The CEO of Juul is out, as a growing number of vaping-related deaths and threats of federal regulation present a monumental challenge for the e-cigarette company.
Juul announced Wednesday that CEO Kevin Burns will be replaced by K.C. Crosthwaite, who had been chief growth officer at tobacco company Altria (MO), a major investor in Juul. In that position, Crosthwaite oversaw an expansion into alternatives to traditional cigarettes. He also played a key role with commercial and regulatory efforts related to the US launch of iQOS, a device that heats tobacco rather than burning it.
In recent months there have been nine US deaths tied to vaping and e-cigarettes, and the Centers for Disease Control said that as of September 17 there have been 530 cases of lung injury associated with those products. The CDC has not identified any one company or vaping product as responsible for any of the deaths and injuries though.
Juul also said Wednesday it has a new marketing strategy: It will suspend all TV, print and digital ads and will stop some of its lobbying efforts. And the company said it is committing to fully support and comply with any new federal policy related to vaping products. The US Food and Drug Administration is weighing regulations to ban all flavored e-cigarettes, which some consider particularly attractive to young users.
In addition to possible federal action on flavored e-cigarettes, several states are moving to ban e-cigarettes altogether.
Last week Walmart, the nation’s largest retailer, announced it would no longer sell vaping products.
“I have long believed in a future where adult smokers overwhelmingly choose alternative products like Juul,” said Crosthwaite. “Unfortunately, today that future is at risk due to unacceptable levels of youth usage and eroding public confidence in our industry. Against that backdrop, we must strive to work with regulators, policymakers and other stakeholders, and earn the trust of the societies in which we operate.”
Altria bought a 35% stake in Juul last December for about $13 billion, an investment that would have valued Juul at about $37 billion. That’s nearly half the market value of Altria, the maker of Marlboro cigarettes. It was a a recognition at that time of what the industry saw as the tremendous growth potential for vaping.
At the time, vaping was portrayed as a safer form of smoking that could help smokers stop the use of traditional cigarettes. And Juul is by far the market leader. Wells Fargo analyst Bonnie Herzog estimates its US market share at just less than 70%, well ahead of rival Vuse, which has only about 10% of the US market according to those estimates. Vuse, which went on sale in 2013, is owned by British American Tobacco (BTAFF) unit R.J. Reynolds.
Juul’s weekly US sales more than tripled from the start of 2018 through the end of October, according to Herzog. Then, in November, it announced that to combat underage vaping, it stopped shipping non-tobacco and non- menthol-based flavors, such as cucumber, creme, mango, and fruit. Sales briefly fell, but by March 2019 they were topping the company’s previous sales peak. Sales began falling again in July, as reports of health problems started to surface.
Juul also said that stores continued to sell flavored products that work with Juul devices–pods that the company said were either counterfeit or illegally described as “Juul compatible.” The company said its legal team is working to prevent the sale of those flavored products.
Juul had no choice but to replace Burns, said Tim Hubbard, assistant professor of management in the business school at Notre Dame.
“The company has not managed the change in perceptions of e-cigarettes,” said Hubbard, an expert on CEO dismissals and reputation crises. “In a short time, what was seen by some as a safer alternative to smoking has been vilified. When compared to traditional tobacco products - which have remained on the shelves for decades despite being proven dangerous - e-cigarette makers have failed spectacularly.
“Bringing in a traditional tobacco executive who knows how to market and manage government relationships with deadly products matches the firm’s needs,” Hubbard continued. “We can expect a change to traditional tobacco strategies as the company tries to adjust to a new reality.”
One anti-smoking group said no one should be lulled into thinking that Juul has changed.
“The youth e-cigarette epidemic has gone from bad to worse, and 5 million kids now use e-cigarettes,” said Matthew Myers, president of the Campaign for Tobacco-Free Kids. “Juul’s announcement today is aimed at repairing its image and protecting its profits, not at solving this crisis. This announcement strips away any doubt about Juul. It is Big Tobacco.”
Juul was founded by Adam Bowen and James Monsees, and was incorporated in 2015. Burns became CEO after having previously worked as chief operating officer of Chobani, a maker of Greek yogurt.
“Kevin transformed our start-up into a global business, and we are incredibly grateful for his commitment to and passion for our mission,” said Bowen and Monsees.