Juul: how it can avoid running out of puff

Seven years ago, San Francisco start-up Juul made electronic cigarettes into an unlikely status symbol. Shaped like USB sticks, they had the sheen of a tech product and a valuation to match, hitting $10bn in record time. Now it is reportedly in talks with two of its investors — Nick Pritzker, the Hyatt Hotels heir, and Riaz Valani, a partner at Global Asset Capital — about a bailout that could help avoid a bankruptcy filing.

What went wrong? Juul’s problems are inextricably linked to its success. E-cigarettes were first marketed as a way to convert smokers into non-smokers. They allow addicts to get their hit without breathing in chemicals from tobacco.

But young people who did not smoke were lured into “juuling” by the brand’s high profile social media presence and exotic flavours. That sparked new health concerns. This year, the Food and Drug Administration ordered Juul to remove its products from US shelves. There is a temporary stay on that decision but Altria, which paid $12.8bn for 35 per cent of the company in 2018, has written down its investment to $450mn. Altria, which makes Marlboro and other brands, trades on a forward earnings ratio a third below Philip Morris.

Juul cannot take all of the blame for teen vaping. It is no longer the biggest e-cigarette maker in the US. Products from rivals such as BAT subsidiary Reynolds’ Vuse are also popular.

Still, Juul’s high profile means it is the target for anti-vaping activism. It no longer has a non-compete agreement with Altria, meaning it is free to look for another buyer. Going it alone will be difficult. It needs funds. It has agreed to pay $438.5mn to 33 US states and Puerto Rico to resolve allegations that it was marketing to underage users.

Juul has already stopped selling fruit flavours and has changed its marketing. But it needs to draw back further. It should reduce the nicotine content in its vapes and focus on finding robust data that proves vapes can stop adults from smoking cigarettes. Health, not fashion, is Juul’s way out.