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According to a recent Wall Street Journal report, American e-cigarette giant Juul Labs plans to reduce its staff by approximately 500 before the end of the year. Besides the staff cut, Juul's adjustment plan also includes reducing its marketing budget and allocating more investment towards preventing minors from using e-cigarette products.

Juul Labs, which has developed a large number of tobacco- and fruit-flavored products, at one stage achieved a share in the U.S. e-cigarette market as high as 70%. At the end of 2018, Altria Group acquired 35% of Juul Lab's stock at a cost of US$12.8 billion; as a consequence, the company's valuation rose to US$38 billion. In June 2019, its valuation soared even higher to US$50 billion, in so becoming the world’s highest valuated e-cigarette unicorn.

However, totally unforeseen to Juul, a mysterious e-cigarette associated lung disease then broke out in the U.S., which has since dragged the company into its present quagmire.

Mysterious Lung Disease Breakout Plunges Juul into its Darkest Moment

On 23 August, health officials in the U.S. state of Illinois publicly announced that an adult who showed symptoms including coughing, shortness of breath and pulmonary failure had been admitted to the state hospital. Unfortunately, treatment failed to save his life and he later passed away while still in the hospital. This was the first death in the U.S. suspected of being caused by e-cigarettes.

Over the next month, several U.S. states reported multiple cases of deaths suspected of being caused by e-cigarettes, attracting great attention from both the FDA (Food and Drug Administration) and CDC (Centers for Disease Control and Prevention), who immediately initiated an extensive nationwide investigation.

Reportedly, the disease is similar to a rare type of pneumonia and its early symptoms include coughing, shortness of breath, fatigue, chest pain, nausea, vomiting and diarrhea. According to CDC, some patients have reported a history of using e-cigarette products containing THC, others of products containing nicotine, and many of products containing both THC and nicotine.

Consequently, CDC has issued a warning to the U.S. public regarding the serious adverse effects of e-cigarettes. At the same time, multiple states in the U.S. have one after the other announced stricter controls on e-cigarettes while Juul has become a target of public criticism.

On 4 September, Michigan announced that it would ban e-cigarette sales.

On 11 September, U.S. President Trump stated that the federal government was considering a ban on non-tobacco flavored e-cigarettes in order to tackle the problem of youth smoking of e-cigarettes.

On 15 September, New York's governor issued an emergency executive order, also banning the sales of all e-cigarette products except for those that were tobacco and menthol-flavored. Furthermore, it raised the legal age for purchasing e-cigarettes from 18 to 21.

The most direct hit on Juul, however, came from some of the U.S.'s biggest retail giants.

On 20 September, Walmart announced that it would step selling e-cigarette products in all its shops across the country. Dollar General, Costo and Rite Aid have all announced plans to remove all e-cigarette products from their shelves.

Juul's sales have been strongly affected. Data shows that in the month from 9 August to 9 September, Juul's sales figures had slumped to US$278 million, a decrease of US$16 million from its previous month.

In China, Juul is also in trouble. Two of the country's biggest e-commerce platforms JD.com and Tmall have both removed Juul's e-cigarette products from their platforms.

In addition, Juul's other overseas markets including countries such as Canada and India have also taken according actions, imposing scientific and safety assessments on e-cigarettes. This round of moves to enforce controls on e-cigarettes is spreading globally.

Faced with questions and pressure from multiple fronts, Juul was forced to announce at the end of September that it would suspend all of its broadcasting, print and digital product advertisements while waiting on the results of the comprehensive investigation by the Department of Justice and FDA. In the meantime, CEO Kevin Burns announced his resignation, while newly appointed CEO K.C. Crosthwaite is now in the spotlight.

Domestic market urgently demands introduction of national standards

The strict control on e-cigarettes in the U.S. has had significant impact on the Chinese e-cigarette market.

TMTPOST has been informed that since e-cigarettes were introduced to consumers, European countries and the U.S. have been the most important markets for consumption, accounting for nearly half of global market share in 2018. China, on the contrary, is the world's largest producer and exporter of e-cigarette products.

Losing the U.S. market will seriously challenge the survival of domestic e-cigarette manufacturers, the only remaining solution being to target and enter other overseas markets. However, given that large e-cigarette consumption countries such as India, Brazil and Thailand have all issued bans on e-cigarettes, right now, domestic e-cigarette manufacturers can merely pin their hopes on a blooming domestic market.

TMTPOST has learned that the domestic market penetration rate of e-cigarettes in China is less than 1% even though China is the largest e-cigarette producer. However, the country has a huge smoking population base and the market potential is still tremendous. Therefore, in the recent one or two years, the e-cigarette sector has become a lucrative investment sector in China with multiple venture capital firms including Source Code Capital, IDG and ZhenFund launching their market planning in the capital market of the emerging industry.

However, beneath the surface of a seemingly lucrative industry for venture capitalists, the domestic e-cigarette industry is plagued with chaos. Components of many OEM e-cigarette products including batteries, atomizers and heating coils suffer from possible broken surfaces, liquid leakage, dented batteries and short circuits, posing potentially grave risks to consumers when using these products. The industry therefore urgently requires the development of a set of standards.

Moreover, across the ocean in the U.S., the outbreak of suspected deaths by e-cigarettes has sounded the alarm even more so for the industry. The impact of the FDA ban has made the introduction of domestic e-cigarette regulation policies especially pressing.

Previously, one by one, cities including Shenzhen, Suzhou, Nanning, Qinhuangdao and Zhangjiakou added e-cigarettes to their smoke-free legislations for indoor public places and specific outdoor public zones. However, the Chinese domestic e-cigarette industry is still in a stage of crude development. The above-mentioned measures have yet been unable to fundamentally solve the problems the industry is facing for an orderly development while big domestic factories eagerly await the rapid implementation of national standards on e-cigarettes. 

On the official website of the Standardization Administration, it says that the project to enforce mandatory national standards on e-cigarettes has entered its approval stage. According to the standard review and approval cycle, the national standard governing domestic e-cigarettes will be officially published before the end of this year.

For Chinese e-cigarette manufacturers, U.S. e-cigarette giant Juul's setbacks have put up an effective mirror to assist these manufacturers successfully avoid the same risks.

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This article was edited by Dido Pang. The original Chinese version was written by Jia Boxin.

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