Last Thursday, US$4.5 billion vanished from the balance sheet of the American tobacco giant Altria. In December it had spent a staggering US$12.8 billion for 35 per cent of vaping startup Juul Labs. It was the largest-ever investment in a U.S. venture-backed company—more than double the previous record—valuing Juul at US$38 billion and making it one of the most valuable private tech companies in the world. Now, less than a year later, Altria was writing down that investment by more than a third.
“There was no single determinative event or factor,” Altria, the parent company of Marlboro-maker Philip Morris, said in its earnings release. But it cited the “increased likelihood” of the U.S. Food & Drug Administration (FDA) “taking action to remove flavored e-vapor products from the market,” as well as bans in U.S. cities and states and internationally.
Billed as a healthier alternative to cigarettes, vaping promised to breathe new life into tobacco firms beaten down by declining cigarette sales. But the nascent industry is now facing its strongest headwinds.
E-cigarette giant Juul Labs lost an estimated US$14 billion in value last week, amid a wave of mysterious vaping-related lung illnesses and an accompanying regulatory crackdown in the U.S. that has throttled the vaping industry’s rapid growth. Health officials are divided on whether the risks of vaping outweigh the benefits it offers adult smokers trying to quit. In Canada, laws and regulations are under review at both the federal and provincial levels, and further restrictions on the industry may be in the offing.
Public health officials are increasingly divided on how to weigh the purported risks and benefits of vaping as a harm-reduction tool. The U.S., initially slow to regulate, is cracking down on manufacturers and retailers in a frenzied attempt to quell youth vaping amid a surge of mysterious lung injuries that have killed dozens of e-cigarette users. In the U.K., Public Health England maintains that vaping is 95 per cent less harmful than smoking, and the Royal College of Physicians directs doctors to promote e-cigarettes “as widely as possible” to patients trying to quit smoking.
Regulators in Canada, meanwhile, are torn. The federal government enacted laws governing vaping in May of 2018; they are already under review, with critics saying they don’t go far enough. The provinces, too have struggled to strike the right approach. Late last month, the Ontario government announced it would ban vaping advertisements from gas stations and convenience stores—completely reversing legislation it had passed just a year earlier that allowed the ads. Like the U.K., Canada enacted laws for the industry relatively early and has seen few cases of vaping-related illnesses compared to the U.S. But unlike its British peers, Canada’s public health community is generally reluctant to promote vaping, even for smokers.
“All of us physicians would love to see really effective smoking-cessation aids,” says Dr. Sandy Buchman, a family physician and president of the Canadian Medical Association (CMA). Buchman originally thought vaping could be the silver bullet that physicians and smokers had dreamed of. “Now, I would be very clearly warning my patients of the potential dangers that exist with vaping. There are too many red flags. I’m too concerned that something bad is going to happen.”
The CMA is among a coalition of public health groups calling for an immediate ban on certain products and marketing practices in Canada until a clearer picture emerges on vaping’s potential benefits and harms. But others worry knee-jerk regulations could lead to a prohibition that drives users to the black market—the source of most reported vaping illnesses in the first place.
While there’s no consensus on whether vaping is a safer alternative to cigarettes for adults, the trend that has plunged the industry into crisis is its growth among young people—also the demographic most affected by the wave of lung injuries.
A recent report led by David Hammond, a University of Waterloo public health professor, sums up the industry’s catch-22: “Though the impact of vaping products on smoking rates remains highly contentious, it is unfortunate that the characteristics that enhance the effectiveness of e-cigarettes as smoking cessation aids … also increase their potential to promote addiction among young people.”
If the San Francisco-based Juul is the highest-profile vaping startup, it has hardly been alone in its success. Two other vaping companies—Pax, which Juul spun out of, and China’s RELX—now share its unicorn status, each valued at around US$2 billion. And tobacco heavyweights Philip Morris, British American Tobacco and Imperial Brands, eager to cash in on the excitement, have each made their own e-cigarette investments. Average monthly e-cigarette sales in the U.S. mushroomed 132 per cent between 2012 and 2016, according to the Centers for Disease Control and Prevention.
