23 November 2019
The company planted the seeds of a public health crisis by marketing to millennials, who had low smoking rates, and it ignored evidence that teenagers were using its products.
SAN FRANCISCO — In the face of mounting investigations, subpoenas and lawsuits, Juul Labs has insisted that it never marketed or knowingly sold its trendy e-cigarettes and flavored nicotine pods to teenagers.
As youth vaping soared and “juuling” became a high school craze, the company’s top executives have stood firm in their assertion that Juul’s mission has always been to give adult smokers a safer alternative to cigarettes, which play a role in the deaths of 480,000 people in the United States each year.
“We never wanted any non-nicotine user and certainly nobody underage to ever use Juul products,” James Monsees, a co-founder of the company, testified at a congressional hearing in July.
But in reality, the company was never just about helping adult smokers, according to interviews with former executives, employees and investors, along with reviews of legal filings and social media archives.
Juul’s remarkable rise to resurrect and dominate the e-cigarette business came after it began targeting consumers in their 20s and early 30s, a generation with historically low smoking rates, in a furious effort to reward investors and capture market share before the government tightened regulations on vaping.
As recently as 2017, as evidence grew that high school students were flocking to its sleek devices and flavored nicotine pods, the company refused to sign a pledge not to market to teenagers as part of a lawsuit settlement. It wasn’t until the summer of 2018, when the Food and Drug Administration required it to do so, that the company put a nicotine warning label on its packaging.
Though some former employees recalled Mr. Monsees wearing a T-shirt at the office that used an expletive to refer to Big Tobacco, the start-up’s early pitches to potential investors listed selling the business to a big tobacco company as one of the potential ways to cash out. (Last December, the tobacco giant Altria paid $12.8 billion for a 35 percent stake in the company.)
These and other previously unreported decisions would plant the seeds for a public health crisis in which a new generation is becoming hooked on nicotine and that has raised questions about the future of e-cigarettes in the United States and Juul’s ability to stay in business.
In the fall of 2015, only a few months after the company’s newfangled vaping device, called the Juul, came on the market, investors, including the mutual fund giant Fidelity Investments, were already impatient for progress, according to former executives.
“They had yet to see the fruits of their investment, given what the opportunity was, and it was unclear for how long vaping was going to be lightly regulated,” said Scott Dunlap, the chief operating officer at the time. “They were excited and pushing hard.”
Fidelity declined to comment.
The Juul, which looked unlike any other e-cigarette and delivered a far more powerful nicotine punch, was supposed to be the hit product for the company, then named Pax Labs, but a few months in, it appeared to be a bust. Convenience stores and vape shops were not getting their orders because of supply chain problems. Manufacturing defects left some customers with bad batteries, or worse, a condition nicknamed JIM — juice in mouth — with no one at the company quite sure how much of the toxic nicotine substance could be safely ingested.
In a meeting in San Francisco in the fall of 2015, the board of directors decided to remove Mr. Monsees as chief executive, dismiss other senior leaders and effectively take over the company. It would be 10 months before they named another C.E.O.
“I was in that first meeting where you tell the board, ‘We aren’t going to hit the numbers. There are issues; there are problems in the supply chain.’ Not a lot of good news,” said Mr. Dunlap, who said he had advised the company to slow down and take the time needed to fix the problems. He was fired the next day.
The board meeting, which has not been previously reported, was a turning point for the company.
Over the next few years, the company — which became Juul Labs after splitting from Pax in 2017 — would reignite the stale e-cigarette business, grabbing more than 75 percent of the vaping market and tallying more than $1 billion in sales in 2018. At the end of last year, it was valued at $38 billion, more than the Ford Motor Company.
From 2016 to 2018, the years Juul’s growth became astronomical, the number of adult nonsmokers who began using e-cigarettes doubled in the United States, according to an analysis of federal survey data by researchers at the Johns Hopkins Ciccarone Center for the Prevention of Cardiovascular Disease. The study estimates that six million adults were introduced to nicotine via e-cigarettes.
During that time, millions of high school and middle school students began vaping, according to federal health surveys. More than five million youths — one in four American high school students and one in 10 middle school students — now vape, the Centers for Disease Control and Prevention and the Food and Drug Administration said in a joint report this summer. Nicotine is a highly addictive drug that impedes the developing brain, and many teenagers have struggled to quit.
