July 29, 2024 • 57 mins
Vapes like Elf bars seem to be everywhere now. Meanwhile, Zyn nicotine pouches have become a huge seller for Philip Morris and are in such demand that it's sometimes hard to find them in stores. So where are all these new nicotine products coming from? What's the regulatory approval process for these? And what is it like to launch a new nicotine product right now? In this episode, we speak with John Coogan, the former co-founder of dietary supplement Soylent and most recently the co-founder of Lucy Goods, which makes nicotine gum. We talk about the booming market for Zyn and other nicotine products, plus the byzantine ways in which some of these companies are structured. We also talk about the death of Juul and how we seem to have ended up with a very strange gray market for vapes.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:21):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:26):
And I'm Tracy Alloway.
Speaker 2 (00:27):
Tracy, have you tried a zin yet?
Speaker 3 (00:31):
No, I've resisted. Multiple people, including you, have offered me
zin's before, and I have so far resisted the temptation.
But I don't know how long I'm going to be
able to hold out.
Speaker 2 (00:44):
For those who don't, I guess there are some There
might be some people who don't know what a zin is. Actually,
it occurs to me. It's a little pouch that people
put under their lip on their gum, and it's filled
with tobacco free nicotine salt. So it's sort of a
smoking alternate or even a vaping alternative, And so people
(01:05):
like who want nicotine can get it that way. But
there's also like this big culture of it, like zen
memes are everywhere now.
Speaker 3 (01:11):
Yes, and there have been times where it's been really
hard to find them. Right, So, first of all, they're
made by Philip Morris, is my understanding. But then secondly,
sales have jumped like I can't remember the exact timeframe,
hundreds and yeah, and so there have been shortages of
this product, and if you go, you know, online, on
certain subreddits in places like that, you can see people
(01:33):
actively trying to find where they can get Zen's. There's
also a lot of other nicotine delivery products nowadays too.
There's obviously the vapes and elf bars. I had a
this is a slight aside, I had a green tea
flavored vape type thing.
Speaker 2 (01:51):
Yeah, it was.
Speaker 3 (01:53):
Great, and it made me feel so healthy. It's the
only nicotine product that actually made me feel healthy.
Speaker 2 (02:00):
Do you remember, you know, speaking of nicotine and I'm
fascy by nicotine. It always sort of goes in waves.
I see cigarettes once again. I go to parties sometimes
a lot of people are smoking. Do you remember the
episode we did with Larry Hamptil years ago about Yeah,
so he made an observation about the history of nicotine
that like there was some Russian czar and like the
(02:20):
fifteen hundreds or something like that, ye who threatened to
cut off the noses of anyone who consumed tobacco. And
I guess that didn't work. But it really shows that,
you know, you have these like crackdowns and people get
really anti nicotine consumption, but it really just doesn't go
away like nicotine. It's Lindy nicotine consumption.
Speaker 3 (02:39):
I feel like we should just caveat this entire conversation,
or at least I should.
Speaker 2 (02:43):
With you know, don't do drugs, folks.
Speaker 3 (02:45):
I do not endorse nicotine consumption. However, everything in the
world is relative and on a continuum, and I can say,
you know, when I was in high school in Japan,
I used to smoke clove cigarettes. Like there were days
where I would smoke like a whole pack of clothes,
which is just insane when I think about it now,
and so certainly relative to a pack of clothes, I
(03:08):
feel better about some of these new nicotine products. The
one that I kind of like, and we're going to
talk about it now, is the gum.
Speaker 2 (03:17):
Yes, right, because Nicorette has existed for a while, but
now we're seeing that more and more companies are doing
it with different flavors and stuff like that. We are
truly again, nicotine is definitely having a moment right now.
Speaker 3 (03:31):
Yes, and beyond personal preferences and consumption, it is just
a really interesting business. So there are these new products
being developed and sales of them have exploded in recent years.
But then secondly, in the background. As with all nicotine
and tobacco products, there's always the regulatory threat and what
(03:53):
policymakers actually decide to do about these things, and the
health considerations and things like that. So it's just a
interesting industry to observe and talk about totally.
