Juul, the US e-cigarette giant, was forced to remove its products from the shelves, ushering in the end of global e-cigarettes

Recently, the U.S. media reported that the U.S. Food and Drug Administration (FDA) announced a ban on the sale of Juul e-cigarettes in the United States. This e-cigarette giant, which once dominated the market in the United States, has finally been sentenced to "death" by the United States. With the implementation of this decision, it also means that the global e-cigarette market has finally come to an end.

Image source: Juul

From glory to decline, Juul

Many people may be unfamiliar with the Juul brand, but you should know that in the United States, the brand was very popular in the e-cigarette market a few years ago.

Juul is a company headquartered in San Francisco, USA. It was originally an e-cigarette brand under the American e-cigarette company Pax Labs. It was founded in 2015 and became an independent company after separating from Pax Labs in July 2017. At the end of 2018, Altria Group, the parent company of the well-known cigarette brand Marlboro, announced that it would acquire 35% of Juul's shares for US$12.8 billion, and Juul's valuation soared to US$38 billion.

Also in 2018, Juul successfully took the undisputed top spot in the US e-cigarette market, occupying more than 70% of the entire market, with annual revenue reaching US$2 billion and the total number of employees rapidly expanding from 200 to 1,500.

Interestingly, after the deal with Altria was completed, Juul announced that it would use its full-year revenue, or $2 billion, to pay year-end bonuses to all 1,500 employees, with each employee receiving a bonus of about $1.3 million. This news spread around the world, and many people may still remember this report.

It is worth mentioning that in addition to traditional cigarette brands such as Marlboro, Altria Group also has its own e-cigarette brand, with annual revenue exceeding US$26 billion and a market value of more than US$100 billion at its peak. However, in 2018, it was eager to hold shares in Juul, which indirectly verified Juul's position in the US e-cigarette market.

However, this good thing did not last long. Starting in 2019, a wave of resistance to e-cigarettes began in the United States. In 2019, federal data showed that more than a quarter of high school students had used e-cigarettes in the past 30 days, far higher than 11.7% two years ago.

In June 2019, San Francisco, where Juul's headquarters is located, took the lead in issuing an e-cigarette ban, prohibiting all stores in the city from selling e-cigarettes containing nicotine, and even prohibiting e-commerce platforms from shipping to San Francisco addresses.

In September of the same year, the U.S. Department of Health announced plans to completely ban the sale of all flavored e-cigarettes, and officially issued a sales ban (except mint flavor) in January 2020. Before the outbreak of the new coronavirus, there were reports of e-cigarette pneumonia in the United States. Although it eventually came to nothing, it also exacerbated people's concerns about e-cigarettes.

Not only the United States, in September 2019, the Indian government announced a complete ban on the production, sale and import of e-cigarettes, and violators will be fined and imprisoned.

Also in 2019, e-cigarettes were removed from the entire network in the Chinese market, and e-cigarettes returned to the offline market. In 2022, with the release of the "Regulations for the Implementation of the Tobacco Monopoly Law of the People's Republic of China", regulations were also made on cigarette cartridges, stipulating that 122 types of flavor additives are temporarily permitted, flavors must not be inducement to minors, and nicotine concentrations must not exceed 20mg/g. This means that except for tobacco flavors, other flavors are not allowed to be sold.

On June 19 this year, the State Tobacco Monopoly Administration issued a document stating that it will continue to promote the legalization and standardization of the development of the e-cigarette industry in an orderly manner. Just a few days ago, the National Unified E-cigarette Transaction Management Platform was officially launched, which also marked the standardization of the e-cigarette market.

There are more than just these regulated regions. Countries such as Estonia, Finland, Hungary, Denmark, the Netherlands, Ukraine, the Philippines, etc. have already banned flavored e-cigarettes, and the management of e-cigarettes has become increasingly strict.

For Juul, facing such a market will obviously have a huge impact on its revenue. In 2020, Juul's revenue plummeted by 29%, and continued to decline by 11% in 2021. The decline in revenue also forced Juul to lay off employees. In 2019, it laid off one-third of its employees, and in 2020 it laid off half of its employees again.

The restrictions imposed by many countries and regions, coupled with the decline of Juul, clearly indicate that the golden age of e-cigarette development has passed. The market will be more standardized and stable in the future.

