The recent bankruptcy filing by e-cigarette maker NJoy might bode ill for the vaping industry.
Scottsdale-based NJoy filed for Chapter 11 reorganization last week, announcing it was $32 million in debt and would sell off assets to help pay creditors. It is unclear whether the company will be able to continue selling its products in the wake of new U.S. Food and Drug Administration guidelines that NJoy blames for much of its problems.
Representatives of the company didn't return messages seeking comment for this story.
Mike Holley, who runs Vape Scottsdale with his son Ray, believes NJoy's problems are a dire sign that vaping is doomed.
NJoy's disposable electronic cigarettes served as an introduction to vaping for many people because they were sold in convenience stores and supermarkets, Holley says. Although poor sales of the company's latest products were among the reasons it went broke, the FDA changes created a larger problem that will affect NJoy's ability to rebound — and the ability of other stores to survive in the future, he predicts.
"Unless things change, unless we get politicians behind us, unfortunately the vape world is getting completely shut down by the FDA," says Holley.
In May, the FDA announced stringent new rules: As of August 8, all e-cig products introduced after February 15, 2007, must be approved by the FDA — a costly process. Vape manufacturers and retailers are now forbidden to give away free samples, and they cannot make marketing claims that vaping provides a "reduced risk" compared to smoking unless the FDA confirms those claims.
In vaping, liquid in a small canister in the e-cigarette is heated to release vapors that the user inhales. The liquid consists of what vapers call "juice": a mix of vegetable glycerine, propylene glycol, flavoring, nicotine, and water. Advocates, including Holley, tout vaping as a way to quit smoking. Millions of smokers have switched to vaping, which releases fewer harmful substances and far fewer (if any) particulates into the lungs. But no one can say with certainty that vaping is less harmful than smoking.
"In the absence of science-based regulation of all tobacco products, the marketplace has been the wild, wild West," Mitch Zeller, director of the FDA's Center for Tobacco Products, told the New York Times earlier this month. "Companies were free to introduce any product they wanted, make any claim they wanted, and that is how we wound up with a 900 percent increase in high schoolers using e-cigarettes and ... all these reports of exploding e-cigarette batteries and products that have caused burns and fires and disfigurement."
Holley and others say the new FDA rule will kill people by eliminating this alternative and forcing them back into cigarettes.
Holley is a retired chief of the National Emergency Response Team who worked at Ground Zero days after the 9/11 attack in 2001. He's also a recovering two-pack-a-day smoker who believes vaping saved his health.
"I'm an old-school SWAT cop," he says. "I'd go for a jog while chewing nicotine gum with a Marlboro in my mouth."
Holley lives in New Mexico and operates stores there as well as in Colorado and Arizona. He's worried his businesses may suffer or have to close if things don't change. But he's also concerned for his customers, he says, who enjoy the same benefits he does from vaping.
At his and others' vape stores, customers can buy a variety of flavored e-cig juices and vaping hardware. People who made the switch from cigarettes to vaping often come into his stores and embrace him or his employees, thankful they were able to kick smoking, Holley says.
The customers do, however, get hooked on certain flavors of vape juice, and they're not happy if they can't find them, he says. Customers used to be able to sample new flavors before buying, but the FDA put an end to that last month. Holley still carries a line of upscale NJoy vaping liquids, but he fears those products will soon be off the shelves, owing to the FDA's approval process.
The FDA can ask up to $750,000 to $1 million for approval of each device and each juice flavor, he says.
"They're going to shut it down," Holley says of the industry. " I think the FDA's full of shit."
The vaping industry is far from uttering its last breath, however.
As last month's New York Times story notes, tobacco companies that offer e-cigarette products are lending their weight to lobbying the FDA to ease up. The lobbying effort is headed up by the Altria Group, parent company of Philip Morris USA. (Altria representatives didn't return a call requesting comment on Friday.)
Bankruptcy filings show that the FDA issue wasn't NJoy's only problem.
Interim president and general counsel Jeffrey Weiss lays the company bare in a declaration on behalf of NJoy and its sole director and executive chairman, Michael Rubin. The company has lost its investors money since its founding in 2006, racking up a total deficit of more than $234 million, Weiss notes.
The downhill slide began in earnest after NJoy launched its second-generation King e-cigarette, known internally as Kings 2.0.
"Unfortunately," writes Weiss, "the Kings 2.0 was not ultimately accepted by the marketplace."
So great was the misfortune that NJoy scrapped Kings 2.0 inventory and had to buy back the product from retailers who couldn't sell it. Overall customer orders for other products decreased as well, and sales fell from a high of $92.9 million in 2013 to just $7.4 million last year.
"NJoy has incurred substantial expenses in addressing and preparing for the proposed FDA regulations, and in addressing and complying with the numerous state and local laws," Weiss writes, adding that the company had to spend $2.5 million last year to ward off a patent-infringement lawsuit.
Read NJoy's complete bankruptcy declaration:
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