Speaker 2 (04:03):
And you know, you mentioned the Zin shortages, which are
real because I've gone into stories and they just like
don't have any et cetera. But there are all these
other like ZIN competitors. There's Zemo, there's Zalt, there's Rogue,
there's they have in them. Right, my guess would be
(04:24):
will Zen exists, and so let's come up with a
name that's sort of But anyway, we're going to be
speaking with the CEO and co founder of yet another
one of these nicotine pouches, because I want to actually
understand how this business really works. And in fact, it's
the company that makes the gum that you like.
Speaker 3 (04:44):
Yeah, so the gum. The reason I found it is
actually because you gave me a sort of industrial quantity
of it for some reason, and so I have it
stored in a drawer at home, and uh, yeah, by
all accounts, it's s seem to be increasing and so
it is very emblematic of this new era of nicotine products,
(05:07):
and we should talk more about what that business actually
looks like.
Speaker 2 (05:10):
I am very excited. We have indeed the perfect guest
we are going to be speaking with, John Coogan. He
is the co founder of Lucy Nicotine, which is one
of these ZIN competitors. They make the pouches, they make gums,
they make something called breakers, which I don't really know
what that is. I haven't tried it yet, maybe we'll learn.
And they've been around since twenty sixteen, so long before
(05:32):
the Internet, this Internet became flooded with memes about all
of this stuff. He was early on the bandwagon, so
to speak, or before there was even a bandwagon. And
we're going to understand how this business actually works and
why so many people are consuming this stuff. So John,
thank you so much for coming on odd.
Speaker 4 (05:53):
Lots, Thanks for having me.
Speaker 2 (05:55):
On what is nicotine culture.
Speaker 4 (05:57):
Nicotine culture has evolved a lot, but right now, I mean,
I think the Z internet is great portmanteau to describe it.
It's certainly become a little fratty, a little broie, but
that doesn't actually capture the broader nicotine user because there
are millions and millions of nicotine users, and the average
(06:19):
smoker is, you know, a gen xer or boomer, and
they are definitely not posting zen memes on Instagram. But
that's certainly what's driving this new wave of consumers moving
down the continuum of risk and moving away from cigarettes,
(06:40):
which I see as a very positive thing.
Speaker 3 (06:43):
So, speaking of Bros, you co founded Soilent before co
founding Lucy, and I always thought of Soilent as the
sort of I think someone wrote this at some point,
but the slim fast for men? What was it about?
What was it about nicotine products that attracted you to
(07:03):
that space? You know, going from a company like Soilent
and starting something new.
Speaker 4 (07:08):
It was a few things. So with Soilent, we just
kind of stumbled into it. We were actually running out
of money and hungry, and we needed a meal replacement
to kind of help us stay healthy and provide for
our food needs, and so we just kind of made
this product. It went viral because we wrote this very
(07:31):
edgy blog post about how our CEO quit eating food
for thirty days straight and lived on this er members exclusively. Yeah. Yeah,
And so it was the ultimate stress test. And so
even though we were a new company, and we couldn't
show that, oh we had one hundred thousand people consume
our product, they all liked it. We were able to
show that one person was able to consume it in
(07:53):
the extreme, and so if this one guy can can
use this product for thirty days straight, you can probably
have it for you know, launcher and after snack, and
so it went very viral. It was very controversial. But
what we learned was that the market for meal replacement
shakes and protein shakes was not oligopolistic or monopolistic in
any way. We actually kind of learned this in a
(08:15):
pitch with Peter Teel where we went in to present
the company and he kind of laid out how the
market would evolve and explain to us that this would
be a potentially a very good business, but not a
venture backable business. Of course, we wound up not taking
his advice and raising a bunch of venture money and
the company didn't do that well because of that. But
we learned that it was much more important if we
(08:38):
were going to be consumer products entrepreneurs to go into
products that had moats. So in the nicotine space, there's
a pretty significant regulatory mote, yeah, and also take things
much slower. So we've been in business for eight years now,
raised a lot less money, were much more profitable, much
more cash flow positive, and we're trying to accumulate more
(09:02):
brand power, more market power, more moats and that's really
what motivated us. Of course, there was also the personal need.