From the beginning, there was plenty of evidence of teenage use on social media that should have been apparent to a company that had made social media the core of its marketing strategy. A sampling of tweets from Juul’s first 18 months of sales showed that juuling had quickly become a fad among high school students, long before the company acknowledged that there was a problem.
“petition to make our school mascot a juul,” said one tweet in December 2015.
“horizon highschool, where every1 is juuling in the bathroom,” said another in January 2016.
“HAPPY 16th BIRTHDAY, LEXI T!!! I hope ur day is filled with juuling & just having the best day ever!” said a tweet in October 2016.
There was also evidence from employees’ own lives. In 2016, some salespeople inside Juul passed around a photo taken by a colleague’s teenage son of a picture of a Juul drawn on a bathroom stall at his high school with the word “Juul” scrawled beside it.
Juul declined to make Mr. Monsees — who stayed at the company after being removed from the C.E.O. job — or any other executives available for this article.
The company says it is refocusing on its core mission. It has recently taken steps to keep its products away from teenagers, including stopping sales of most of its flavors; halting all broadcast, print and digital advertising; and offering $100 million in incentives for retailers to adopt a new electronic age-verification system intended to curb illegal sales to minors. This month it announced it would discontinue its mint flavor, which a new study showed had become its most popular among teenagers.
“We fully understand the need to earn back the trust of regulators, policymakers, key stakeholders and society at large and reset our company and the vapor category,” said Joshua Raffel, a spokesman who joined Juul in October 2018 after working as a deputy communications director in the Trump White House.
Another market in millennials
The story of Juul began more than a decade ago when two smokers, Mr. Monsees and Adam Bowen, became friends over cigarette breaks as graduate students in design at Stanford. During those chats, they came up with an idea for their final thesis, a design for an e-cigarette that would give smokers the nicotine they craved but without the cancer-causing substances that come from burning tobacco. They called it Ploom, and two years later, in 2007, they started a company by the same name.
Ralph Eschenbach, an early investor through the firm Sand Hill Angels, recalled Ploom’s pitch as being fairly simple: “They said they wanted to build a cigarette that would be a lot less dangerous to smokers and could be enjoyable.”
But, Mr. Eschenbach said, there was a major hurdle in going after that demographic: F.D.A. restrictions prevented Ploom from claiming its product was safer than cigarettes.
So the company was eying another potential market as well, he said: young millennials who were occasional smokers and might be drawn to a luxe, sleekly-designed tech product that they could carry while bar hopping on a Saturday night.
Other investors jumped on board, most notably Nicholas J. Pritzker, a member of the wealthy Chicago family that once owned the chewing tobacco giant Conwood before it was sold to Reynolds American. Mr. Pritzker had focused on the family’s holdings in real estate and the Hyatt hotel chain. Calls and emails to Mr. Pritzker’s investment firm were not returned.
When it was released in 2010, the Ploom Model One Vaporizer was shaped like an oversize pen. After a couple of years, it became clear that it wasn’t going to catch on. The biggest complaint? Not enough nicotine.
Kurt Sonderegger, who was Ploom’s head of marketing, would tape two of the devices together to try to get a satisfying hit, he said, but “I still needed to go out and smoke a cigarette.”
In early 2015, the company sold the Ploom brand to the industry it had ostensibly been taking on. Japan Tobacco International, a cigarette company, had bought a minority stake in Ploom in 2011 with a plan to market the device abroad, and in early 2015, it acquired the rights to the brand. Ploom executives renamed their company Pax Labs, for the pricey Pax Vaporizer that they had introduced in 2012. That device was quickly gaining a following among cannabis users as more states legalized marijuana.
But the company wasn’t abandoning e-cigarettes. On the contrary, it had a breakthrough. It had discovered a way to substantially increase the nicotine levels in a new product, named Juul.
A powerful nicotine hit
It was this breakthrough that would make the Juul so addictive to teenagers and people who had never smoked.
But just before the debut, in an interview published by The Verge in April 2015, Ari Atkins, an engineer who had worked on the team developing the Juul, said: “We don’t think a lot about addiction here because we’re not trying to design a cessation product at all.”
He added, according to the article, “Anything about health is not on our mind.” The article noted that his colleagues in the interview winced.
What made the Juul a game-changer in the e-cigarette industry was not just the cool design, which immediately drew comparisons to the iPhone. It was the power and smoothness of its nicotine hit.