The affected Chinese e-cigarette industry chain

As an emerging market, e-cigarettes are built on the basis of the traditional tobacco market and rely on the original market foundation to develop rapidly. Therefore, we can see that even though many regions in the world have begun to gradually tighten the control of e-cigarettes, from the market point of view, e-cigarettes are still maintaining a steady growth.

Taking the US market as an example, according to statistics from research company Grand View Research, the size of the US e-cigarette market reached US$7.3 billion in 2021, a year-on-year increase of 20% from 2020, and this trend is difficult to change for the time being. It is estimated that from 2022 to 2030, the US e-cigarette market will still maintain an annual compound growth rate of 29.2%.

In addition, according to the "2022 Electronic Cigarette Industry Export Blue Book" (hereinafter referred to as the "Blue Book") jointly produced by the Electronic Cigarette Professional Committee of the China Electronic Commerce Association and the two supremes, the global electronic cigarette market size reached US$80 billion in 2021, and the domestic electronic cigarette export scale reached 138.3 billion yuan, a year-on-year increase of 180%.

The global e-cigarette market size will exceed US$108 billion in 2022, and the overseas e-cigarette market size is expected to maintain a growth rate of 35% in 2022. The total domestic export volume this year is expected to be RMB 186.7 billion, a year-on-year increase of 35%.

At the same time, there are currently more than 1,500 e-cigarette manufacturing and branding companies in China, of which more than 70% mainly export their products overseas, and there are nearly 100,000 e-cigarette supply chain and surrounding service companies.

According to data, currently, more than 95% of the world's e-cigarette production and products come from China, 70% of China comes from Shenzhen, and more than 95% of Shenzhen comes from Bao'an. This means that if there is no major change in the market, the rapid development of the global e-cigarette market will drive the rise of related industries in China and bring a large amount of foreign exchange income to China.

Judging from the distribution of the electronic cigarette industry chain, the upstream is mainly composed of components such as batteries and structural parts. Since the process technology of electronic cigarettes themselves is relatively simple, the industry's technical barriers are low and the competition is very fierce, usually accounting for about 15% of the gross profit of the entire industry.

The midstream is OEM production, and the atomizer core has the technology, patents, and mass production thresholds, so it accounts for about 12.5% ​​of the gross profit, and the channel construction and publicity on the brand side account for 17.5% of the gross profit. The most profitable is the downstream wholesale and retail, accounting for 50% of the gross profit, but with the tightening of industry supervision and the influence of regional policy risks and other factors, the downstream may lead to a decline in profits.

According to this algorithm, the market size of batteries and structural parts in China's upstream will reach US$15 billion, and the market size of atomizer cores in the midstream will also reach US$12.5 billion.

On the other hand, as stated in the "Blue Book", in terms of the global e-cigarette consumption overview, there is a clear trend of diversification in global e-cigarette consumption, and new tobacco consumption will be the main growth point of the tobacco industry in the future; the United States is the world's largest single market, and its consumption guiding role is obvious.

但如今，美国FDA直接Juul的PMTA认证，电子烟在美国市场前途未卜。一旦失去美国市场的助力，对未来电子烟的发展必然会造成巨大的影响。同时对中国的电子烟产业而言，也将是一记“重拳”。更有甚至，随着美国对Juul的处理，可能将赢得更多国家或地区的效仿，也不利于全球电子烟的发展。

Final Thoughts

The FDA stated in the ban statement that after evaluating Juul's product application, they determined that the research results submitted by Juul Laboratories on the genotoxicity and harmful chemicals of the company's patented e-cigarette cartridges lacked sufficient data and conflicting data, and did not fully answer questions. Therefore, the FDA determined that the continued sale of Juul products could not protect public safety.

Although Juul Labs Chief Regulatory Officer Joe Murillo expressed his respect, he disagreed with the FDA's findings and decision and would explore options to appeal.

But there is not much hope for Juul to return to the US market. Data shows that with the strict smoking bans and restrictions in various parts of the United States in recent years, the proportion of smokers in the United States has shown a downward trend. Data released by the American Lung Association in 2018 showed that the smoking rate of adults in the United States has dropped from 55% in 1955 to 15.5%, while the smoking rate of high school students has dropped from 28% in 2000 to 8%. But with the proliferation of e-cigarettes, the problem of smoking among teenagers has become more serious.