My co founder was quitting smoking. He didn't like any
of the alternatives. It's kind of the classic story that
you see in this in this category. And we thought
that there was enough expertise among our team members to
(09:23):
launch a product in a more regulated space. One of
our co founders is a PhD from Caltech and had
worked in biotech and dealt with the FDA on the
cancer drug side of things, and so we knew that
we could we could both work with the FDA but
still do all the standard e commerce shipping shopify, you know,
make a product, sell it online. The blocking and tackling
(09:44):
of getting one of these businesses working.
Speaker 2 (09:46):
So, as I mentioned, you know, I've tried, I've consumed
Zen in my life. I've consumed some of the others
because they're all over the place and often you know,
in zores and stuff. So I've tried them all. I'm
going to be honest here, I'll pop one in my
mouth from time to time. I have no idea what
I'm putting in there, you know, it's like, oh, yeah,
the cave, there's no tobacco. Whatever. What's a nicotine pouch?
(10:09):
What's in it?
Speaker 4 (10:10):
Like?
Speaker 2 (10:10):
What am I sticking up in my gums?
Speaker 4 (10:14):
Yeah, it's pretty it's pretty simple. I mean, the goal
of these products is really just to deliver pure nicotine
and remove the tobacco and any of the nitrosamines or
harm causing agents as possible. Now you can't. I mean,
you could just take a vial of pure nicotine and
drop like a liquid drop on your gums, but that's
(10:37):
a terrible form factor. It doesn't really work. So what
these products have done, generally speaking broadly, is they bind
the nicotine to a like a bulking agent, usually a cellulose.
We use microcrystalline cellulose, which is essentially just you take
a tree, you grind it up, you get wood pulp.
You chemically treat that a little bit to get kind
(10:58):
of a powder. And so when you're done with the pouch,
you notice that even though you might not be getting
any nicotine from that, pouch, there's still something in there
that's the cellulose. And then you also add flavors, maybe
a sweetener. There's different things that you can do to
increase moisture, adding different oils, but that's pretty much it.
(11:19):
You want to keep the number of ingredients as low
as possible because you only want to use ingredients that
have been studied for years and years in the mouth.
So when someone says, how do we know that oral
nicotine is acceptable? While we can look at the data
from Sweden, we can also look at what's happened with
oral nicotine users in nicoret for fifty years, and then
(11:41):
what about cellulose. Well, cellulose is used in a lot
of products, same thing with a lot of these flavoring chemicals.
So you take these flavors and if they've been used
in sodas for fifty years and they're not causing cancer,
well then that's a good case that you can go
and make to the FDA that hey, this flavor is
also is also to consume. And this is really important
(12:02):
because as we saw during the vape crisis, the nicotine
was not the principal agent of harm in the It's
called evoli. The e cigarette and vapor acute lung injury
kind of fiasco. What was going on was that there
were a certain class of vapes that included vitamin e acetate,
(12:22):
which was not safe to ingest into your lungs, and
so that hadn't been tested. So all of these companies,
zen every company in the space, wants to keep the
number of ingredients as low as possible and only use
things that have been studied for a really, really long
time so they can go and make a really really
strong case to the FBI.
Speaker 3 (12:57):
What's the difference between Lucy and nick Caret, which you
just mentioned.
Speaker 4 (13:02):
So there's a few differences from our gum. So we
have a variety of products. One is a nicotine lossenge
that's actually approved as a smoking cessation aid by the FDA.
The FDA has a number of ways that you can
bring a nicotine product to market. One is through the
drug pathway. That's what Nicorette went through. So Nicorette is
an approved smoking cessation aid. We are our nicotine los
(13:24):
ange is also an approved smoking cessation aid, so we
can go and say this product is proven to help
you quit smoking. Our gum goes through what's called the
Tobacco Products Pathway, which is the pre market tobacco application pathway.
There's also the modified risk Tobacco Product Pathway, which is MRTP.
It's all very complex and there's a few different ways
to bring products to market, but in terms of our gum,
(13:46):
we have focused on differentiating around the brand. We recognize
that when my co founder was quitting smoking, he noticed
that Nicorette was working for him as a product ingesting
nicotine orally was helping him not smoke. But when he
pulled out a packet of Nicorette, everyone would say, why
(14:08):
are you on this medicine? You must be a really,
really bad smoker. So there was a lot of work
to be done into destigmatizing nicotine gum and trying to
trying to make it feel less medicinal and more aspirational.
