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The US E-cigarette Company Has Good Industry Prospects, And E-cigarettes Are Facing Taxation Pressure
Jul 20, 2018

Recently, US e-cigarette startup Juul Labs Inc. (hereinafter referred to as “Juul”) announced that it has completed a financing of US$650 million. The target financing amount for this round is US$1.2 billion (if the financing target is completed, Juul’s valuation will reach $15 billion). According to public information, the company's current major shareholders include: well-known investment companies Tiger Global and Fidelity Investments.

Juul was originally an e-cigarette launched by American electronics company PAX Labs in June 2015. This e-cigarette uses nicotine salt extracted from tobacco as a key ingredient (usually e-cigarettes are nicotine solutions), combined with its unique rectangular design, portable size and large-capacity "smoke warehouse", has achieved great success.

In July 2017, former PAX Labs executives James Monsees and Adam Bowen separated Juul as an independent company from PAX Labs and served as its executive director. Juul's CEO Tyler Goldman is also the CEO of the original PAX Labs.

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Juul plans to use the funds for international expansion and expand distribution. Currently, Juul's products are only sold in Israel, except in the United States.

According to international market research firm Nielsen, as of May this year, Juul has a 68% share of the US e-cigarette market. Moreover, the e-cigarette market is rapidly eroding the traditional tobacco market. In the past year, the share of traditional cigarettes in the tobacco market has fallen by 4% year-on-year, while Juul has increased by 3.5% year-on-year.

Juul, a disruptor in the e-cigarette industry, has had a huge impact on traditional tobacco giants: US tobacco giant Philip Morris International Inc. (hereafter referred to as “Philip Morris”) has fallen 23% this year, its rival British American Tobacco Share prices with Japan Tobacco Corp. fell 24% and 15% respectively.

Nielsen said that although many tobacco giants have launched their own e-cigarette products, these products are slower. This year, Philip Morris sought to sell the product in the US after relying on its star e-cigarette product iQos in overseas markets such as Japan, but it has not yet passed regulatory approval.

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Multiple pressures in the electronic cigarette industry

Relevant government agencies and the public are already aware of the risks of e-cigarettes. Last month, San Francisco voters demanded that the use of flavored nicotine products be banned. Juul sells "smoke bombs" with the taste of mango, cucumber and caramel pudding. One contains four cartridges for $16, and these products are made in the United States. Juul's customers stated that they appreciate Juul's sleek design, which uses a smoker similar to a USB flash drive to discretely heat pre-filled nicotine cartridges with e-cigarette equipment. According to Wells Fargo, the sales of Juul cartridges and e-cigarettes have increased more than eightfold in the past year. Currently, regulators are scrutinizing such products.

Scott Gottlieb, director of the US Food and Drug Administration (FDA), described e-cigarettes as a public health crisis for young people. In April of this year, Scott Gottlieb asked Juul to disclose documents related to its marketing strategy to determine whether the company is targeting young people. In addition, the FDA asked Juul to provide research on the potential health problems of e-cigarettes.

Juul says its mission is to help smoking addicts quit smoking by providing safer tar burning cigarette substitutes. The company says customers must be 21 years of age or older to purchase the product and will not market their products to teens. The company also said it has pledged $30 million to combat the use of e-cigarettes by minors.

In addition, another potential blow to the e-cigarette industry may come from US President Trump. In the trade war with China, e-cigarette equipment was included in the list of China's proposed tax-increasing products, and a 25% tariff will be imposed. Juul's e-cigarette equipment is manufactured in Shenzhen, China and is priced at $35. The Trump administration has not yet determined the date of implementation of the next round of taxation, and the plan is subject to change. Juul declined to comment on issues such as tariffs.

However, for the e-cigar industry, tariffs do not cause much problems. Gregory Conley, president of the Electronic Cigarette Association of the United States, said: "The cartridge is Juul's profit point."