In June, 2015, before Juul became the most popular e-cigarette on the market, loved by users and vilified by government regulators, founders James Monsees and Adam Bowen visited Inc. to demonstrate their creation. Monsees popped a thumbnail-size cartridge filled with flavored nicotine juice into the electronic nicotine vaporizer and handed it to me. The device delivered the familiar rush you'd get from a traditional cigarette, but without the smoke, tar, and ash.

Within three years, Juul would be worth $15 billion and become the best-selling e-cigarette on the market. It has also become a cultural phenomenon that is too cool for school. Even though Monsees and Bowen created Juul to help adults switch from smoking traditional cigarettes to the less dangerous alternative of vaping nicotine-infused liquid, the product has reportedly become hugely popular with teenagers. So popular that FDA commissioner Scott Gottlieb recently warned that teen vaping has reached "an epidemic proportion" and gave Juul Labs and four other makers of popular e-cigs 60 days to prove they can keep the product away from teenagers. If the companies are not successful, Gottlieb threatened to ban flavored products from the market.  

At our demo, Monsees, who has a certain nonchalant yet precise way of speaking, explained that Juul's disposable cartridges are filled with a patented nicotine salt liquid that mimics the throat hit and buzz of a traditional cigarette. The secret is its uniquely potent formula--a single pod contains roughly as much nicotine as a pack of smokes. Juul's minimalist industrial design also gave the device a halo of cool that far surpassed the big, clunky vaporizers that were popular at the time, let alone legacy nicotine products like the NicoDerm patch. 

"Our belief is this: If you really want to satisfy smokers, if you really want to make an alternative and make cigarettes obsolete, you need to provide something that is an overall better experience--something that is better in every way," said Monsees, who founded Juul Labs with Bowen in 2015, spinning it out of their first vaporizer company, Pax Labs. "We set out to make a vastly superior product until there is no point in smoking cigarettes anymore," he said.

As the New Yorker explored earlier this yearJuul is in a unique conundrum: Vaping technology promises to effectively reduce the number of adult smokers, but Juul--with its sexy design and sweet flavors like mint, mango, crème brulee, and "cool cucumber"--has been co-opted by the wrong demographic.

"You saw the spike in teens vaping and it was real. All of a sudden, the cartridges were everywhere around the school. Congregations of kids formed in the bathrooms. You looked out the windows and you saw kids blowing clouds of vapor," says Tom Gorman, the principal at Ridgewood High School in New Jersey. "Vaping has been hard to fight. The Juul is cool; it has flavors, it lights up, it has no social stigma like cigarettes." (This year, Juul dropped "cool" from "cool cucumber" and "crème brulee" is now "crème.")

The company made an early misstep with its first marketing campaign "Get Vaporized," which featured young, attractive models shot by Steven Baillie, a creative who has done campaigns with Bonobos, Ferrari, and Levi Strauss. While all the models were older than 21, one image that was seen as specifically problematic depicts a lithe 20-something with a ponytail wearing a varsity jacket and holding the vaporizer. 

In an interview with CNBC, Monsees described the campaign as "flawed." Bowen tells Inc. that the campaign did not appeal to kids, but the company pulled it because the messaging didn't speak to its intended demographic--adult smokers. This year, the Juul changed its marketing strategy to a more somber and muted campaign that features testimonials from smokers discussing how Juul replaced traditional cigarettes.  

According a report by National Academy of Sciences, Engineering, and Medicine, which was commissioned by the FDA, conclusive evidence suggests that e-cigs are less harmful than traditional cigarettes. The long-term health effects of vaping are still unknown, but harm-reduction and public-health advocates say it's in the interest of public health to encourage tobacco smokers to switch to vaping.

"We now have a safer technology--an e-cigarette is like an electric car that can replace gas-powered cars," says David Abrams, an NYU social and behavior sciences professor who studies public health and new nicotine delivery methods. "But society is mislabeling nicotine addiction because we could never before remove it from the toxicity from smoke. We should not throw the baby out with the bathwater."

Despite the company's intent and success, regulators are coming down hard. In April 2018, the Food and Drug Administration demanded that Juul Labs hand over internal documents regarding its marketing to determine whether Juul is intentionally appealing to minors.

At least three lawsuits have been levied against Juul; one of which was filed on behalf of a 15-year-old boy who says he is addicted to nicotine because of Juul.

In response to the pressure, Juul has launched a $30 million initiative to combat underage use. The company says it's improving ID verification technology on its e-commerce site and working with secret shoppers to uncover retailers selling to minors. The company is also working with Iowa Attorney General Tom Miller, who led the multi-state settlement against tobacco companies in the 1990s, to help prevent the unintended consequence of teen Juul and e-cig use. Bowen says a new Juul vaporizer, which is expected to debut next year, will be connected to an app and include tech to prevent underage use.  

A current employee, who spoke on the condition of anonymity, says the pressure from the FDA announcement is palpable, but the consensus among employees is that the company did not market to minors and it'll find a way to stem underage use. Juul is also in hyper growth mode, or as she described it, is going through an "an explosive shit storm" of expansion. Juul had fewer than 200 employees a year ago; it now employs more than 800.

Morale is high, especially after the company opened a new funding round this summer. "If you started at least a year ago, you're wearing golden handcuffs--your equity is now worth a fortune," she says. "People are willing to ride out the FDA regulatory issues--we're making money hand over fist."

Juul's investors no doubt hope that's the case. The company has skyrocketed to Silicon Valley unicorn status this year after raising $650 million in July as part of a funding round that values the company at $15 billion. Juul Labs boasts investors such as Fidelity Investments and Tiger Global Management. The product has captured 70 percent of the e-cigarette market, and Juul is expected to bring in more than $1 billion in revenue, up from $454 million in 2017, according to a Wells Fargo analysis of Nielsen data.

Jay Ritter, a professor of corporate finance at the University of Florida, says most companies with a $15 billion valuation are public. A company like Juul that is dealing with intense public scrutiny could benefit from an IPO. "As a publicly traded company, you have more shareholders who will be advocates for the company to the degree that they'll be upset about regulations that could hurt company profits," says Ritter. Bowen deflected a question about an IPO, saying Juul is "primarily focused on growth" and will evaluate the options along the way.

The U.S. market, which has 38 million smokers, is just the beginning for Juul. The company has expanded to Canada, and launched a less potent formulation in the United Kingdom and Israel. (Both countries, and the European Union, have laws regulating nicotine levels in vaporizers, forcing Juul to reduce its formulation from 5 percent nicotine content to 1.7 percent.)

"Our goal is to eliminate smoking globally," says Bowen, who says Juul sees itself as a disruptor of Big Tobacco. Given that there are more than 1 billion smokers worldwide, there's plenty of work to do. "The biggest financial opportunity, as well as the opportunity for public health, is outside of the U.S., where 95 percent of the world's smokers live," says Bowen.   

Published on: Sep 24, 2018