Juul CEO Hitting the Reset Button on Vaping’s Battered Image

Written by
Angelica Lavito
Written by

Angelica Lavito

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(Bloomberg) -- Trust might not be a word commonly associated with one of the most controversial companies in America. Still, it's a word used often by K.C. Crosthwaite, chief executive officer of embattled e-cigarette maker Juul Labs Inc.

Crosthwaite took the helm of Juul last September when the company was at the center of a public-health crisis that ignited fierce debate over whether e-cigarettes should exist at all. He said this week that he's still pushing to repair Juul's relationships with regulators, policy makers, public-health critics and society at large.

“I felt that the company and the category, quite frankly, needed a reset given the trajectory that we were on,” Crosthwaite said in a phone interview from his home in Richmond, Virginia. “There was clearly erosion of trust that existed for our company and for the category.”

Widely blamed for a teen vaping epidemic, Juul, which says it has never marketed to minors, is taking a more conciliatory approach in some of its public-facing actions. It has stopped advertising products in the U.S. and halted sales of sweet nicotine flavors that public-health advocates say can attract younger users. Juul also dropped an effort to reverse San Francisco's ban on e-cigarette sales after spending $15.3 million on the campaign, according to a disclosure form.

Crosthwaite, 45, spent nearly his entire career at tobacco giant Altria Group Inc. before joining Juul last year. Altria's former head of regulatory affairs, Joe Murillo, also now works at the e-cigarette maker. Their arrival followed Altria's acquisition of a 35% Juul stake for $12.8 billion in 2018.

“It made them Big Tobacco,” said Michael Eriksen, director of the Centers for Disease Control and Prevention's Office on Smoking and Health from 1992 to 2000. “That's the bad side. But the good side is that by getting the experience of executives who have lived through the tobacco wars and understand the history of tobacco in society, it's helpful for Juul to have that context -- because they clearly didn't.”

Crosthwaite says there's “no doubt” his experience at Altria has shaped his approach at Juul, from understanding the potential for its technology to wanting to engage with both supporters and critics. Altria, the U.S. tobacco company formerly known as Philip Morris, pivoted from fighting FDA regulation of tobacco to supporting it in the early 2000s, and has survived years of congressional inquiries, lawsuits and vitriol.

The Juul CEO's plan is about more than just public relations. The closely held firm has plunged in value by about two-thirds, and sales have tapered off amid a barrage of critical reports, lawsuits and competition.

FDA Hurdle

The biggest hurdle comes later this year when Juul must submit an application to the Food and Drug Administration seeking permission to remain on the market. Crosthwaite says he is “very excited” to make its case. He plans to submit scientific studies showing Juul products can be a beneficial alternative for smokers, and will highlight the company's plans to limit vaping by minors.

In his nine months at the helm, Crosthwaite has joined President Donald Trump at the White House and testified before a House committee. He declined to elaborate on any additional meetings he's had.

The shift hasn't been painless. Juul slashed about 40% of its workforce through two rounds of cuts, and remaining employees have had to adapt quickly as the company grappled with the public furor around vaping.

“If we have an employee who doesn't agree that earning the license to operate is important or building trust with stakeholders is important, then this is probably the place they shouldn't be,” Crosthwaite said. “We firmly believe that that is the right approach and that is the path we're pursuing.”

Juul's market share declined about 10% over the past year, even as it still represents 60% of sales in convenience stores and similar outlets, according to market research firm IRI. Crosthwaite says he's OK with a shrunken business as long as it is pursuing the right strategies.

First-quarter sales reached $394.2 million, according to a financial disclosure viewed by Bloomberg News. If the trend holds for the year, Juul could surpass the $1.3 billion in sales recorded in 2018, while still falling short of the $2 billion seen last year.

Michael R. Bloomberg has campaigned and given money in support of a ban on flavored e-cigarettes and tobacco. He is the majority owner of Bloomberg LP, the parent company of Bloomberg News.