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MORGAN STANLEY: Juul, Silicon Valley’s favorite vaping startup, is drawing in young users who don’t smoke

MORGAN STANLEY: Juul, Silicon Valley’s favorite vaping startup, is drawing in young users who don’t smoke

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Melia Robinson/Business Insider
  • Morgan Stanley research finds that while Juul helps smokers lower their cigarette consumption, it’s still drawing in plenty of young non-smokers, too.
  • The report also finds that non-smokers are typically drawn to Juul primarily by social marketing.
  • Analysts think the FDA will roll out a series of policies by year-end to better control the rising rates of teen e-cigarette usage.

Popular e-cigarette startup Juul Labs has been facing controversy recently over the appeal of its products for minors.

In September, the US Food and Drug Administration announced that it was taking steps to crack down on the sale of e-cigarette products – like the increasingly popular Juul – to minors. JUUL responded that it planned to work with the FDA, and that its “mission is to improve the lives of adult smokers by providing them with a true alternative to combustible cigarettes.”

But evidence has been mounting that Juul’s products have significant appeal to young people.

The latest comes in a Morgan Stanley research report published Thursday. It found that about 15% of Juul users weren’t smokers before they started vaping, and that group tended to be younger than other vapers.

On Tuesday, a different survey found that a higher portion of young people aged 15-17 are using the Juul at least once a month compared to those aged 25-34.

Morgan Stanley surveyed 402 Juul users above age 18, so the bank’s survey doesn’t provide information about users younger than that. Among the youngest group in the survey, those 18-24, a third hadn’t smoked before starting to use Juul.

There were some positive findings for Juul in the survey, according to the research report. Juul helped almost half of its users who also smoke cigarettes cut down on their cigarette consumption. About 16 percent stopped smoking entirely.

Some moved in the other direction. Of the nonsmokers, 20% became smokers after using Juul. The report highlights this as “a potential area of concern as the FDA is evaluating Juul’s prevalence among youth and its role as a gateway to cigarettes.”

CNBC has reported that preliminary data from the government’s National Youth Tobacco Survey found a 75% rise in teen e-cigarette usage in the last year, to about 3 million high-school users.

FDA Commissioner Scott Gottlieb has said that new policies to regulate e-cigarette usage will be put out by the agency by the end of this year. The analysts said these policies may include moving up the pre-market tobacco product application deadline for e-cigarettes from 2022 to an earlier date, restrictions on the range of e-cigarette flavors, and possible limits on distribution.

The FDA is cracking down on wildly popular e-cigarettes like Juul — and threatening to pull products from the market if teen use isn’t controlled

The FDA is cracking down on wildly popular e-cigarettes like Juul — and threatening to pull products from the market if teen use isn’t controlled

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Shutterstock
  • The FDA is taking steps to enforce and address the e-cigarette epidemic among minors.
  • The agency is giving the makers of some of the most prevalent vaping devices 60 days to show they are able to keep their products away from teens. If they can’t, the flavored products could be pulled from store shelves.
  • In 2017, more than 2 million middle and high school students used e-cigarettes. The FDA is trying to initiate a public education campaign in order to learn more about e-cig products and their access and appeal to teens.

The US Food and Drug Administration (FDA) announced Wednesday that it is taking steps to crack down on the illegal sale of e-cigarette products – like the increasingly popular Juul – to minors.

The agency is giving makers of some of the most prevalent vaping devices 60 days to submit plans showing they can keep their products away from teens. If the manufacturers fail to submit plans that could halt the trend of e-cigarette use among kids, their flavored products could be pulled from store shelves.

As part of a nationwide enforcement effort this summer, the FDA issued more than 1,300 warning letters and fines to retailers who were found to have illegally sold products to teens.

The majority of these violations were doled out for the sale of five e-cigarette products to those under 18 – Vuse, Blu, Juul, MarkTen XL, and Logic. The agency also issued 12 warning letters to online retailers that are selling or advertising flavored vapor inserts for e-cigarettes in a way that might be misleading to kids, such as offering candy and cookie flavors. They also prohibited certain retailers who had violations from selling tobacco products for specific periods of time.

The FDA’s moves come as the booming e-cig company Juul has been flagged by doctors, researchers and non-profits for health risks and deceptive marketing to attract minors. Juul takes up nearly 71% of the entire e-cig market with its USB sized device that comes with single inserts containing the same amount of nicotine as an entire pack of cigarettes. The company – valued at $15 billion – is growing more popular among teens and has even eyed an international expansion of its business.

FDA Commissioner Scott Gottlieb said in the press release that the “youth use of electronic cigarettes has reached an epidemic proportion.” In 2017, more than 2 million middle and high school students used e-cigarettes.