The vaping industry’s purported target market is smokers trying to quit, according to Daniel David, president of the Vaping Industry Trade Association (VITA), which advocates for e-cigarette manufacturers and retailers in Canada. (Juul declined to comment for this article, directing The Logic’s questions to VITA.)
But that’s not always how companies have marketed their products. In January, Stanford researchers published an analysis of Juul’s marketing efforts from 2015 to 2018. They looked at thousands of Instagram posts, tweets and email newsletters and concluded the company’s early marketing efforts were “patently youth oriented.”
“JUUL’s mission statement to ‘Improve the lives of the world’s one billion adult smokers’ and their repeated assertion that their product is meant for ‘adult smokers only’ has not been congruent with its marketing practices over its first 3 years,” the report reads.
The Stanford study found that Juul’s most egregious youth-marketing campaigns were in the company’s early days. But the uptick in youth vaping continued in the years that followed. Another report from the University of Waterloo found that 8.4 per cent of Canadians aged 16 to 19 had tried vaping in 2017. A year later, that number jumped to 14.6 per cent, a 74 per cent spike. At the same time, rates of tobacco use increased among the same age group, from 10.7 per cent to 15.5 per cent. The study also found most teen e-cigarette users were never smokers to begin with, suggesting that vaping was getting kids who wouldn’t otherwise have picked up cigarettes hooked on nicotine.
In the spring of 2019, the youth vaping craze began turning from a relatively harmless habit into a public health panic. Reports mounted of people being rushed to the hospital with chest pain and difficulty breathing. Images showed what looked like ground up glass in the patients’ lungs, something often associated with chemical burns. All the patients were vapers.
The U.S. Centres for Disease Control and Prevention have dubbed the condition “e-cigarette, or vaping, product use associated lung injury,” or EVALI. As of October 29, the illness had affected a reported 1,888 people in the U.S., 37 of whom have died. Only five cases have been reported in Canada, two confirmed and three probable.
The outbreak has thrown regulators into a panic. Six American states have enacted e-cigarette bans in response, from marketing restrictions to all-out prohibition in the case of Massachusetts. President Donald Trump has recommended a nationwide ban on flavoured products, which tend to appeal to youth. The FDA has also shortened its deadline—from August 2022 to May 2020—for companies to get its approval; those making therapeutic claims—that vaping can help smokers quit cigarettes, for example— will need special approval to market their products as medical devices. “We will not stand idly by as these products become an on-ramp to combustible cigarettes or nicotine addiction for a generation of youth,” said U.S. Health and Human Services Secretary Alex Azar.
Juul has been trying to get out ahead of the backlash, leading the industry in pre-empting more restrictions. In late September, the company halted all print, broadcast and digital advertising in the U.S.. Three weeks later, it stopped online sales of fruit-, candy- and dessert-flavoured pods, which it had pulled from physical stores a year earlier. The company also agreed not to lobby against the FDA’s proposed ban on flavoured vaping products.
The measures have rocked the company’s growth. In October, The Wall Street Journal reported that Juul plans to lay off as many as 500 employees—between 10 and 15 per cent of its workforce—as part of a “necessary reset,” said CEO K.C. Crosthwaite, a former Altria executive who replaced Burns in September. The company is now shifting resources away from marketing to focus on “earning a license to operate in the U.S. and around the world,” Crosthwaite told The Journal. “The current slowdown of the vaping market in the U.S. was overdue,” says Roberto Pozzi, a London-based credit analyst with Moody’s Investors Service. While industry leaders may see a dip in business now, he says, “big companies will benefit down the road.” “[Regulation] is going to be beneficial for a smaller number of players that are going to respect the law. Juul is a large organization and should have the capabilities, both financial and technical, to remain in the market, provided they aren’t doing something that’s considered criminal.”
In late September, two men filed a lawsuit in B.C. against Juul, claiming they suffered adverse health conditions after using the company’s e-cigarettes, and said Juul misled them over the products’ safety. Both plaintiffs, Jaycen Stephens and Owen Mann-Campbell, were minors when they started vaping in 2018, and say they did so “due to representations made in the public domain that e-cigarettes were safe and a healthier alternative to smoking,” according to their notice of civil claim.
