(Bloomberg Opinion) -- “The announcement strips away any doubt about Juul,” said Matthew Myers, the president of the Campaign for Tobacco-Free Kids, an advocacy group. “It is Big Tobacco.”
That quote by Myers is contained in a statement Tobacco-Free Kids issued Wednesday morning, after learning that K.C. Crosthwaite would become the new chief executive of the beleaguered e-cigarette company. And you know something? Myers is absolutely right. (Bloomberg Philanthropies supports the Campaign for Tobacco-Free Kids.)
Crosthwaite, 44, has worked at Altria Group Inc. since he was 22. He’s managed the Marlboro brand. He’s been president of Philip Morris USA, Altria’s core cigarette unit. Until Wednesday, he was the company’s “Chief Strategy and Growth Officer,” pushing Altria toward a future it hopes will be less reliant on death sticks – a.k.a cigarettes – to make money.
Needless to say, the public health community is appalled at the thought of a tobacco lifer running Juul. But I think it’s the first good thing to happen to the company in months. Strange as this may sound, if Juul is going to survive the current vaping crisis – hell, if vaping is going to survive the current vaping crisis — Big Tobacco is going to have to get involved.
The crisis is two-fold. First, the number of kids who are vaping — and, presumably, getting hooked on nicotine — has risen to alarming proportions. The Centers for Disease Control and Prevention — the CDC —says that 20.8 percent of high school students tried e-cigarettes last year, up from 11.7 percent in 2017.
Second, over the last few months, hundreds of vapers have developed a mysterious lung injury. At least 8 have died. Although the injury appears to be connected to contaminated cannabis oil — most likely bought illegally — federal health officials have been using the news to raise serious questions about vaping.
The CDC and the Food and Drug Administration have both recommended that people stop vaping, whether it’s marijuana or an e-liquid. Massachusetts has ordered a four month ban on the sale of all vaping products. San Francisco, where Juul is located, has outlawed e-cigarettes entirely. The Trump administration is considering banning the sale of flavored e-cigarettes.
And where has Juul been in the midst of this firestorm? Nowheresville. Its protestations that it didn’t market to kids have been scoffed at. As it has become increasingly popular — among both adults and teens — it has seemed to wither in the face of increased criticism. And as more and more people became convinced beyond a shadow of a doubt that (1) e-cigarettes were as dangerous as lit cigarettes, which kill 480,000 Americans a year, Juul could never figure out how to respond. Federal and state investigators have swarmed over the company. Juul was even reprimanded recently by the FDA for launching an ad campaign aimed at adult smokers, urging them to become vapers.
The CEO who just stepped down, Kevin Burns, was hired in late 2017. Juul then had several hundred employees. It now has around 3,000 employees. Burns was brought in because he’s a manufacturing guy; as the company grew, it needed to be able to produce its e-cigarettes on a large scale.
But manufacturing is hardly Juul’s biggest problem today; it needs to get through this crisis with its business still intact. From talking to people at Altria and Juul, I got the sense that Burns and the board understood that Juul needs a leader whose core competency is knowing how to respond to regulatory challenges faced by the company.
Juul is hoping that its new chief executive, Crosthwaite, will be that person. At Altria, he was the point person who negotiated the deal that saw Altria pay $12.8 billion for 35% of the vaping company. He knows Juul well. He was also a key figure in getting another new e-cigarette product, called IQOS, approved by the Food and Drug Administration. IQOS, which heats tobacco but doesn’t burn it, was developed by Philip Morris International, but Altria will market it in the U.S.
That exceedingly complex approval process costs millions of dollars, and every vaping product, including Juul, is required by the FDA to submit an application by May. Most e-cigarette companies will not be able to make this deadline and will likely be forced out of business. But Philip Morris has the money and the experience to meet the deadline, and to then stick with the rest of the process, which could take several years. Ultimately, the FDA approval process will likely mean that the only e-cigarettes to remain on the market are those under the wing of a major tobacco company.
There is a second process, called the Modified Risk Tobacco Product Application. Any product that gets the MRTP designation will be able to finally tell the world that it is less harmful than cigarettes. For Juul—and for Altria—that’s the holy grail. It is also the information smokers need to have the confidence to switch.
Not even the most enthusiastic proponent of e-cigarettes discounts the importance of reducing the number of vaping teens. It is, indeed, an epidemic. If the industry can’t help halt the spread of e-cigarettes among youths, it will be doomed.
Altria and Juul appear to understand that. As it happens, there was a major tobacco conference in Washington on Wednesday, and one of the speakers was Howard Willard, Altria’s chief executive. He said that the rise in teen vaping was “unacceptable and alarming,” and called for all 50 states to make 21 the minimum age for buying tobacco products. In an effort to calm the waters, he noted that Juul would immediately suspend all its advertising and marketing, and refrain from lobbying the administration as it tries to decide whether to ban flavors.
For a number of years now, Altria and the other big tobacco companies have said they want to help achieve a smoke-free world. They’ve said that the products they are developing, like IQOS, or investing in, like Juul, will help bring that about. In his speech, Willard said that he believes that by 2029, more adults will buy non-combusted nicotine products than cigarettes. Naturally, he wants Philip Morris to be selling those products.
There are good reasons to be deeply suspicious of Big Tobacco. But the fact remains that, thanks in part to the fears that have been raised about vaping — some legitimate, some not — only Big Tobacco has the resources, the patience, and the thick skin needed to make vaping an acceptable alternative to smoking.
Yes, Big Tobacco is now in control at Juul. That is its only hope.
(1) According to a recent Reuters/Ipsos poll, 63% of adults in the U.S. disagreed that “vaping is healthier than traditional cigarettes.”The British government has long maintainedthat vaping is 95 percent safer than smoking. Why? Because while nicotine addicts, it is the lit tobacco that kills.
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Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."
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