The FDA stated that although e-cigarettes can potentially help adult smokers move away from traditional cigarettes, that effort can’t come at the expense of a whole new generation becoming addicted to nicotine. It is working with Youth Tobacco Prevention Plan to address the access and appeal of these products, and to launch a public education campaign.

“JUUL Labs will work proactively with FDA in response to its request,” a company spokesperson told Business Insider in an email statement. “Our mission is to improve the lives of adult smokers by providing them with a true alternative to combustible cigarettes. Appropriate flavors play an important role in helping adult smokers switch. By working together, we believe we can help adult smokers while preventing access to minors, and we will continue to engage with the FDA to fulfill our mission.”

Silicon Valley e-cig startup Juul ‘threw a really great party’ to launch its devices, which experts say deliberately targeted youth

Silicon Valley e-cig startup Juul ‘threw a really great party’ to launch its devices, which experts say deliberately targeted youth

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Shutterstock

Bad habits are tough to break.

The Juul, an e-cigarette that delivers a powerful nicotine hit equal to the amount in a pack of cigarettes, may be one of the toughest.

Adult customers say they find the high nicotine content as satisfying as conventional cigarettes, but the device also has a growing number of teen fans, whose developing brains are uniquely vulnerable to addiction.

The Juul’s surging popularity among high schoolers has led public-health advocates and researchers to issue alarming warnings. Young people who vape may be as many as seven times more likely to smoke regular cigarettes than teens who never try an e-cig, according to several peer-reviewed studies.

Ana Rule, a professor at Johns Hopkins University and an author of a study on e-cigs and teens, told Business Insider that the makers of new e-cigarette devices “fail to address the increased risk to this huge market they are creating among teenagers and young adults that never have smoked, and would have never even considered smoking.”

Juul says its device was designed to help adult smokers transition to a healthier but equally satisfying product and claims that its advertising materials never targeted teens.

“This company is here to improve the lives of smokers,” Ashley Gould, Juul’s chief administrative officer, told Business Insider.

But public-health experts from several universities, representatives from the Campaign for Tobacco-Free Kids, and the California Department of Health all allege that Juul Labs, the $15 billion startup behind the Juul, deliberately marketed its products to youth.

#LightsCameraVapor

juul launch party tweet 2015

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Twitter

To launch the Juul in 2015, the company decided not to pursue a conventional marketing campaign and instead threw “a really great party,” according to one former employee who spoke to Business Insider on the condition of anonymity.

At the party, guests were encouraged to take photos and post them on social media accounts using the hashtag #LightsCameraVapor. Juul also posted images from the party on its social media accounts, including a tweet on June 4, 2015 that features a photo of five young women posing with Juuls on a white background.

A second employee, who also did not want their name published, told Business Insider that “the initial person we had in mind was youngish, late 20s, early 30s, an influencer, someone who’s affluent, an early adopter.”

But they added, “it’s probably too close to a sensitive demographic to be using those images anymore.”

Juul told the New York Times that the company now requires models in its social marketing campaigns to be over age 35.

Between 2015 and 2017, Juul put up a series of ads for its devices that featured young men and women on YouTube and on billboards. One image showed a woman on a yellow background that the former employee said “could have been 18.” That would be illegal in California, the state in which Juul’s headquarters are located, where the legal age to use cigarettes and e-cigs is 21. Federal law mandates people be at least 18 to buy tobacco products.

A former senior manager with Juul told the New York Times anonymously that he and other company employees “were well aware” their devices could appeal to teens.

An image from a Juul ad used in August 2016.

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An image from a Juul ad used in August 2016.
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Pax Labs

Juul’s Instagram and Twitter campaigns prior to 2017 featured hashtags like #LightsCameraVapor and were also replete with images of young people – particularly young women – using Juuls.

Up until at least August of 2016, Juul (which was then called Pax Labs) featured images on its website that included young models, such as an image of a young blonde woman wearing a distressed denim jacket and black fingernail polish.

‘Could we have done things differently in the past? Yes’

A 2015 Juul ad.

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A 2015 Juul ad.
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Spencer Pederson

There’s no question about the Juul’s popularity among teens.

Instagram and YouTube are full of videos of teens vaping, or “Juuling,” in class and in front of teachers. A string of high schools along the East Coast has cited “Juuling” in bathroom stalls as a widespread problem, and dozens of teachers have reported confiscating Juul devices disguised as Sharpies and other classroom items.

