Why is Juul worth $16 billion? It’s more like a cigarette than you think

E-cigarette start-up Juul is raising $1.2 billion against a $15 billion valuation — which will up the company’s worth to more than $16 billion, Bloomberg reported last week. Why is it so valuable? Selling nicotine has been a good business model for a long time, and Juul is making a product that delivers nicotine like a cigarette.

Verge video director Christian Mazza started vaping after he quit the cigarettes he’d smoked for 15 years. At first, he didn’t like the Juul compared to the low-nicotine e-cigs he started with. But over time, he says, “It just sort of took over, and everything else just got put away in a shelf — and the Juul became the daily driver.” It’s tiny, discreet, and the e-cig liquid doesn’t leak. Plus, he says, “I don’t know what’s going on on a molecular level, but it hits smoother and it’s a lot more satisfying when you’re craving that nicotine.”

Dieter Bohn, The Verge’s executive editor, agrees. “I do feel the hit of the nicotine much more strongly than I do with other e-cigs,” he says. “The fact that the nicotine appears to feel a little more effective or direct than other vapes means, for me at least, it has been remarkably difficult to kick it.”

Juuls provide a nicotine hit that’s much more like smoking a cigarette than other e-cigs, and it’s not really a secret why: the company is very proud of its patented JuulSalts approach to nicotine delivery. Those JuulSalts are compounds called nicotine salts, which also form in the heat-dried tobacco leaves used to make most-cigarettes.

These nicotine salts are less harsh to inhale than the straight-up, “freebase” nicotine used in most regular nicotine vapes — the same kind of nicotine you get from smoking the air-dried tobacco used for pipes and cigars. Freebase nicotine can be absorbed through your mouth — but it’s also much less pleasant to inhale because of its “greater physiological (throat and chest) impact and toxicity,” according to a report for the tobacco industry from the 1970s.

So you can kind of think of regular vapes like cigars, and the Juul like a cigarette: many vape juices use freebase nicotine, but Juul, which was “created to be a satisfying alternative to cigarettes,” has those JuulSalts that make the nicotine easier to inhale. Juul combines freebase nicotine with benzoic acid in its e-liquid, creating a chemical reaction that produces the nicotine salts. Each JuulPod e-liquid cartridges contains as much nicotine as a pack of cigarettes, the company says — and it’s in a form that’s just as easy to inhale as cigarettes.

For adult smokers who want to stop smoking and still need a nicotine hit, “that’s not necessarily a bad thing,” says Gideon St Helen, a professor at the University of California, San Francisco. “You just don’t want young people using it.” The company cautions similarly. “Juul is intended for adult smokers only who want to switch from combustible cigarettes,” says spokesperson Victoria Davis, who calls fighting underage vaping “a top priority for the company.” To that end, Juul has promised $30 million for research and education geared at keeping young people from vaping. “We cannot be more emphatic on this point: No young person or non-nicotine user should ever try Juul,” she says.

But young people do use Juuls, according to a wave of reporting from the New York Times and New Yorker. Even though tobacco use has dropped overall since 2011 for teens and adolescents, there’s still a “disturbingly high number of youth who are using e-cigarettes and vaping products,” the FDA says in a statement. And the FDA has demanded that Juul Labs Inc. hand over details about its products.

Juul’s products contain higher doses of nicotine and lower levels of the harsh freebase nicotine than other e-cigs, new research says. Chemistry professors David Peyton, Jim Pankow, and graduate student Anna Duell at Portland State University tested 11 different e-cig liquids. They also tested the aerosols produced by three of those liquids. To catch enough of the plume droplets to measure their contents, the team had to essentially milk the vape with a syringe pump.

They found that the Juul ‘Fruit Medley’ and ‘Creme Brulee’ flavored liquids had the highest nicotine content, but nearly the lowest levels of nicotine freebase, according to their recent paper published in Chemical Research in Toxicology. Only one liquid, called Placid, had lower levels of freebase nicotine and significantly lower nicotine content overall.