And then we've done a lot of work on the flavor, texture,
and strength side. So Nicorette actually in the United States
(14:29):
they sell a two milligram and four miligram gum. Internationally
they do sell a six miligram gum. We found that
the six miligram gum worked very well, and so in
the United States we have also chosen to sell a
six miligram gum, which is stronger, and if you notice
what's going on in the pouch market, Zin sells a
three miligram and six miligram product. Clearly, six miligram and
(14:51):
stronger products are more effective for getting for convincing smokers
to switch, and so we've been really interested in that,
but obviously there's obvious there are also risks that come
with that because it is a stronger product.
Speaker 2 (15:04):
Sitting aside the health questions about nicotine and so forth,
how much are you seeing people consume any of these
cigarette alternatives as a help to get people to quit
smoking versus someone who wants to consume nicotine and maybe
was never a smoker in the first place.
Speaker 4 (15:24):
It's hard to say. I mean, we do survey all
of our customers when they come in, and about a
third of them are former smokers or directly like the
product that they used right before they ordered was cigarettes.
Another third comes from e cigarettes and vapor products, so
that's the product that they were using right before. And
then another third is basically people that are coming from
(15:44):
other pouches, like they've tried other brands and then they
come to us because they've heard of us. Ideally it
would be you know, one hundred percent cigarettes, but it
is very, very difficult to target smokers. We actually tried
on Facebook in the early days, and when we targeted
people who were interested smoking, there was a lot of
overlap with people who enjoy smoking meats. I don't know
if that's like a Zuck thing, but it but it
(16:07):
was very It was very tricky because if you are
a smoker, it's not like you're following, you know, smoking
pages on Instagram. You're probably just doing this in the background,
and you can do some general, broad level correlations between Oh,
smokers tend to be into this type of thing, they
tend to be in this age demographic. But it's much
(16:27):
harder to target than say, Okay, someone follows this particular band,
I'm going to try and sell them a shirt with
that band on the shirt. It's very direct. It's much
harder to target smokers. But obviously, like everything that we
do is focused on that because that's where the biggest
impact for the mission is. But then also smokers spend
(16:49):
the most money on nicotine every year, so there's the
strongest economic incentive to go after smokers.
Speaker 2 (16:54):
By the way, Tracy, there are more cigarette memes to
these days, like some Instagram act that I think, you know,
it's like cool people smoking cigarettes and stuff like that,
So that's on the on the rise. Anyway, let's not
do that.
Speaker 4 (17:07):
That's very edgy. So yeah, exactly, Yeah, it's very edgy.
So people are starting to you know what's boy with that?
Speaker 2 (17:13):
Ye, cigarettes are like the really hip one right now
that all the Yeah, yeah, and.
Speaker 4 (17:17):
I can't support that anyway.
Speaker 3 (17:21):
Wait, so on this note, I mean, the amount of
smokers in the world has declined dramatically, and if Lucy
is in theory targeting people who are trying to stop
smoking cigarettes, then is this how is this a growth
market for sales?
Speaker 4 (17:39):
Oh, it's a huge growth market. So just to give
you some background, the nicotine market in the United States
is seventy five billion dollars. Fifty five billion of that
is still cigarettes, so that's seventy two percent of the total.
Now ten billion is smokeless which includes oral nicotine, but
these pouch products, and I guess you would include our
(18:00):
in this as well, that's only like two and a
half billion, maybe three billion. The mass that like, still
the majority of smokeless nicotine is those traditional tobacco pouches
you might have seen, like dip or General Snooze, those
types of products which oddly have a higher regulatory status
(18:22):
with the FDA. Right now, Beach Match has two products,
Zen and General Snooze. Zen has yet to be approved
for PMTA, which is kind of like the level one approval. Meanwhile,
General Snooze has both PMTA and MRTP, which allows them
to say that General Snooze is less harmful than cigarettes,
which is great because it probably is, and I agree
(18:44):
with the FDA on that, but it's just interesting that
the FDA has chosen to kind of fast track General Snooze.