“I don’t go anywhere where there isn’t a parent in the audience who isn’t concerned about the Juul,” Matthew Myers, the president of the nonprofit Campaign for Tobacco Free Kids, told Business Insider. “I’ve never seen a phenomenon like this before.”

Myers and other researchers allege that Juul’s public marketing campaigns have made the claim that they never marketed to teens difficult to believe.

Myers also said that Juul’s decision to put the bulk of its ads on social media (rather than magazines, billboards, or TV) meant that adults and federal regulators were less likely to see the ads and flag potential issues.

“Using social media, which is not visible to the average adult, [Juul] operated under the radar screen for a very long time,” Myers said.

Nicholas Chadi, a clinical pediatrics fellow at Boston Children’s Hospital spoke about the Juul at the American Society of Addiction Medicine’s annual conference in April.

“Of course they’re not marketed to young people,” Chadi said sarcastically, adding the that when products are made with appealing designs and sleek packaging, teens are drawn to them.

Rule, the Johns Hopkins researcher, agreed.

“I think that is one of the marketing strategies, especially with the Juul and other pods. They look very ‘cool’ and ‘sleek,’ and that’s not a coincidence,” she said.

Gould told Business Insider that Juul did have a previous advertising campaign, before she joined the company, that included imagery that “was not consistent with our brand.”

“We have to take ownership for what was done in the past,” she said. “Our objective is to be open and transparent. Could we have done things different in the past? Yes.”

A startup that’s booming

juul e-cigarette

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JUUL Labs

Behind an aging brick facade of a warehouse in San Francisco’s Dogpatch neighborhood, Juul Labs is growing exponentially. Its five floors are packed with employees. Staff crowd the halls, spill onto balconies for meetings, and squat on the building’s sweaty top floor.

Juul’s US staff has tripled in the last six months, and the company plans to open offices in 19 more locations across the country, including big cities like Boston and smaller ones like Des Moines. The company is expanding internationally, too: After launching in London in July, Juul intends to expand to three more countries.

The company has the money to do it. After scoring a $15 billion valuation that put Juul in the ranks of startups like Pinterest, Lyft, and Snap Inc., Juul Labs raised $650,000 within just two days.

But as Juul has grown, so has the public health backlash against it.

Several state and federal investigations and a handful of consumer lawsuits highlight concerns about the Juul’s health effects and its worrisome popularity among teens. The Massachusetts Attorney General is investigating whether Juul violated state consumer-protection laws by failing to keep minors from buying its products, and the Food and Drug Administration recently cracked down on sales of the Juul to minors. The city of San Francisco even banned flavored tobacco products like the Juul, and public-health researchers and leading philanthropists like Michael Bloomberg have said they hope other cities follow suit.

But in the meantime, the Juul is still hot among teens, and Myers said social media is the reason.

“It wasn’t public-health groups who picked up on it, it was literally teachers and principals, and once they did, people discovered [the devices] were everywhere,” he said. “And then when you went and looked at the social media scene, you understood how this happened.”

As of the time of this story’s publication, Juul’s tweet from its 2015 launch party has not been removed.

“This is really the genie you can’t put back in the bottle,” Myers said. “Once something is the rage like this, the kids are doing it for you.”

The wildly popular e-cig startup Juul is valued at $15 billion, but it faces a growing backlash of lawsuits and investigations

The wildly popular e-cig startup Juul is valued at $15 billion, but it faces a growing backlash of lawsuits and investigations

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Pax Labs

For a slim device that looks like a USB stick, the Juul e-cig packs a powerful punch. Each refillable insert contains twice the nicotine as a pack of cigarettes.

American vapers have embraced the device: The Juul now represents nearly 71% of the entire e-cig market. Last month, sales of the devices surged 738%.

But despite the ballooning popularity of its vapes, Juul Labs – a Silicon Valley startup recently valued at $15 billion – is facing a growing backlash.

Several state and federal investigations and a handful of consumer lawsuits highlight concerns about the Juul’s health effects and its worrisome popularity among teens. The Massachusetts Attorney General is investigating whether Juul violated state consumer-protection laws by failing to keep minors from buying its products, and the Food and Drug Administration recently cracked down on sales of the Juul to minors.

On top of those concerns, the city of San Francisco recently banned flavored tobacco products like the Juul, a move public-health researchers and leading philanthropists like Michael Bloomberg have said they hope other cities follow.

A startup that’s booming

juul e-cigarette

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JUUL Labs

Behind the unassuming, aging brick facade of a shipping warehouse in San Francisco’s Dogpatch neighborhood, Juul Labs is growing exponentially. Its five floors are packed with employees. Staff crowd the halls, spill onto balconies for meetings, and squat on the building’s sweaty top floor.

