Beijing Business Today: E-cigarette Giant Juul Sinks Deeper Into Trouble

Due to strict regulations, American e-cigarette manufacturers are facing tough times. On April 12, local time, American e-cigarette company JUUL Labs agreed to pay $462 million to settle allegations of illegally selling e-cigarettes to minors with six states and Washington D.C. It is understood that these states had previously sued Juul, accusing the company of marketing e-cigarette products to underage individuals.

In fact, over the past few years, there have been thousands of lawsuits against Juul in various states, mostly centered around the company's marketing strategies, accusing Juul of using misleading marketing and deceptive packaging to entice teenagers to try e-cigarettes out of curiosity, leading them to unknowingly become addicted to nicotine and ultimately become heavy users of Juul products.

Juul is one of the top giants in the American e-cigarette market, previously part of the American Altria Group, which is also the owner of the internationally renowned cigarette brand Marlboro.

In 2018, Juul disrupted the tobacco market with its stylish e-cigarettes, quickly becoming a status symbol among teenagers. By September 2018, Juul held a 72% market share of the American e-cigarette market, with sales reaching $2 billion that year. This was followed by a surge in Juul's valuation, which was $16 billion in July 2018, doubling to $38 billion just three months later.

However, health threats cannot be ignored. In 2019, eight teenagers in Wisconsin developed severe lung diseases after using e-cigarettes, and their X-rays were strikingly similar. Everyone pointed the finger at e-cigarettes. Overnight, e-cigarettes, which were popular among young people, became “harmful substances” in the eyes of lawmakers and parents.

Meanwhile, regulation followed. In September 2019, Massachusetts announced a complete ban on the sale of e-cigarettes, becoming the first state in the U.S. to ban all e-cigarettes.

Subsequently, in early 2020, the FDA issued new regulations for e-cigarettes on its official website, banning most fruit-flavored e-cigarette pods, allowing only tobacco and menthol flavors. Five months later, the FDA added new rules requiring all e-cigarette products, including pods, to undergo a pre-market approval process, providing ingredient lists for each product and extensive research results on the public health impact of the products.

This was a disaster for Juul. Over 90% of the company's business is in the U.S., with the remainder mostly in Canada and the UK, and a small portion in France, Italy, and the Philippines. However, the vast majority of revenue still comes from the U.S. market, and a domestic ban could mean Juul's funding chain could break, leading to bankruptcy.

Surveys show that in 2019, nearly 30% of high school students in the U.S. reported using e-cigarettes, most of which were Juul. Former FDA Commissioner Scott Gottlieb warned that e-cigarettes have become a “dangerous trend that is almost ubiquitous among teenagers.”

Subsequently, Juul stopped selling fruit-flavored e-cigarettes in the U.S. and ceased advertising. Its valuation also halved, dropping from $38 billion at the end of 2018 to $16.4 billion in December 2019, then falling to $10 billion in October 2020, and further shrinking to $4.5 billion by July last year.

Amid continuous regulatory blows and competition from peers, Juul's revenue plummeted from its peak. In 2019, Juul suffered a loss of $1 billion and had to announce layoffs of one-third of its workforce the following year, and then another 50% layoff last year. Juul's revenue dropped by 29% in 2020 and continued to decline by 11% in 2021, falling to $1.3 billion, a third less than in 2018.

As a result, Juul was once preparing for bankruptcy liquidation. However, on November 10 last year, Juul informed employees that the company had received cash injections from some early investors, halting bankruptcy preparations but implementing a cost-cutting plan. Company management stated that Juul plans to lay off about 400 employees and reduce its operating budget by 30% to 40%.

In March of this year, Altria announced its separation from Juul, stating that the company had acquired some intellectual property related to heated tobacco developed by Juul and would return the 35% stake it acquired five years ago for $12.8 billion.

On the other hand, Altria is spending $2.75 billion to acquire e-cigarette company Njoy, which is different from Juul, as some of its products have received FDA approval. Nielsen's January data on the U.S. e-cigarette market share shows that Vuse's market share rose from 40.7% in the previous report to 41.1%, while Juul's share fell from 27% to 26.7%. Compared to them, Njoy's market share was significantly smaller, at 2.7% last year. #p#分页标题#e#

Some analysts pointed out that Altria's decision to abandon the higher-ranking Juul and bet on the smaller market share Njoy may be a reluctant move, as the former is suffocated by regulations, and Altria can only hope to collaborate with the relatively safer Njoy to maintain its presence in the e-cigarette market.