I mean, it's an older product, so it's easier to
you know, run the data on I suppose. And then
e cigarettes and vapor that's a five billion dollar category,
but it's declining, and it's declining faster than cigarettes. So
over the last year, the cigarette market has declined by
(19:05):
five percent, whereas the e cigarette vapor market has declined
by something around ten percent. And the decline in vape
is actually accelerating. So just in the last month it
went down sixteen percent. And so the way we see
the market growing is that this fifty five billion dollars
cigarette market that should be zero, right, and it's getting there.
(19:26):
It's five percent, and the actual the declines are accelerating.
So every year there's something like a billion dollars of
value that's up for grabs, and we're hoping that almost
all of that codes to oral nicotine if someone is
switching from smoking.
Speaker 3 (19:42):
But I guess what I'm getting at is is there
like a generational cliff risk where you mentioned baby boomers earlier,
but where older smokers, you know, stop buying cigarettes all together,
either because they age out of the market or because
you know, governments around the world have breast desire to
get people to stop smoking. And is that a risk
(20:05):
for nicotine gum sales.
Speaker 4 (20:09):
Yeah, it could be in the sense that, like the
overall nicotine market could decline over the next one hundred
years and we could be talking about, you know, in
twenty sixty, we could be talking about a US market
that's not seventy five billion, but twenty five billion. I
think if you look back to the pre cigarette era,
humans were consuming nicotine, and I think that there will
(20:32):
be a continued trend there just because of the way
the nicotinic receptor has evolved. In the brain and the
desire for humans. I mean, Joe mentioned that nicotine consumption
is Lindy in some ways, and I think that's right.
We just made a terrible mistake during the Industrial Revolution
by building the cigarette rolling machine, which allowed us to
(20:55):
ramp up the burning ash that we were inhaling to
the point where people were smoking twenty cigarettes a day.
But over time, we do think that there will continue
to be some amount of ambient nicotine use. I don't
think it'll ever be everyone. And you can just tell
from talking to people that some people nicotine they really
(21:18):
enjoy it, and some people don't get anything out of it.
Speaker 2 (21:21):
I have a lot of questions I want to just
get afore we get I want to learn more about
how these packs are as symboled and market and sold.
But before we do that, I just want to get
a slightly understand the regulatory environment for nicotine a bit more.
If I start a pouch company, A like, what do
I need to do to be able to legally sell it?
And then B you know, I've been wondering about this
(21:43):
for a while, and since you know the business, I'm
just going to ask you. Even though it's not pouch
or gum related. You know, the FDA went after Jewel
and rapidly massively constrained what it's able to sell. I
think some of that's been actually loosened a little bit.
But then so they killed Jewel more or less, and
(22:03):
then you just saw this explosion of disposable vapes. And
those vapes taste like candy. I mean, Tracy mentioned the
green tea ones, but they have ones that really taste
like you're inhaling cotton candy, and they're disposable. People trash
them all over the place. So there's got to be
all sorts of like waste because whatever in those batteries.
So they basically opened the door to these candy flavored
(22:27):
ones that are significantly more wasteful and they end up
on landfills or in gutters and in sewers and something.
How did that happen? Like what was it that, like
the elf bar like from China or whatever was able
to become massive even while Jewel was so heavily constrained.
Speaker 3 (22:45):
Good question.
Speaker 4 (22:45):
Yeah, let me give you a little bit of the prehistory. Sure,
and we can work we can work up to the
Jewel story. So cigarettes were unregulated for the entire twentieth century.
But in the fifties, sixties, seventies, Surgeon General warning comes out.
People start learning that cigarettes cause cancer. There's the Master
Settlement Agreement in the nineties where all of the tobacco
(23:09):
companies came to create a settlement with the US government.
