ACTION PLAN UPDATE

Underage Use Prevention

February 18, 2019

JUUL Labs is committed to improving the lives of the world’s one billion adult smokers by providing a true alternative to combustible cigarettes. We do not want youth using our product. It is antithetical to our mission. 

In November 2018, we launched a comprehensive action plan to combat youth usage and said: “for us to successfully fulfill our mission of helping adult smokers, we must be trusted – and we must earn that trust. That starts with action, not words.”

Since then, we have taken aggressive action and have kept every single commitment we made.

Nothing is more important to us than solving the problem of underage use.

Restricting Flavors

What we said we would do in November:

“We launched flavors like Mango, Fruit, Creme, and Cucumber as effective tools to help adult smokers switch from combustible cigarettes, and we do not sell flavors like Gummy Bear or Cotton Candy, which are clearly targeted to kids. However, we are sensitive to the concern articulated by Commissioner Gottlieb that ‘[f]lavors play an important role in driving the youth appeal,’ and understand that products that appeal to adults also may appeal to youth. As of this morning, we stopped accepting retail orders for our Mango, Fruit, Creme, and Cucumber JUUL pods to the over 90,000 retail stores that sell our product, including traditional tobacco retailers (e.g., convenience stores) and specialty vape shops.

“We will only restart accepting orders for Mango, Cucumber, Fruit, and Creme from retail stores that can legally sell flavors and comply with the criteria of our new 21+ Restricted Distribution System.”

What we did:

We stopped the distribution of Mango, Fruit, Creme, and Cucumber to our distributors (100+) and retailers (90,000+). These flavors are currently available only online at JUUL.com with our enhanced online controls that are compliant with our 21+ Restricted Distribution System. 

Enhanced Online Controls at JUUL.com

What we said we would do in November:

“We are adding additional age-verification measures to an already industry-leading online sales system that is restricted to people 21+ and utilizes third party verification.”

What we did:

Since we submitted our action plan, we have strengthened our e-commerce platform to further restrict underage and bulk purchases:

• First, we revised our bulk-purchasing limits to restrict users from purchasing excess quantities of product and reselling to others, potentially youth. 

• Second, we implemented two-factor authentication for all new JUUL.com accounts.  

• Third, we incorporated facial-recognition technology, requiring a potential purchaser to upload a selfie in addition to his or her government-issued identification if their personal information cannot be verified by publicly-available records.

Improving Retailer Compliance

What we said we would do in November:

“Only JUULpods that mirror what is currently available for combustible cigarettes – tobacco and menthol-based products (Menthol and Mint pods) – will be sold to retail stores, including traditional tobacco retailers (e.g., convenience stores) and specialty vape shops. To secure sales of these products, we are immediately increasing our secret shopper program, from 500 visits per month to roughly 2,000 per month, to verify that our standards are being followed by retailers. We will also impose financial consequences against retailers caught by FDA selling to minors or allowing bulk sales of our products. We will permanently cut off all sales to retail stores with multiple violations.”

What we did:

We have ramped up our secret shopper program as described above and now conduct compliance checks against our bulk-purchasing requirements (2 devices and 5 pod packages per transaction). The program grew from 549 visits in November 2018 to over 2,000 visits in January 2019. 

We have also taken additional measures to strengthen retailer compliance. We have followed the FDA’s lead on Civil Monetary Penalties (CMPs) for age-verification non-compliance and initiated an escalating penalty structure. We have revised our reseller policy and notified retailers that we will penalize them for FDA CMP violations. We have also applied financial penalties retroactively to retailers that had received a CMP within the last twelve months as of October 2018, regardless of whether the retailer carried JUUL products at the time of the violation. A total of 731 retailers received notice that we would withhold commercial funding for the next promotional cycle, an estimated financial impact of $525,000 across retailers.

Unauthorized Online Sales

What we said we would do in November:

“In addition to monitoring retail locations, we will continue enforcement efforts against online marketplaces that sell JUUL products in violation of their terms-of-service.”

What we did:

We believe strongly that to prevent our products from making their way into the wrong hands, JUUL.com should be the only e-commerce platform for the sale of JUUL products. That being said, other online resellers remain active, often without any age-verification, so we have undertaken significant actions to address this challenge. First, in November 2018, we identified 116 direct retailers selling JUUL products online in violation of our reseller policy, and we took immediate action. This resulted in pulling over 100 product listings. Continued actions will include penalties up to permanent bans for non-compliance. Second, we provided our 100+ distributors with “no sales lists” and revised their contracts to penalize them for future sales to these entities. Third, with third-party support we are currently deploying data analytics tools, on a monthly cadence, to monitor and identify online resellers of JUUL products, and will take action accordingly.

Social Media

What we said we would do in November:

“We are addressing the presence of JUUL Labs on social media in two ways – exiting our own social media accounts and continuing to monitor and remove inappropriate material from third-party accounts.”

What we did:

We discontinued our Facebook and Instagram accounts. We continue to maintain a Twitter account, but only for non-promotional communications such as study results, executive hires, potential safety notices, and other corporate announcements. We are continuously working to remove inappropriate third-party social media content in partnership with major social media companies. Third-party users generate more than 99 percent of all social media content related to JUUL.

Technology-Based Solutions and Next Generation Product

What we said we would do in November:

“We are a technology company and will continue to use the latest breakthroughs to bolster user protections on our device. We are developing end-to-end traceability to track where a specific JUUL device or JUULpod was purchased to focus enforcement efforts on bad actors. 

“JUUL Labs has also invested tens of millions of dollars and spent over a year working on our next-generation, Bluetooth-enabled device, which will break new ground on access restrictions at the user level.”

What we did:

We have committed to full-system traceability for JUUL products, which will mean the ability to track our products through the distribution chain by using unique product identifiers. This capability is in addition to the tracking mechanism we already have in place to ensure quality and control over our product. Borrowing concepts from the pharmaceutical and other industries, we have started the process to build a robust platform, and we will pilot some of the capabilities in the coming months. Ultimately, we will be able to trace a device confiscated from an underage user back through the distribution chain, potentially identifying the retailer that sold the product, and take appropriate action. Building an end-to-end traceability program is both complex and ambitious, and many teams are working to bring it to fruition as quickly as we can.

Additionally, we are moving full steam ahead with development of our Bluetooth-connected device that will incorporate user-level access restrictions. We will have more to say on this front in the near future.

Conclusion

We have seen the data that we are contributing to a continued, and in some ways, unprecedented level of success with driving smoking rates and consumption of cigarettes downward in the US. 2018 showed an over 5% YoY decline in cigarette consumption – the largest single-year decline since 2009.

However, we won’t be successful in our mission to serve adult smokers if we don’t curb youth usage. We will continue to be a transparent, engaged, and committed partner in this effort with FDA, state Attorneys General, local municipalities, and community organizations.