Anthony Leoni, legal counsel for the plaintiffs, says his firm, Rice Harbut Elliott, has received complaints against Juul from “hundreds” of people interested the lawsuit if the court certifies it as a class action Most of the complaints centre on inappropriate advertising and sale to minors, the addictive quality of the products and respiratory symptoms like chest pain and shortness of breath, he says. “Almost all” complaints cite respiratory symptoms, says Leoni.
Just over a year after enacting its new vaping act, Health Canada is reviewing the laws as more kids and non-smokers take up e-cigarettes. The federal law currently includes a ban on selling vaping products to minors, celebrity endorsements of vaping and prohibiting companies from naming then after candy and desserts. The department is now considering limiting the sale of flavoured pods, not just their marketing, and modeling e-cigarette advertising rules after the ones for tobacco—for example, prohibiting product displays at check-out counters and including health warnings on packaging.
Health Canada held public consultations between April and May and is “carefully reviewing the feedback,” spokesperson Maryse Durette told The Logic.
But Buchman says the government is taking too long to act. “Recognizing that some [vapers] are trying to quit smoking, they too could be exposed to some of the dangers,” he says.
Provincial leaders are calling for stronger regulations as well. Apart from Ontario’s recent reversal, British Columbia has asked Ottawa to require e-cigarette retailers to hold special licences and the province’s municipalities are calling for stricter rules around accessing and selling vaping products. Nova Scotia’s premier has floated a ban on flavoured products ahead of a federal decision. Still, it’s business as usual for vaping companies in the country. Products flavoured like vanilla, mango and “peaches, grapes and berries with herbal notes” are still for sale online and in stores, and Juul continues to lobby the federal government and every Canadian province.
David wagers that e-cigarette companies in Canada won’t see the same degree of pushback as in the U.S. “The regulatory environment in Canada is very, very different from what it is in the States. We were lucky enough to have legislation in place that dealt with the various issues of vaping,” he says, referring to the federal law.
Some health professionals believe Canadian laws have protected vapers from getting sick at the same rate as e-cigarette users in the U.S. “People had suggested that, proportionately, we might see rates in Canada similar to those in the U.S. However, that hasn’t come to pass,” says Dr. Michael Schwandt, a public health physician with the British Columbia Centre for Disease Control.
Schwandt says Canada’s regulations around both cannabis and e-cigarettes may be to thank for keeping EVALI rates relatively low, despite the growing number of vapers in the country. Most cases of the illness in the U.S. are linked to products containing THC, the psychoactive compound in cannabis. “One thing that seems to be emerging is there might be greater risk of this vaping-associated illness in areas where there is a total moratorium on cannabis use,” says Schwandt, noting that users may avoid illicit cannabis “vape pens” in Canada and opt instead for regulated products that are easily accessible. “Potentially, where people are acquiring THC products through grey markets or black markets, there might be more risk for some of those harms.” At the same time, easy access to nicotine vaping products in Canada and vaping laws that restrict certain ingredients and manufacturing processes could mean fewer users are retrofitting their own vapes or buying e-juice that contains known carcinogens.
The industry association’s David argues that clamping down on vaping in Canada could undermine the products’ harm-reduction potential and lead users to the black market to seek out illicit products like flavoured pods. A July 2018 study published in the Harm Reduction Journal, for example, found that flavoured e-cigarettes were key to getting adult smokers to switch to vaping.
But with the long-term health impacts of vaping still largely unknown, physicians like Schwandt and Buchman are loath to recommend the products.
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“The data on potential harms of vaping hasn’t landed as soundly as it has for tobacco,” says Schwandt. “It’s a newer practice—the information on long-range harms isn’t as well-known and there may be fewer harms associated with it than with combustible tobacco. I think regulators will strive for policies that are proportionate to the risk.”
While cigarette smoking became widely popular during World War I, it wasn’t until the 1940s that health officials began linking the habit to the uptick in lung cancer. By 1960, only a third of U.S. physicians were convinced smoking was the culprit.
With tobacco, Buchman agrees that finding that balance took too long. He fears regulators are repeating the mistake with vaping. “Look at the number of people that have been hospitalized with this acute respiratory syndrome,” he says. “Are we going to wait for a young person to die in Canada before we actually do something about it?”