Essentially, Juul packs a bigger nicotine punch in a more pleasant package than the other products the team tested.

“If you’ve never smoked, and you try Juul for a few days, this is a recipe for addiction,” says Peyton, who calls Juul a double-edged sword. “You could make someone addicted who’s never been a smoker — or, for someone who is addicted to nicotine, this could be a way to get off of cigarettes.”

Juul’s nicotine salts are patented. And that patent is crystal clear about why Juul uses nicotine salts: it delivers nicotine to users almost exactly like a cigarette. “[N]icotine salt formulations provide satisfaction in an individual superior to that of free base nicotine and more comparable to the satisfaction in an individual smoking a traditional cigarette,” the patent says. “The peak concentrations of the nicotine in the blood and total amount of nicotine delivered appears comparable to a traditional cigarette.” And indeed, the company submitted charts with the patent illustrating its claims that nicotine salts closely match the amount of nicotine delivered into the bloodstream by a Pall Mall cigarette, as compared to freebase nicotine.

Peyton and Pankow’s  study didn’t compare Juuls to cigarettes head to head, but the team did measure the amount of nicotine freebase in cigarettes years ago, and the levels are pretty similar to those in Juul, the study reports.

Scientific research published in patents doesn’t have to be peer reviewed, but scientists like UCSF’s St Helen are working on further comparing Juul to cigarettes in independent studies. You’d need to “bring someone into a research ward, you give them a product, and you monitor the blood nicotine levels over time,” St Helen says. Such a study would serve to verify the chart published in the Juul nicotine salts patent, which show nicotine salts matching the nicotine uptake curve of a Pall Mall.

Needing more independent data is a common theme: vaping is so new that there’s a ton we don’t know about it yet, which means that people who use these products are mostly left to figure out the risks and benefits on their own. Thanks to a massive study of studies from the National Academies of Sciences, Engineering, and Medicine, we know vaping probably exposes smokers to fewer toxic chemicals than smoking does and may cut their risk for short term health problems, too.

But, for young people, there’s substantial evidence that vaping can also be a gateway to smoking regular cigarettes, the report says. Davis, the spokesperson for Juul, pushes back that “use of e-cigarettes, including Juul, has not been shown to be causally related to cigarette use.” But the most obvious way to conduct a causal study — by giving one group of teens e-cigs and another nothing, then seeing if anyone picks up cigarettes over a period of months or years — isn’t ethical.

As for helping people quit, there just wasn’t enough evidence for the National Academies to say whether vaping works better than FDA approved quitting aids like gum, lozenges, patches, or just going cold turkey. Juul is a “switching tool” for smokers, to get them away from combustible cigarettes, says Davis, the company spokeswoman.

There’s actually substantial evidence that using e-cigarettes can lead to dependance on them, according to the National Academies report. In fact, The Verge’s vapers report that once they switch to Juul, they find it hard to stop. “It was supposed to be a transitional thing to get off what vapers refer to as the analogs — cigarettes — but it’s been over two years, and we’re still vaping,” Mazza says of his wife’s and his own efforts to quit. “At what point does the transition get us off of nicotine completely?”

Part of the problem is that it’s hard to start whittling down the dose, Bohn says. “If you want to step down on the Juul, you just have to start using it less,”  Bohn says. “And this fucking thing is custom designed to make you want to start using it more.” The company plans to start selling lower-dose pods this year, according to the New Yorker, but Juul’s Davis declined to comment on the dose these pods would contain, or the timeline for rolling them out.

In the meantime, selling a patent-protected nicotine product that users find extremely hard to quit is a good business model. You only have to look at the company’s latest financing round to see just how good it is.

Update July 3rd, 11:55AM ET: Updated to clarify Juul’s worth and valuation, based on Bloomberg’s reporting.

Correction July 3rd, 2018: This story has been corrected to remove an error about the patent’s ownership.