Today, JUUL Labs is implementing a series of new measures in the United States that build upon our existing efforts to combat the issue of youth access, appeal, and use of vapor products.
The steps we have taken to date are far-reaching and comprehensive. We’ve long advocated for and supported Tobacco 21 (T21) laws, and over a dozen states this year have now passed policy to increase the minimum purchase age for tobacco products, including vapor products like JUUL, to 21. In November of 2018, in response to the troubling rise of youth vaping, we suspended the distribution of non-tobacco and non-menthol-based flavored JUULpods to all of our traditional retail store partners (more than 90,000). JUUL products now account for less than 5 percent of flavored vapor products sold in the United States, with our non-menthol and non-tobacco-based flavored products exclusively available through our own secure, strictly age-gated online channel. We discontinued our U.S.-based Facebook and Instagram accounts, and our team has successfully removed more than 30,000 third-party social media listings to date, including 25,405 individual Instagram posts, and an additional 1,250 Instagram accounts (impacting over 1.1 million followers). We have also intensified efforts to combat illegal and potentially dangerous counterfeit and compatible products through multiple legal actions and complaints to the United States International Trade Commission.
Today we are announcing a new series of aggressive steps to build upon these actions, including:
We are working with retailers across the U.S. to implement the strictest age-verification point-of-sale standards ever imposed for an age-restricted product at retail, far exceeding those in place for other tobacco products or for alcohol. Under JUUL Labs’ Retail Access Control Standards (RACS) program every retail point-of-sale system immediately locks when a JUUL product is scanned and remains locked until a retailer electronically scans a valid, of-age government-issued I.D. to verify both the age and the I.D. validity. Additionally, RACS imposes automatic limits on the amount of product a legal-age customer can purchase. Scanned personal data will be eliminated immediately following the transaction.
Through this technology, RACS directly combats two large drivers of underage access to vapor products at retail: 1) failure to check and verify I.D., and 2) legal-age individuals buying bulk quantities of age-restricted products to resell to minors.
Over 50 retail chains, totaling more than 40,000 outlets, have already committed to being RACS-compliant. More than 7,000 of those stores are currently in the process of implementing RACS, and we expect more than 15,000 stores to implement by the end of 2019. By mid-2020, we expect that more than half of our sales volume will be through retailers who are RACS-compliant, and plan to stop distributing JUUL products to any retailer that isn’t RACS-certified by May 2021. A third-party auditor will monitor each certification to ensure compliance.
It is no small task to change retail systems and processes at tens of thousands of retail locations – it is expensive, complex, and could cause friction with legal-age customers. To expedite the adoption of these standards, we are providing over $100 million of incentives and financial support to retailers that implement RACS by May 2021. To increase ease of retailer certification, we have partnered with premier service providers to build and deploy technology integrations. However, some retailers will not meet the deadline for RACS compliance and will no longer be authorized to sell JUUL products. That’s a tradeoff we must make as we continue to combat youth use of JUUL products.
The initial list of retailers who have agreed to implement RACS is encouraging and demonstrates the commitment many retailers are willing to make to combat underage use. Some of the earliest adopters include leading retail partners throughout the country, including Chevron ExtraMile, Cumberland Farms, Kum & Go and QuikTrip.
Initial data verify the effectiveness of this automated technological solution. We piloted RACS with three retail partners across almost 200 individual retail stores. As part of this pilot, we conducted almost 2,000 secret shop visits to these locations and witnessed failure rates of less than one percent across pilot locations, on both age-verification and bulk-purchasing compliance. This compares with current FDA age-verification compliance failures for tobacco products ranging from low single digits up to 20 percent for these chains. RACS offers the entire retail industry an effective tool to materially reduce and potentially eliminate violation rates, and to reach our shared goal of 100 percent compliance for age-verification and bulk-purchase limits.
While we work with our retailer partners to implement RACS, we have enhanced our already robust secret shopper program with significant consequences for non-compliant retailers. The new 3-Strikes-And-You’re-Out program will revoke retailers’ authorization to sell JUUL products for a minimum of one year and require RACS certification if they receive three age-verification or bulk-purchase violations within the same year.
Six months ago, the majority of Americans under the age of 21 lived in places where their 18-year-old friends could legally buy JUUL products. Soon, the vast majority of Americans will live in places where JUUL products can be legally sold only to people 21+, and where no retailer can even sell JUUL products without scanning a valid 21+ I.D. Coupled with our enhanced online age-verification systems, RACS will dramatically limit youth access to our products.
Second, we are announcing the national rollout in the U.S. of our Track & Trace program for JUUL devices, which aims to trace confiscated JUUL devices through the distribution chain and identify the retail location where the product was sold. Once identified, our team will work with the retailer and take appropriate action.
We have piloted our Track & Trace program in the Houston area over the past 20 weeks, including a digital advertising awareness campaign to inform educators, school administrators, law enforcement, and parents on how they can help us locate the source of JUUL device sales to minors by entering the device serial number into our online portal. For devices that have been reported, we have already seen significant improvement in traceability.
We plan to build on our success in Houston by expanding the program nationally. As of today, approximately 50 percent of JUUL devices in the U.S. market are fully traceable, and we expect nearly 100 percent to be traceable within 90 days. Our dedicated team will monitor these submissions and track confiscated products. If we see that reported devices are consistently being sold from the same retailer, we will specifically target those stores with our secret shopper program.
Youth use of vapor products is detrimental to JUUL Labs’ mission, and to our business. Our target market is the one billion existing adult smokers globally, more than 70 percent of whom want to quit using combustible cigarettes (according to the CDC). Offering these adult smokers a real alternative to cigarettes is a public health and commercial opportunity of historic proportions, with over 7 million preventable deaths per year caused by cigarettes. Youth use puts this all at risk.
The steps we are announcing today are part of our ongoing effort to address this issue. In August of 2017, we banned online sales to anyone under the age of 21. In April of 2018, we announced our support for Tobacco 21 laws. In November of 2018, we announced an aggressive plan to address youth access, appeal, and use of JUUL products. We stopped selling non-tobacco and non-menthol based flavored JUULpods to all of our traditional retail store partners (more than 90,000), which represented 50 percent of our revenue at that time, and which we have no intention of re-introducing in retail stores at this time. Additionally, we enhanced our online age-verification process, strengthened our retailer compliance program with over 2,000 secret shop visits per month, and shut down our U.S.-based Facebook and Instagram accounts while working constantly to remove inappropriate social media content generated by others on those platforms.
Today’s actions are a continuation of these efforts. However, we know that even these strong measures will not make this issue disappear overnight — youth vaping emerged over the course of several years and will take at least that long to address.
Like everyone, we are awaiting the release of the 2019 National Youth Tobacco Survey from the CDC. It is our expectation that this year’s survey, unfortunately, will likely show continued growth in youth use of vapor products in the U.S. If this turns out to be the case, it will be due in part to the fact that:
In the coming months, it is our hope that Congress will make T21 the law nationwide. We believe that FDA’s draft guidance modifying its compliance policy for certain flavored vapor products, once finalized and enforced, will have a significant impact on restricting flavors, enhancing age-verification standards, and strengthening retailer compliance across the category. In addition, we know that increased enforcement against illegal counterfeit and compatible products, which are often made with unknown ingredients, under unknown quality standards, and with youth-appealing flavors and packaging, could make a real difference. Many of these products are offered for sale online without any age verification.
Through shared effort, we can significantly reduce youth access to, and use of, all vapor products, including JUUL products, while at the same time ensuring that adult smokers maintain access to a product that is helping millions of them switch from combustible cigarettes — a goal we all share.