The basis for this was, you know, billions and billions
of dollars paid to American governments, essentially because the tobacco
companies were placing a negative externality on the healthcare system. Yeah,
and so that was it wasn't it wasn't a necessarily
(23:30):
like a moral judgment, even though you could argue that
it should have been. It was you are causing cancer,
which is putting stress on the healthcare system, so you
need to pay the government for that cost. And then
after that there were a lot of restrictions, mostly on advertising,
so mostly FTC related now an FCC related now. Later
(23:53):
in early two thousands, the vaporizer is invented by this
Hans Licks in China, and a company called Enjoy starts
building really popular e cigarettes for the United States. These
get popular and the FDA wants to regulate them. The
(24:14):
FDA makes a claim that Enjoy is a combined drug
and medical device product, and it's delivering nicotine for the
purpose of smoking cessation, which is or cigarette addiction prevention.
So cigarette addiction is a disease and this product was
designed to relieve that disease, which makes it a drug
(24:36):
and medical device. That case went all the way to
the Supreme Court and Enjoy actually won, So the FDA
lost and the Supreme Court said that the FDA could
not regulate e cigarettes. Shortly after, this didn't make any
sense in this so Enjoy actually went out of business
because they had a whole bunch of import restrictions while
(24:58):
they were fighting this case, so they went bankrupt. Eventually,
a hedge fund guy bought the company, turned it around,
and they just got approved and now it's a multi
billion dollar company. But the Obama administration in two thousand
and two thousand and nine passed the Tobacco Control Act
the TCA. This gave the FDA regulatory authority over all
(25:19):
nicotine containing products. Essentially, now the FDA, they have a
number of regulatory sub organizations within the overall organization. So
there's drug, medical device, there's veterinary, there's biologics, there's a
whole bunch of different there's supplements, you know, the protein
powders that you get, and they all regulate things slightly differently.
(25:39):
The Tobacco Group was new and they took some time
to spin up. So by twenty sixteen they had put
into place what's called the pre Market Tobacco Application Process,
the PMTA, and so all new products that were brought
to market would need to submit what's called the PMTA
to the FDA, and then the FDA would review that
(26:00):
and say is this suitable for the protection of public health.
If it is, they will approve it and you will
be able to continue selling this product. Otherwise they will
give you what's called a marketing denial order, which means
that you cannot sell your product in the United States. Now,
there was a grace period for products that were on
the market before twenty sixteen, so that includes our products,
(26:23):
that includes Zen, that includes Jewel, So all of these
products they still had to file the pmtas, but they
had a grace period where they could continue to sell
while the FDA approved and reviewed those applications. Now, so
if you want to start a product now, you cannot
(26:43):
sell a single unit in the United States until the
FDA gets back to you with your application. So to
your question of if you want to start a pouch company,
we just can't. If you wanted to do it legally,
what you would have to do is you'd have to
raise some money, develop your product, run a whole battery
of tests, including stability tests, which could take a year,
because you need to wait around to see if the
(27:05):
product is different at month twelve than month one. Then
you submit that data and the huge packet it's you know,
thousands and thousands of pages to the FDA. They review it.
You're at the back of the queue. This could take
tens of millions of dollars. There's rumors that bigger companies
have spent hundreds of millions of dollars on these applications.
(27:27):
And I mean, Zin's been on the market since twenty fourteen.
I'm not exactly sure when they submitted their PMTA, but
you know it's been five six years since pmtas first
were submitted. The FDA is prioritizing vapes first because of
the vape crisis, which we'll go into about duel, and
they're also organizing based on market share. So theoretically Zin
(27:51):
should be the first oral product that they review and
so your new pouch, the you know, the odd lots pouch,
that's that's going to be at the back of the queue.
And so it could be three, four or five years.
No one really knows, but it requires a lot of
a lot of time. Now with the Jewel story, there
are a bunch of fascinating things with that that we
(28:13):
could go into. Essentially, they were on the market before
twenty sixteen, so it was legal for them to sell
that product. It got really really popular twenty eighteen twenty nineteen.
