Market News

 September 25, 2019
E-cigarette giant Juul announces staff shakeup, suspends advertising in the United States

 Juul Labs, the big e-cigarette maker that is embroiled in controversy involving the rising underage use of vaping products, announced Wednesday that its chief executive officer is stepping down and will be succeeded by a top official from Altria, a part-owner of Juul.

Juul also said it will not lobby against a proposed ban, announced recently by President Trump, on most flavored vaping products. It said it is suspending all broadcast, print and digital product advertising in the United States.

Kevin Burns, Juul's chief executive officer, is being succeeded by K.C. Crosthwaite, Altria's senior vice president for chief strategy and growth. Crosthwaite oversaw "commercial and regulatory efforts" related to the launch in the United States of IQOS, a "heat-not-burn" alternative to cigarettes, Juul said in a news release. IQOS is made by Philip Morris International and marketed in the United States by Altria.

Altria owns a 35 percent stake in Juul.

Juul also said it will end its "Make the Switch" campaign that FDA officials had criticized for implying that its e-cigarettes are safer than regular cigarettes. The agency has to give companies specific authorization to make such a claim.

The staff shake-up was announced by Burns and Juul co-founders James Monsees and Adam Bowen.

The Juul shake-up coincided with the unraveling of talks to reunite tobacco juggernauts Altria and Philip Morris, which had been considering a merger potentially worth more than $200 billion. The two companies split in 2007 but announced in August that they might combine to focus on e-cigarettes.

"While we believed the creation of a new merged company had the potential to create incremental revenue and cost synergies, we could not reach agreement," Howard Willard, Altria's chairman and chief executive, said in a statement. "We look forward to continuing our commercialization of IQOS in the U.S. under our existing arrangement."

Both companies' shares soared after the announcement, with Philip Morris up more than 7 percent and Altria up 3.4 percent.

The companies' partnership on IQOS e-cigarettes, which heat tobacco but still contain nicotine, remains intact despite the merger breakdown. The IQOS device has presale approval from the FDA. Altria will sell the devices in the United States, while Philip Morris sells them overseas.

Juul's popular e-cigarettes have revolutionized the market in the last few years. But the company has been accused of igniting what federal officials have called an "epidemic" of underage vaping. The company has repeatedly said it opposes underage use of its products.

Data that became available earlier this month showed a continued surge in vaping among high school students in 2019, after a huge jump in 2018. In addition, a mysterious lung disease that is afflicting vapers has raised alarms among parents and federal health officials.

At least 530 people have fallen ill, and nine have died as a result of the lung disease. Health officials have not yet announced a link to any specific product, including Juul's. Many of the vapers apparently used black-market marijuana products, but a smaller percentage said they used regular nicotine vaping products.

Trump, at a White House meeting Sept. 11, said he supports banning almost all flavored e-cigarette products. The Food and Drug Administration is currently hammering out the policy and is expected to issue it in the next several weeks. It will take effect 30 days after it is issued, administration officials have said.

Under the plan, all flavored e-cigarettes --- except for tobacco-flavored ones --- will have to be taken off the market until they get approval from the FDA, a process that could take months or years.

During testimony before a House panel Tuesday, a top official for the Centers for Disease Control and Prevention said that Juul's high-nicotine products could adversely affect young people whose brains are still developing.

"Juul uses nicotine salts that can cross the blood-brain barrier and potentially have more effect on the developing brain," said Anne Schuchat, the No. 2 official at the CDC.

Juul, under pressure from the FDA, stopped selling many of its flavored products late last year in retail settings. But it still sells mint and menthol flavors in stores --- and recent data showed that those products have become increasingly popular with young people.

The company said that Crosthwaite, in his new role, will working with Juul executives to "continue a broad review of the company's practices and policies to ensure alignment with its aim of responsible leadership within the industry."

Crosthwaite said he has long believed in a future where adult smokers choose alternative products like Juul. But "that future is at risk due to unacceptable levels of youth usage and eroding public confidence in our industry," he said. "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."