In 2013, Chenyue Xing, a young chemical engineer, was working at MAP Pharmaceuticals in California developing medications that could be inhaled, when she got a call from a Pax recruiter. The idea of working on a project to reduce health risks to smokers appealed to her.
“I was working in products that were treatments for sickness and illnesses,” Dr. Xing said. “I was intrigued at the idea of working on the preventative side.”
Mr. Bowen, the co-founder, had sketched out the concept for a new formulation of the pods for the company’s e-cigarettes, one that would use nicotine salts.
Nicotine salts are not exactly like the crystalline salt in a shaker on the dinner table. In chemistry, a “salt” is the substance produced from the reaction of an acid with a base. Nicotine salts exist naturally in tobacco, which means they are in all cigarettes.
But e-cigarettes at the time were using freebase nicotine, which is extracted from tobacco. The problem with freebase nicotine liquid is that it has a high alkalinity, which makes it harsh for consumers. Many smokers who tried e-cigarettes wound up with sore throats or coughs.
For manufacturers, that harshness increased with higher nicotine levels, so most e-cigarettes had only 1 or 2 percent nicotine. A few came in at 3 percent.
Dr. Xing and other researchers at Pax were able to develop a formulation that allowed the company’s Juul pods to have a nicotine level of 5 percent, the equivalent of a pack of cigarettes. They had worked through different formulations before landing on one that combined freebase nicotine with benzoic acid (the patent covers a range of acids) that set off a chemical reaction, producing a nicotine salt liquid that reduced the harshness and allowed a higher rate of nicotine.
The result was “a much better experience for smokers” compared with earlier e-cigarettes, Dr. Xing said. “One that would make them more willing to switch over from smoking to e-cigarettes.”
Mr. Dunlap, the chief marketing officer at the time, saw the immense promise. “When I first tried the Juul prototype, the nicotine hit was immediate, within seconds. No e-cig had ever come close to this,” he said. “The design was also unique — the shape, the glowing light, the crackling sound, the thick vapor. It was a multisensory experience. This was the first vaping product that actually had a shot at switching an existing smoker.”
The high level of nicotine also appealed to skeptical retailers. In the summer of 2014, the year before Juul’s debut, the sales teams had run into resistance from stores who were stuck with other e-cigarette inventory that simply was not selling. But by focusing on the chemistry behind Juul, and its delivery of nicotine levels that were close to combustible cigarettes, two former sales executives said, they persuaded convenience store chains like 7-Eleven and Circle K to order the new product.
Where are the smokers?
The nicotine experience was the key to attracting smokers to any e-cigarette, but mention of nicotine was only in tiny, hard-to-read letters in the print ads for Juul’s initial marketing campaign.
In June of 2015, the campaign, called Vaporized, introduced the Juul with glitzy parties and events that stretched from San Francisco to Miami and New York, and ads and social media posts featuring young women in midriff-baring tops holding the sleek metal device.
Even some employees were confused. Three members of the company’s sales force recalled being puzzled: If this was a product targeting smokers, why not market where the smokers were, say, NASCAR races, which had long been sponsored by tobacco companies? Why was the campaign so youthful?
The ads for Juul showed up in Vice magazine, at pop-up “Juul Bars” at concerts that offered free samples of the product, on a bright billboard display that loomed over Times Square, and in a social media blitz. A lawsuit filed this month by the state of California against the company said that Juul directed “brand ambassadors” to look for “people who fit the JUUL demographic” such as “smokers, cool kids, fun people, etc.”
The company began hiring consultants to identify social media influencers with large followings on Instagram and Twitter to promote Juul. It pushed hashtags like #juul and #vaporized that the influencers used while showing images of themselves or other young people doing tricks with the device.
Mr. Dunlap, the chief operating officer at the time, noticed strikingly young users right away, in the wave of social media posts that followed the marketing events.
“There were hundreds of activation events, and it was in seeing the photos and social usage that followed that I would catch myself saying, ‘Wow, they look really young’,” he said. “But you don’t really know. It’s social media after all, where everyone is their younger, idealized selves. All you know is that you are seeing the early signs of a viral brand taking off.”
Two former executives, one from marketing and one from sales, said in interviews that the thinking inside the company was that by showing young and hip people using Juul, they would also draw in older smokers who imagined themselves as, well, young and hip.
