After a prolonged period of internal issues and legal battles, experts believe Juul Labs Inc. is getting ready to file for bankruptcy.
According to reports from Bloomberg and The Wall Street Journal, the once-giant of the vaping industry is likely to begin discussions with lenders regarding filing for bankruptcy. It is likely that debtor-in-possession financing options will be requested soon.
This could be as early as mid-October 2022.
The decision can most likely be attributed to a number of significant developments for the company in recent times.
The first is an ongoing legal battle with the FDA since the agency ordered Juul products off the market as part of the premarket tobacco application (PMTA) process. The other is Altria Group ending Juul’s non-competition agreement.
The Telltale Signs From Juul
Analysts have noted several indicators from Juul that the company is gearing up to file for bankruptcy.
One of the most significant is requesting lender aid in order to carry the company through the day-to-day operations. This is often seen as one of the final steps before bankruptcy, according to experts like Barrons and The Wall Street Journal.
According to K.C. Crosthwaite, the CEO of Juul Labs Inc., as well as Juul spokespeople, the company will take any step necessary in order to stay afloat and avoid filing for chapter 11.
“We will continue the preparation process for both a restructuring and other strategic options as we determine what path is best for our company,” a Juul spokesman said in a statement.
Despite these sentiments, the warning signs remain.
Juul recently canceled a planned expansion to the global market in a move that seems to be clearly indicative of the company needing to reassess its plans. This cancellation also brought about a host of job losses within.
This would allow Juul to continue operations while going through the process of reorganizing the business. Coupled with the temporary stay on the FDA’s ban, this could offer Juul a little more time to try to save themselves.
“We strongly believe that we have a future, and in that future, there will be Juul products available to millions of adult smokers across the world,” Crosthwaite said in a statement. “To make that future a reality, we have to continue to fight and make tough decisions.”
While the leadership appears to be dismissive of the looming trouble, it is hard to believe Juul can overcome such hardship, particularly with the ever-problematic FDA on its case.
Altria Group Ending Non-Competition Clause
A huge blow to Juul comes from their parent company, Altria Group, opting to end the non-competition agreement that they have had in place since purchasing the vape brand.
This comes from a regulatory filing from the parent company on September 29.
“The decision to terminate our non-compete maximizes our flexibility to compete in the e-vapor space while maintaining our economic interest in Juul,” an Altria spokesperson said on the matter.
The FDA issued Juul a marketing denial order (MDO) earlier in the year. It is wholly understandable that Altria would seek to explore alternatives to profit from the vape industry despite its prime investment being blocked from the market.
Altria Group originally bought 35% of Juul Labs at the end of 2018 in an attempt to undertake some of the vape giant’s success as the market leader. The purchase came to a total of $12.8 billion.
A part of this purchase was the agreement that Altria would not sell any other vape products, giving all their attention to Juul’s lineup.
However, an additional clause of the purchase allowed Altria to end this agreement under certain conditions. Juul Labs’ huge drop in value is apparently one such condition.
The decision had likely been on the minds of the various Altria decision-makers since Juul was ordered off the market by the FDA. There have also been rumblings of a potential NJOY purchase since the authorization of some of their products.
A History of Legal Battles
The ongoing legal struggle with the Food & Drug Administration is another reason Juul has suffered recently.
As a result of the PMTA process, the agency denied all of Juul’s applications. This resulted in an MDO being issued on June 23, 2022.
Since that point, the two groups have been in a back-and-forth legal battle over the vaping company’s place on the market. While there have been small wins in favor of Juul, like a temporary stay being granted, it has caused a huge amount of issues and bad publicity.
This is not new to Juul by any means. The company has faced numerous legal battles over the years. The most notable of these were the allegations that the company was willfully marketing to the underage population.
This became a two-year investigation which came to its conclusion recently when Juul agreed to settle for over $400 million to various states.
It is widely believed that this negative exposure in the public eye has made Juul a target for the FDA.
Juul currently finds itself in an extremely tumultuous situation. The mounting pressures, as well as certain actions from the vaping company, have led to speculation from experts that they will shortly begin the process of filing for bankruptcy.
This action will likely be needed to simply survive as Altria Group backs off of their investment by ending their non-competition agreement and the company faces a settlement of over $400 million to various states.
There has been a huge amount of uncertainty regarding the company’s future since its products were ordered off the market by the FDA.