Juul’s US staff has tripled in the last six months, and more growth is coming. Juul has plans to open offices in 19 more locations across the country, including big cities like Boston and Chicago and smaller ones like Des Moines, Iowa and Manchester, New Hampshire. The company is expanding internationally, too. After launching in London earlier this month, Juul has plans to expand to three more countries.

The company has the money to do it. After scoring a $15 billion valuation that puts Juul in the ranks of startups like Pinterest, Lyft, and Snap Inc., Juul Labs raised $650,000 within just two days.

But as Juul has grown, government groups, nonprofits, and public-health experts have started sounding alarms, calling out the Juul for being addictive and uniquely appealing to teens.

Teen ‘Juuling’ could be the ‘genie you can’t put back in the bottle’

woman vaping vape e-cig

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Shutterstock

The first signs of trouble came from high school bathrooms. In small groups, students began gathering to “Juul” (the verb the product has spawned) under clouds of creme-brulee-scented vapor. Some carried the devices into class, where they’d sneak pulls from Juuls hidden inside the bodies of emptied Sharpie pens.

Worried teachers brought their concerns to principals, who called on public-health researchers to visit campuses and discuss the risks of nicotine.

Then some of those teachers looked at YouTube, and found the platform was full of videos made by teens showing themselves sneaking Juuls into class and vaping on the sly – sometimes even in front of teachers.

Using hashtags like #JuulGang and #VapeNation, teens boasted on social media about the number of devices they could use at once. Some appeared to be linked to viral hashtags that Juul Labs had used in a 2015 advertising campaign when its device launched.

Juul maintains that it does not want teens to use its devices and claims its products are designed solely for adult smokers looking to transition to less harmful devices. The company has also said that sales of its devices did not take off until at least two years after the 2015 campaign was launched.

“Juul is a company that was started by smokers with an objective to switch smokers to non-combustible products,” Ashley Gould, Juul’s chief administrative officer, told Business Insider in March.

A Juul Labs spokesperson also told Business Insider that the company has been working with social media platforms to remove Juul-related content that involves young people, and has deleted more than 4,000 vape-related posts from Instagram and Facebook collectively.

But experts say these moves have come too late.

“This is really the genie you can’t put back in the bottle,” Matthew Myers, the president of the nonprofit Campaign for Tobacco-Free Kids, told Business Insider.

Snowballing evidence of vaping’s health risks

marijuana vaporizer vaping vape

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Eduardo Munoz/Reuters

Alarmed by the prevalence of e-cigs, researchers have increasingly started studying the health impacts of vaping. So far, evidence suggests that although inhaling vapor is healthier than breathing in burned tobacco, e-cigs come with their own health concerns.

Chief among those issues is e-cigs’ high concentration of nicotine. This may be part of the reason why teens who vape are seven times more likely to smoke regular cigarettes than young people who never use e-cigs.

Ana Rule, a professor of environmental health and engineering at Johns Hopkins University, said the makers of these devices fail to address “the increased risk to this huge market they are creating among teenagers and young adults that never have smoked, and would have never even considered smoking” had they not vaped.

Researchers are also not convinced that e-cigs actually help adult smokers quit. So far, the evidence suggests they don’t. In January, a study in the journal The Lancet found that e-cigs were linked with “significantly less quitting” among smokers. Several months later, a study in the Annals of Internal Medicine found that e-cig users were less likely than non-vapers to abstain from tobacco use over six months. And a study published in the journal PLOS One this month found no evidence that vaping helped adult smokers quit.

“E-cigarettes are widely promoted as a smoking cessation aid but for some, they actually make it harder to quit, so most people end up doing both,” Stanton Glantz, a professor of medicine and the director of the Center for Tobacco Control Research and Education at UCSF, told Business Insider.

Nicholas Chadi, a clinical pediatrics fellow at Boston Children’s Hospital, spoke about the Juul at the American Society of Addiction Medicine’s annual conference in April.

“After only a few months of using nicotine, [these teens] describe cravings, sometimes intense ones. Sometimes they also lose their hopes of being able to quit,” Chadi said.

For these reasons, several nonprofit anti-tobacco agencies have come out in recent months in strong opposition to the Juul, including the nonprofit Campaign for Tobacco-Free Kids and the California Department of Public Health.

Mounting legal and ethical challenges

juul e-cig vape pen california prop e poster

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California Department of Public Health

These scientific findings are being used in a snowballing number of legal and regulatory challenges against Juul.

In April, the FDA launched an investigation into Juul’s marketing practices to see if the company targeted teens.