Bailey Legacki was one of the high school students drawn in by the Vaporized campaign and she is now weighing a lawsuit against Juul.
She began using Juul during the 2015-16 school year, she said, as a 15-year-old in South Florida. “It was everywhere,” she recalled. “Everyone had one.”
Ms. Legacki, now 18, said she was influenced by her friends but also by the ubiquitous advertisements and social media posts on Snapchat, Instagram, Twitter and Facebook.
“They were young people and it looked like they were having fun,” she said. “Or, it would just be the device that was shown, but not really explaining anything about it, just, ‘Try this.’”
She said she did not realize there was nicotine in the pods. Mr. Raffel, the Juul spokesman, confirmed that in the early days the packaging mentioned nicotine only in tiny type in the ingredients list and did not have the warning labels it does now.
Ms. Legacki said she has now scaled back her vaping but has not been able to quit. “If I knew it had nicotine at all, I wouldn’t have done it,” she said. “Now I’m so reliant on something I had no intention of doing. I knew what cigarettes do. This Juul was new and nobody knew what the Juul did.”
She is considering suing the company. Her lawyer, Jeffrey L. Haberman of Schlesinger Law Offices in Fort Lauderdale, Fla., said the case will claim that Juul was made “to create and sustain nicotine addiction.”
Juul declined to comment on her experience.
Employees were also noticing orders made with clearly fake IDs. In 2017, orders were coming in weekly that all used an Arizona driver’s license for a man from Phoenix named Jelani Sample, according to an employee brought in to upgrade the age verification system. (It was actually a sample of the new driver’s license the state had posted online.)
The flagged orders were not filled, the employee said. But they were a sign teenagers were trying to buy Juuls.
There were also orders coming in for 10 Juul starter kits at a time, a tip-off to some employees that Juuls were being purchased either for resale or to be given to youths.
But the company continued to push its presence on social media, and in 2017, with sales soaring, the company and Mr. Bowen, the co-founder, filed a patent for a vaping device with a feature that seemed aimed at younger users. It was a gaming mode, so people could play Simon Says or Cat and Mouse on the device. It also had a “party” mode with lights and music clips. (It was never made, however.)
That same year the company was in talks to settle a lawsuit brought by the Center for Environmental Health, a nonprofit in California. The group had tested e-cigarettes and nicotine liquids made by Juul and over a dozen other companies and found levels of formaldehyde, a carcinogen created when e-cigarettes containing certain chemicals are heated, that exceeded the California limit. The organization had sued the manufacturers to force them to lower formaldehyde levels, and to add a warning label noting the presence of a cancer-causing ingredient.
But in settling the cases, the environmental group saw an opportunity to do something more. “We wanted to go beyond just the cancer warning,” its lawyer, Mark Todzo, said. “At the time, there were reports coming out about the teen vaping rates that were just starting to be reported on.”
Mr. Todzo said the group added a provision into the settlement to require the e-cigarette companies to agree not to market to youths. Documents show that it was signed by EonSmoke, Vapor4Life, International Vapor Group and others — but not by Juul.
Juul declined to sign and opted instead to pay an additional penalty, based on its sales for 2015 — just $2,500.
Mr. Raffel, the Juul spokesman, did not dispute the account, but said the company had no further comment.
Finally, last month, Juul signed.
In the summer of 2018, a group of former attorneys general and public health experts got on a call with Juul executives, including then-chief executive Kevin Burns, to advise them how to stop teenagers from getting Juuls.
The call, which has not previously been reported, did not go well, especially when Grant Woods, the former attorney general for Arizona, who had worked on the master settlement with tobacco companies in the 1990s, told Mr. Burns to dump the company’s flavored nicotine pods because of their appeal to youths.
“They just refused to do it,” said Mr. Woods, who dropped out of the advisory group after the initial call, convinced that the company was insincere. “I said on the call, ‘I would sue you.’”
Mr. Woods said the Juul C.E.O., Mr. Burns, took the position “that they were not marketing to minors, and so the flavoring wasn’t an issue.” Mr. Burns declined to comment on the phone call.
Mr. Burns’s recalcitrance in the face of growing pressure would soon be on display again in the company’s weekly executive meeting in September 2018, after the F.D.A. seized thousands of pages of documents from the company’s San Francisco headquarters, a former executive said.
