NJOY, E-Cigarette Maker, Receives Funding Valuing It at $1 Billion
By ALEXANDRA STEVENSON
Even as electronic cigarettes draw the
scrutiny of regulators around the world, investors are seeing potential
in the fledgling industry.
This week, the electronic cigarette maker
NJOY received a $70 million capital injection from a group of investors
including Brookside Capital and Morgan Stanley Investment Management, in the latest vote of confidence for a fast-growing industry.
The company, based in Scottsdale, Ariz.,
boasts several entrepreneurial investors including Sean Parker, the
co-founder of the now-defunct Napster, and Peter Thiel, one of the
founders of PayPal.
The private round of funding values the
company at around $1 billion, according to a person briefed on the
financials, and comes as regulators in Europe and the United States are
looking to legally define parameters for the industry. Earlier this
week, the European Parliament approved regulations in the European Union for the industry that could be copied in other countries.
Electronic cigarettes, or e-cigs for
shorthand, are being marketed as an alternative to real cigarettes. They
simulate tobacco cigarettes, but operate as battery-powered devices
that deliver nicotine and/or flavoring through a liquid solution.
Atomizers create the same sensation a smoker gets from blowing smoke.
But the industry has come under scrutiny from
some health officials who say the safety of e-cig products has not yet
been proved. Others raise concerns that a boom of e-cigs products will
revitalize the appeal of cigarettes.
NJOY, whose e-cig products are sold in more
than 90,000 stores in the United States, and more than 40,000 outlets
across Europe, has marketed itself as a technology company that is
trying to defeat a health epidemic rather than prolong its demise.
“We believe that only an independent company
can have as its corporate mission the extraordinary technological and
important objective to make cigarettes obsolete,” said Craig Weiss,
chief executive of NJOY. Mr. Weiss, who is a patent lawyer and former
hedge fund manager, compared the initiative and its ambition to putting a
man on the moon.
His brother Mark, also a lawyer, founded NJOY
in 2006 after a trip to China inspired him to enter the electronic
cigarette market. During his trip, he visited a trade show where e-cigs,
so large they looked like cigars, were being showcased.
“It seemed to him that this was the future of smoking,” said Mr. Weiss, who took over as president of NJOY in 2010.
It is a view not shared by the Europe, which ruled this week
that advertising for e-cigarettes would be banned in 28 nations. The
new rules, which will be enforced in 2016, also set limitations for the
amount of nicotine e-cigarettes can contain and will force e-cigarette
makers to include health warnings on the product.
In the United States, the Food and Drug Administration
has categorized e-cigarettes as “tobacco products” but has not yet
determined any rules for them. But pressure has been building from
lawmakers to take a harder line and begin immediate regulatory
oversight.
For now, sales of e-cigarettes continue to
soar. Industry experts estimate that the market is worth nearly $2
billion. although that is just a fraction of the $80 billion-a-year
tobacco industry in the United States. Analysts at Wells Fargo recently estimated that e-cigarettes could replace regular cigarettes within the next decade.
But as e-cigarettes become more popular,
major tobacco companies are taking note. Lorillard, the maker of
cigarette brands like Newport and Kent, acquired Blu eCigs for $135
million in 2012, and RJ Reynolds, Japan Tobacco International and
British American Tobacco have also scooped up stakes in emerging
e-cigarette companies.
The presence of such big tobacco firms has
caused some critics to question whether e-cigarettes are just a new way
to get people hooked on nicotine, an addiction that could lead them to
turn to tobacco cigarettes.
To counter that impression, NJOY points to
its unusual team of executives that include veterans of the old tobacco
industry, as well as scientists and well-respected doctors to help with
this image. It recently added former Surgeon General Dr. Richard H. Carmona, who served in the George W. Bush administration, to its board.
With lighter regulation in the United States,
many American e-cigarette companies have taken advantage, introducing a
flurry of advertising campaigns on television. In 2012, NJOY ran a
series of ads in print, television and online with the tagline:
“Cigarettes, you’ve met your match.”
The industry has already made strides in popular culture. In the current season of the popular Netflix
political series “House of Cards,” the main character, Frank Underwood,
is caught by his wife smoking a cigarette. She accuses him of caving in
to his addiction.
“No, I’m not,” he tells her, indicating it’s an e-cigarette. He adds, “Addiction without the consequences.”
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