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Juul's Marketing Under Scrutiny As Vaping Increases Among Teens -- WSJ

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08/30/2019 | 02:48am EDT

FTC probes whether e-cigarette maker targeted minors as teen vaping rises

By Jennifer Maloney 

The Federal Trade Commission is investigating whether e-cigarette startup Juul Labs Inc. used influencers and other marketing to appeal to minors, according to people familiar with the matter, ratcheting up pressure on a company whose products are blamed for a rise in vaping among teens.

The probe, which hasn't previously been disclosed, began before the agency's antitrust review of a December deal in which tobacco giant Altria Group Inc. invested $12.8 billion to take a 35% stake in Juul, those and other people familiar with the matter said. The FTC is also determining whether to seek monetary damages, one of the people said.

"We fully cooperate and are transparent with any government agency or regulator who have interest in our category," a Juul spokesman said. The company says it has never marketed to youth and that its products are intended for adult cigarette smokers.

"Our paid influencer program, which was never formalized, was a small, short-lived pilot" that ended last year, the spokesman said. The company paid less than $10,000 to fewer than 10 adults who were smokers or former smokers over the age of 30, he said.

Influencer marketing involves paying people with large social-media followings to promote a product.

The FTC and Altria declined to comment.

The agency in September first sent Juul a letter requesting information about its marketing, two of the people said. FTC investigators are looking at whether Juul engaged in deceptive marketing. The agency has designated the investigation as nonpublic.

The regulatory risks surrounding Juul have taken on new weight for Altria as the Marlboro maker engages in advanced talks to merge with Philip Morris International Inc. Altria sells Marlboros in the U.S.; Philip Morris sells them everywhere else. Their merger discussions were motivated in part by the risks and opportunities that Juul presents as the startup expands into overseas markets and woos cigarette smokers away from both tobacco companies, according to people familiar with the matter.

Altria's shares fell 3.5% on Thursday.

The Food and Drug Administration and several state attorneys general also are investigating Juul's marketing practices. The FDA last October conducted a surprise inspection of Juul's headquarters and collected documents about its marketing.

The FTC's separate antitrust review will determine whether Altria can appoint representatives to Juul's board and convert its 35% nonvoting shares to voting shares.

The FTC has a history of scrutinizing the marketing practices of tobacco companies and, with the ability to issue subpoenas, it wields more investigative power than the FDA. In 1997, the trade commission prodded R.J. Reynolds Tobacco Co. to end its Joe Camel ad campaign, deeming it too appealing to children.

Juul's first marketing campaign in 2015, called "Vaporized," pitched the brand as a cool lifestyle accessory with images of people in their 20s and 30s, which critics say made the brand attractive to teens. Later, as sales of the sleek devices took off in 2017, Juul-related posts exploded on Instagram and Twitter with photos posted by young people using the product.

Vaping among teens jumped 78% from 2017 to 2018, federal data show.

Referring to the Vaporized campaign, the Juul spokesman said, "There is no evidence that it drove use, youth or otherwise. Nonetheless, we regret that the campaign was executed in a way that was perceived as appealing to minors."

Juul has since shut down its Facebook and Instagram accounts in the U.S. and changed its marketing to feature only adult smokers at least 35 years old who have switched to Juul. It has also voluntarily stopped selling sweet and fruity flavors in bricks-and-mortar stores.

Juul supports legislation to raise the minimum purchase age to 21. On Thursday, it unveiled a plan to install an electronic age-verification system at gas stations and convenience stores intended to curb illegal sales to minors.

--John D. McKinnon contributed to this article.

Write to Jennifer Maloney at jennifer.maloney@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
ALTRIA GROUP -3.69% 42.01 Delayed Quote.-14.94%
CAMEL GROUP CO LTD 0.20% 10.27 End-of-day quote.16.31%
FACEBOOK -0.15% 187.19 Delayed Quote.42.80%
PHILIP MORRIS INTERNATIONAL -2.47% 73.05 Delayed Quote.9.42%
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Financials (USD)
Sales 2019 19 791 M
EBIT 2019 10 425 M
Net income 2019 7 242 M
Debt 2019 26 802 M
Yield 2019 7,82%
P/E ratio 2019 10,9x
P/E ratio 2020 9,62x
EV / Sales2019 5,32x
EV / Sales2020 5,25x
Capitalization 78 479 M
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George Muñoz Independent Director
Thomas F. Farrell Independent Director
Dinyar S. Devitre Independent Director
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