed in the United Kingdom. This would ensure that smokers wanting to quit would be the primary recipients of the product. But careful not to tread on markets, Juul was allowed to overrun high schools until it was far too late.

Sensing an epidemic, the FDA is belatedly scrambling to crack down on Juul’s marketing to children. But this is where Altria, an established lobbying force with connections at the highest levels, can be most helpful.

In 2016, the FDA prevented e-cigarette sales to anyone under 18; some states set the age limit to 21, and Juul has voluntarily applied that to sales on its website. In November, Juul stopped selling certain flavored pods in retail stores and closed its social media accounts, days before a scheduled FDA ban on flavored e-cigarette sales. The FDA has also seized marketing documents from Juul to determine if strategies were adopted to appeal to children, while senators have pressured the company on the same point.

None of this has really stopped determined vapers from getting their Juul fix. The company sells all flavors on its website, and while it claims a sophisticated age-matching system to prevent buyers under 21, secondary sellers on eBay or Alibaba — or the black market in school hallways — have no such restrictions.

Limited retail sales in storefronts could hold back Juul’s growth, however. Enter Altria. An amazing article in the Wall Street Journal bluntly suggests that the 35 percent stake in Juul “gives the e-cigarette maker more marketing muscle, expanded shelf space and a benefit that would have been unthinkable from a cigarette company in the past: an easier path to Washington’s approval.”

The deal stipulates specifically that Juul devices and pods will appear on shelves next to Marlboro cigarettes, and it states that Juul ads could go right on Marlboro packages. Altria’s sales force will push Juul products, potentially opening up hundreds of thousands of retail locations. And Altria CEO Howard Willard suggested in a conference call that the company would collaborate with Juul on an FDA application required of all e-cigarette makers before 2022 to remain on the market. “We have years of experience” with navigating the FDA, Willard said.

Put another way, an established merchant of death with a deep lobbying bench is framing itself as a rescuer of an upstart nicotine addiction device, protecting it from FDA attacks. This is the next level for a monopolist — converting economic power into political power.

 

For Altria, the play is clear: Use Juul as an escape hatch if declining cigarette sales continue, and perhaps as a gateway back into cigarettes, as addicted teens chase a nicotine fix. It wasn’t the only cigarette company with the idea; Altria beat out British American Tobacco for Juul in a bidding war, according to the Financial Times. Another escape hatch is marijuana. Earlier in December, Altria also took a $1.8 billion stake in Cronos, a Canadian cannabis grower, seeking to capitalize on legalization efforts. Similarly, AB InBev, the maker of over 500 beer brands, just reached a deal with cannabis company Tilray to create pot-infused drinks for the Canadian market.

In other words, the companies that have delighted in addicting the public to their legal drugs for decades are now busily buying up newfangled addiction sellers, keeping the business of addiction in largely the same hands. Alert competition authorities might raise an eyebrow at this, and antitrust regulators still have to approve Altria’s purchase of 35 percent of Juul. But like most mergers these days, it’s expected to sail through. In short, it’s good to be big, especially if you want to get bigger.

3 thoughts on “How JUUL Explains What’s Wrong With Our World

  1. That is an excellent question. I’m not sure we have the answers yet.

    It used to be people got their nicotine addiction through tobacco. Smoking or chewing.

    So if we look at something like cancer, hard to say what nicotine devices did, because nobody used nicotine gum or lozenges without having smoked first. Confounds the effects.

    Now we have nicotine addicts who never smoked tobacco. They are a different cohort.

    To me, the biggest issue is the flavors. Making the drug taste like Fruity Pebbles is obviously marketing to kids. Just like cereal with a prize in the bottom of the box.

    We know Juul intentionally selects minors as their target audience because of all the Halloween candy flavors.

    That’s just wrong. Intentionally making kids addicts as your business model is drug dealing.

    Like

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