Juul Shares May Have Snuck Into Your Portfolio

(Bloomberg Businessweek) -- The Lyndhurst Foundation is one of Tennessee's most prominent philanthropies. Decades after the death of its benefactor, who made his fortune bottling Coca-Cola, the philanthropy breathed new life into Chattanooga by helping establish the local aquarium, children's museum, and public elementary schools. It contributed $5 million last year to education, health care, and other community initiatives. It also holds an indirect stake in the country's most popular e-cigarette brand, Juul Labs Inc., which officials blame for creating a youth health epidemic.

Juul is a private company—its shares aren't publicly traded. The foundation owns private shares through its investment in Tiger Global Management, a hedge fund. So do the Hillman Foundation, which supports a cancer center bearing its name in Pittsburgh, and the Community Foundation of Greater Chattanooga.

Jonah Thongnopnua, a spokesman for Chattanooga's Community Foundation, says board members are now “actively discussing” the Juul holding after learning about it from Bloomberg. He declined to comment further. The Lyndhurst and Hillman foundations declined to answer emailed questions. Tiger Management declined to comment.

Juul spokesman Joshua Raffel says: “From investors to employees, Juul Labs is deeply concerned about youth usage and is committed to fighting it. With the support and encouragement of our investors, we have taken the most aggressive actions of anyone in the industry.” During the past year as the U.S. Food and Drug Administration has increased scrutiny of Juul, the company has improved its online age verification process, advocated the smoking age be raised to 21, deleted many social media posts glamorizing vaping, and stopped selling fruit- and dessert-flavored products to many retail stores.

Philanthropies typically ask funds not to back companies that promote tobacco, firearms, or other vices, says Amir Pasic, dean of Indiana University's Lilly School of Philanthropy. Charities are expected to regularly reassess their holdings for potential ethical contradictions, he says. “The left hand has to know what the right hand is doing,” he says. “You need to be constantly vigilant.”

Mutual fund giant Fidelity Investments invested in Juul last summer at the same time Tiger Global did. Fidelity sprinkled the private shares across several funds, including the Fidelity Blue Chip Growth Fund and some of its Fidelity Freedom Funds, which are timed retirement accounts. That means hundreds of thousands of people with certain Fidelity mutual funds or retirement accounts are Juul stockholders, too. “I'm afraid to even look,” says Becky Wexler, a spokeswoman for the Campaign for Tobacco-Free Kids and a Fidelity account holder when Bloomberg spoke to her. “This will be a good test of whether I can remember my password to my 401(k).” (She did and was relieved to learn there were no Juul holdings.) Fidelity declined to comment.

Among the companies that offer those retirement plans to employees are Akorn, Biogen, BlueCross BlueShield of Tennessee, Citrix Systems, Horizon Healthcare Services, Monolithic Power Systems, and Terex. Only one of those companies, the Blue Cross Blue Shield Association, answered questions about their retirement offerings, through an outside representative. “Our strategy is to offer an investment lineup that provides options of widely held mutual funds,” says Terrence Cooney, a vice president at the National Employee Benefits Administration, which oversees investments for Blue Cross Blue Shield employees. “We regularly look at and reevaluate the choices we offer our employees.” He declined to comment on whether the Juul stock in those funds would trigger such a reassessment.

Juul has been a profitable investment. Its value has exploded in the two years since it was established as a standalone business. Altria Group Inc., which sells Marlboro cigarettes in the U.S., agreed to buy a 35 percent stake in December, valuing Juul at $38 billion. The deal awarded Tiger Global a one-time cash dividend of $1.6 billion.

Juul pitches itself as a way to help smokers quit. Vaping advocates say e-cigarettes are less harmful than combustible tobacco products and, because the vape juice contains nicotine, e-cigarettes can help those trying to stop smoking. Vaping critics call it a gateway drug, saying nicotine salts in the pod juice can contain up to three times the nicotine concentration of traditional cigarettes.

Tobacco use among U.S. middle school and high school students last year increased for the first time in decades, according to a recent government report. Officials attributed the jump to e-cigarettes, a market dominated by Juul. The company now accounts for more than 70 percent of the nation's e-cigarette market. And Juul expects to triple its 2018 revenue, to $3.4 billion, in 2019, sources told Bloomberg in February.

Bryan Bowen, chief operating officer of Muir Wood, a boys' residential substance abuse center in Marin County, Calif., says Juul devices are the most frequently confiscated object from newly admitted patients. Five years ago, 50 percent of all clients being admitted tested positive for nicotine, he says; now that number is consistently 90 percent or higher. “Like Lou Reed said, ‘Nicotine is harder to quit than heroin,' ” Bowen says.

To contact the editor responsible for this story: Eric Gelman at egelman3@bloomberg.net

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