47BloombergBusinessweek July27, 2020
complainedthat herthroat bledaftersheaccidentally
ingestedsomeoftheliquid.
EvenmorecomplaintscouldbefoundonRedditand
otheronlineforums,wherebadword-of-mouthcouldbe
ruinous.AndsoJuulscrambled.Engineersfiddledwithdif-
ferentdesignstoestablisha tighterfitforthepods.They
comparedtheviscosityofdifferente-liquidformulations.
Theytestedthepodsbyflippingthemononeside,then
another,thenanother,tryingtofigureoutwhatwasgoing
on.Theysettledultimatelyona combinationofstepsthat
reduced,butdidn’tcompletelystop,theleaks.
Theshutdownswerea thornierproblem.Thecausewas
simpleenoughtodetermine:Theleakingfluidcompromised
a tinypressuresensorinsidethedevice.Thesensor’srole
wastorecognizetheairflowofa usersuckingonthedevice
andtriggeritsbatterytoheatuptheliquid,producingvapor.
Whenthesensorfailed,theuserwasunabletotakea hit.
Whileitworkedtofixtheseproblems,thecompany
attractedinvestors.InDecember2017,Juulraised$111.5mil-
lioninventurefunding.Thecompanywasnowworth
$10billion—andunderconstantpressuretojustifythat
valuation.It wasonhighalertforwaystoeliminatewhat
marketerscallfriction,stickingpointsforpotentialcustom-
ers,accordingtotwopeoplefamiliarwithinternalcompany
discussions.Earlyon,thecompanyhadvirtuallynoageveri-
ficationonitswebsite.Employeesdidn’tdouble-checkserial
numbersbeforeremittingfreeproductswhena customer
complainedabout,say,a devicethathadstoppedworking.
Somecustomerscaughton.Onecollegestudentwasable
tousethesameserialnumbertoobtainmorethan 150 free
Juuls,whichthestudentthenresold,accordingtoa person
familiarwiththecase.
“Weregularlylooktostrengthenandimproveourwar-
rantypolicy,”saidtheJuulspokesmaninthewrittenstate-
ment.“Today,inordertoreceivea warranty,allusersmust
createanage-verifiedaccountthroughourthird-partyage-
andidentity-verificationtechnologyonourwebsite.”
Ultimately,thesescamsmightnothavematteredtoJuul.
Theyendeduphelpingthecompanyaccomplishitsgoalof
puttingitsproductintothehandsofasmanypeopleaspos-
sibleintheshortestamountoftime.
TheFDAhasbeenregulatingcigarettesandsmokeless
tobaccoproductsonlysince2009,whenCongresspassed
theFamilySmokingPreventionandTobaccoControlAct.
Thatcappedoffanalmosttwo-decadefightthatcentered
ontheagency’sinsistencethatbecausecigarettescon-
tainednicotinetheyshouldberegulatedlikeanyother
drugordrug-delivery device. After a long and tangled polit-
ical and legal battle, Congress ultimately gave regulatory
responsibilityforcigarettesandsmokelesstobaccotoa new
unit within the FDA called the Center for Tobacco Products.
At the time the law was passed, e-cigarettes had barely
registered on anyone’s radar, so they weren’t mentioned in
the legislation. That left the new products in a lawless zone.
In the absence of federal oversight, Juul and the makers of
other nicotine-delivery gadgets were free to flood the mar-
ket with their devices.
While Juul was clawing its way to the top, federal offi-
cials were sprinting to finalize the FDA’s deeming rule. In
August 2016 it finallytookeffect.Fromthatpointforward,
anymodification—definedinagencyguidelinesas“achange
indesign,anycomponent,anypartoranyconstituent”—
would render the device “a new tobacco product,” mak-
ingit subjecttoa freshscientificreviewbytheagencythat
wouldneedtobecompletedbeforethedevicecouldbe
sold.Productssoldwithouttherequiredpremarket autho-
rization could be considered “adulterated” and subject to
removal from the market. Violations of the law could also
result in civil penalties.
Meanwhile, by the fall of 2017, Juul found a more advanced
and sturdier sensor and decided to use it. Inserting it into
the device caused an engineering domino effect, accord-
ing to three people familiar with the matter. The new sen-
sor took up more space, which meant the device required
a bigger circuit board. The underlying firmware also had to
be revised to accommodate the component.
By the beginning of 2018, Jagwar was hitting the U.S. mar-
ket. Juul now accounted for just under 30% of all e-cigarette
sales. In July 2018 the company raised $1.2 billion, its big-
gest funding round yet, and its valuation was almost $15 bil-
lion. By the end of the year, Juul’s domestic market share
was 60%. Youth vaping was reaching alarming levels, with
3.6 million middle school and high school students in the
U.S. saying they were current e-cig users—Juul was their over-
whelming favorite—up more than 70% from the previous year,
according to the U.S. government’s National Youth Tobacco
Survey. Juul was also the bestseller worldwide, according to
Euromonitor International Ltd. The company’s name had
become a verb—“Juuling” was synonymous with vaping.
That year also marked a turning point in the FDA’s regu-
latory approach. In the spring, then-Commissioner Gottlieb
announced a nationwide undercover “blitz” that he said
was designed “to crack down on the sale of Juul to minors
at both brick-and-mortar and online retailers.”
Inside the company, tensions rose. Executives, includ-
ing then-Chief Executive Officer Kevin Burns, were bracing
for when—not if—the FDA would show up at Juul’s offices.
Lawyers sent periodic reminders to staff members, tell-
ing them not to put anything in writing that could beEXECUTIVES WERE BRACING FOR WHEN—
NOT IF—THE FDA WOULD SHOW UP AT
JUUL’S OFFICES