“Kevin Burns said, ‘Do not give me anything in writing if it is sensitive, anything the F.D.A. could get,’” recalled the former executive, who was at the meeting but asked not to be identified for fear of retribution. “He said, ‘Pick up the phone and call me if you have to.’”
In a statement emailed to The New York Times, Mr. Burns said, “That is a mischaracterization of a meeting where I was clear that our employees should fully cooperate with any regulatory authority and that I expected them to bring any concerns to me directly to make sure important issues were addressed promptly and with no room for misinterpretation.”
Now Juul is facing an ever growing pile of lawsuits from parents, school districts, counties and states, including two new ones filed this month by California and New York. In addition to the F.D.A., the Federal Trade Commission, the United States attorney’s office in Northern California and several states are investigating the company.
And it is still waiting for federal health officials to completely clear its devices and nicotine pods from the mysterious vaping-related illness that emerged this summer, making almost 2,300 people seriously ill and killing 47 others. Earlier this month, the Centers for Disease Control and Prevention said that the likely culprit is THC vaping liquids, which Juul does not sell, that include vitamin E acetate, but cautioned that health investigators had not exonerated nicotine products.
All of this means that the F.D.A. is likely to make it very challenging for Juul to obtain the necessary clearance to stay on the market, according to two former F.D.A. commissioners: David Kessler, who served in the George H.W. Bush and Clinton administrations; and Scott Gottlieb, who ran the agency for President Trump until resigning this spring.
Juul’s application is due in May, and the F.D.A. must decide whether the products are appropriate for the protection of public health. The agency will weigh the number of people likely to become addicted to nicotine via Juul, against the number who might use it to quit combustible cigarettes, and will also assess the safety of the products.
Altria to the rescue
In early 2017, the tobacco giant Altria, maker of Marlboro cigarettes, reached out to Juul, and in the spring of that year the two began confidential discussions in earnest, according to documents obtained from Altria by Senator Richard Durbin, Democrat of Illinois.
It would take 20 months to work out, but on Dec. 20 of last year, Altria announced it would pay $12.8 billion in cash for a 35 percent stake in Juul. Filings with the Securities and Exchange Commission showed that the vast majority of the cash went into executives and investors’ pockets. Less than $1 billion was required to stay on the company’s books.
Under the terms of the deal, Altria said it would use its vast distribution channels to sell Juul products and, after four years, Altria would be allowed to make a takeover offer for Juul Labs.
Some employees were unsettled by the fact that they were now in business with Big Tobacco. And regulators? They were irate.
The F.D.A. was blindsided by Juul’s deal with Altria, and it further strained the relationship between the agency, including its commissioner, Dr. Gottlieb, and both companies.
The F.D.A. had initially been supportive of e-cigarettes, and Dr. Gottlieb had served on the board of Kure, a chain of vaping lounges, before he was tapped to run the agency. In July 2017, a few months after taking office, Dr. Gottlieb made a much criticized decision to push back by four years the deadline for Juul and other e-cigarette companies to submit applications to stay on the market.
Juul contended it had a virtuous health mission, but by fall of 2018, the F.D.A. was no longer buying it. In October, Altria had agreed to stop selling its own e-cigarette products, after acknowledging that they were driving the youth vaping problem. The notion that Altria would now help Juul expand its market infuriated Dr. Gottlieb.
He summoned executives from Juul and Altria to his office in March of this year, for what several people who were there (and not authorized to speak publicly on the matter) described as a tense, unpleasant meeting with him, his chief of staff, Lauren Silvis, and the head of the agency’s tobacco division, Mitchell Zeller. When news about their difficult meeting leaked out, Altria’s stock fell 2.5 percent.
According to several people present, Dr. Gottlieb condemned Juul’s lobbying of Congress and the White House. “We have taken your meetings, returned your calls and I had personally met with you more times than I met with any other regulated company, and yet you still tried to go around us to the Hill and White House and undermine our public health efforts,” he said angrily, according to three people who were there. “I was trying to curb the illegal use by kids of your product and you are fighting me on it.”
In September, Juul’s ties to Altria further strengthened when Mr. Burns resigned under pressure, and the board replaced him with an Altria executive, K.C. Crosthwaite. A former president and chief executive of Philip Morris USA, Mr. Crosthwaite has spent his entire career in the tobacco industry.
Juul’s future now rests with Big Tobacco, the industry its founders said they were trying to vanquish.