In a letter to the company, the agency wrote: “Widespread reports of youth use of Juul products are of great public health concern and no child or teenager should ever use any tobacco product. Juul products may have features that make them more appealing to kids and easier to use, thus causing increased initiation and/or use among youth.”

Since April, Juul consumers have also filed several lawsuits against the company – most of them on behalf of teens – for what they allege are deceptive marketing practices that didn’t clearly outline how addictive nicotine is.

Then in June, voters in San Francisco approved a ban on flavored tobacco products that includes Juul cartridges, called Juul Pods.

“Most scientists believe flavorings are used to target teenagers into becoming users,” Rule told Business Insider. “There are of course many other factors such as marketing and peer-pressure, but when you look at the flavoring names, one has to wonder.”

San Francisco has led the nation with similar types of initiatives in the past, such as its 2007 ban on plastic bags, which went statewide in 2014 and has since been copied in 13 other US cities.

Finally, just this week, Massachusetts Attorney General Maura Healey launched a probe to find out whether Juul had marketed its products directly to young people in a way that could violate consumer protections in the state.

“Just when teen cigarette use has hit a record low, Juuling and vaping have become an epidemic in our schools with products that seem targeted to get young people hooked on nicotine,” Healey said in a statement. “I am investigating Juul … to keep these highly addictive products out of the hands of children.”

Juul’s rapid fundraising suggests that many investors aren’t deterred by these challenges, but others have said they’re leery for ethical reasons.

“Selling drug addiction with unknown causes isn’t something I want to be associated with,” Villi Iltchev, a partner with San Francisco-based investment firm August Capital, told Business Insider.

Villi said he used to smoke, but quit five years ago.

“Would I have switched from smoking to the Juul? Hell yes,” he said. “But in terms of kids, they’re starting from scratch. Being addicted as a teen, your probability of quitting is so low. It’s part of you.”

If you’re a Juul or Pax employee with a story to share, email this reporter at ebrodwin@businessinsider.com.

A $15 billion e-cig startup that’s taking over the US is moving into London

A $15 billion e-cig startup that’s taking over the US is moving into London

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Pax Labs
  • Silicon Valley e-cig startup Juul Labs is bursting at the seams.
  • On the heels of a $15 billion valuation, the company is rapidly expanding in the US and opening the doors to its first international office in London on Tuesday.
  • After London, Juul plans to launch in three more countries.

Standing in the bustling lobby of a San Francisco warehouse where employees zoom past one another carrying trays of freshly-prepared lunch, you wouldn’t know you’d just set foot in the headquarters of an e-cigarette company.

But Juul Labs is bursting at the seams, with employees on every floor from the basement to an attic with no air conditioning. The company’s popular vape pen, called the Juul, packs a uniquely powerful nicotine punch, and it has singlehandedly revived the once-flatlining e-cig industry.

On the heels of a $15 billion valuation and news of plans to raise $1.2 billion, Juul is opening its first international office in London on Tuesday.

After London, the company plans to open its doors in three additional countries – France, Singapore, and Israel. The international move parallels a similar expansion in the US, where staff sizes have tripled in the last six months alone.

Currently headquartered at a 5-story warehouse in San Francisco’s Dogpatch neighborhood (with plans to spill into a larger building across the street), Juul is opening offices in 19 more locations across the country, from big cities like Boston and Chicago to smaller locales like Des Moines, Iowa and Manchester, New Hampshire.

But as it expands, Juul faces several challenges, including local laws limiting the sale of its products, concern from teachers and parents over the rise of teen vaping, and investigations into its advertising practices.

The rise of ‘Juuling’

woman vaping vape e-cig

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Shutterstock

Juul users – some of them current and former adult smokers; others kids and teens – swear by the device because of its powerful concentration of nicotine, discrete design, and satisfying flavors, which include everything from Virginia Tobacco to Creme Brulee and Cool Cucumber.

The most popular e-cig on the market, the Juul has even spawned its own verb: “Juuling.”

But while adult Juuling (instead of smoking) is largely considered a benefit to public health because it’s less dangerous than inhaling burned tobacco, teen Juuling represents a massive and unforeseen concern – at least in the US, where a growing cadre of researchers is sounding the alarm on the vape pen’s addictiveness.

Scientists are especially worried about the young users who may otherwise have never smoked but instead pick up a Juul, as several well-designed studies suggest that young people who vape are significantly more likely to go on to smoke traditional cigarettes.

In addition to concerns from public health experts and researchers, the Juul is facing legal pressure. Last month, the city of San Francisco banned the sale of flavored tobacco products that includes Juul flavor packs, known as Juul Pods. Also, the Food and Drug Administration is investigating whether Juul has marketed its products to teens.

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