Around that time, we have the vape crisis EVOLI as
it's known in the industry, and there were I think dozens,
if not hundreds of deaths that were attributed to acute
(28:37):
lung injury from vaping or e cigarette use. Now, the
CDC came in studied everything. It turned out that it
was related mostly to these marijuana cannabis vapes that had
the vitamin E acetate ingredient. No one's ever proven that
Jewel killed anyone. I don't think that they did, but
that's conjecture. Nevertheless, there was kind of a pan about
(29:01):
two separate issues. One was people in the abstract were
dying from vapes as a class of product from the
vitamin eestate. And then separately, underage users were adopting jewels
in mass and so before Jewel was introduced, about twenty
percent of underage kids we're using vapor products, and within
(29:25):
a few years of Jewel being on the market, that
number climb to almost forty percent. And so this data
is collected through what's called the NYTS, the National Youth
Tobacco Survey, So pediatricians across the country are required to
ask kids when they come in I think it's thirteen
to eighteen. They asked them have you used nicotine products?
(29:48):
They ask a lot of questions, but this is for
tobacco specifically. They ask have you used nicotine products? What
products have you used? Have you used over the last
thirty days? Have you ever tried this product? Have you smoked?
What brands? They ask all these different questions. It's all
compiled into this great data set that then is used
for regulation. And so the E cigarette numbers were spiking.
(30:08):
Now cigarette use was declining, which is great. We don't
want underage kids smoking, but we also don't want them
using nicotine at all because until you're a full grown adult,
your brain's still developing. And most importantly, if you start
using nicotine at fifteen sixteen, you're going to be addicted forever.
It's going to be something that's very ingreat It's the
same thing with gambling, it's the same thing with drinking.
(30:30):
Like the underage there are reasons we have age restrictions
on all of these things. Now, fortunately the industry has
moved forward in many ways, and tobacco is now twenty
one plus. It's kind of crazy to think that back
during the jewel craze, you could just ask like a
cool senior to go out and buy you jewel legally
on their lunch break. Now it's twenty one plus, which
(30:52):
is I think, much better. But obviously people are still
worried about bleedover because there are eighteen year olds with
fake IDs who can figure out how to get something
that's like plus. And if you look at the underage
alcohol use rates, that's at something like fifty percent, and
same thing with cannabis, it's something around fifty percent. And
so Jewel received because of all this pressure. They were
(31:15):
fighting with the FDA. They were submitting their their products
and they got into this battle with the FDA, who
at that time was run by Scott Gottlieb, Trump appointee,
former venture capitalist at Nea, very very sharp guy, but
he was kind of warning them that hey, this is
getting out of control. You need to do something. And
then they took money from Altria and kind of got
(31:37):
in bed with Big Tobacco. Jewel was they had a
lot of kind of weird marketing stuff in the early
days that came out, stuff like visiting schools and then
also they were like they had a sister company that
was originally part of their company that was selling cannabis vapes,
which is kind of crazy time just like yeah, it's
just like it doesn't it's crazy.
Speaker 2 (32:00):
There's a good documentary on Netflix. Basically like they went
into schools and the like don't vape kids, and then
everyone went out and vaped. It seemed very strange and
I was shocked by it.
Speaker 4 (32:10):
Yeah, yeah it was. It was very very poorly executed,
and yeah, they just made a ton of mistakes and
they became kind of the tall poppy, the you know,
the the sacrificial lamb for our society, for the for
the sin of underage nicotine use. They became somewhat of
(32:30):
a scapegoat in my opinion, because after Jewel was quote
unquote banned. Now, what actually happened was they received a
marketing denial order from the FDA. The FDA essentially rejected
their PMTA. That meant that they needed to stop selling
their products nationally, and they'd actually already stopped selling flavored products,
(32:51):
so the mango jewel pods that were so popular, they
had voluntarily pulled those off the market. They've still kept
those off the market voluntarily. They legally could sell those,
but Jewel got a stay of the marketing denial order
in the courts, so they were able to continue selling.
And if you look at Jewels numbers, they're still doing
about a billion dollars in sales, and they've never really
(33:12):
stopped doing a billion dollars of sales because they were
only off shelves for a couple of weeks while the
marketing denial order was in effect. It got stayed in
the court and then most recently it got reversed because
now they're not the biggest problem. And it's interesting if
you look at the some of the social media posts
that announced the Jewel ban quote unquote, yeah, the comments
(33:34):
are all from former Jewel users, like former kids that
used it joking about, like, why are they banning Jewel?
Don't they know We've moved on to el bar and
all of our favorite products. And that's where we get
into the story of the new disposable market, which is
(33:55):
now the second largest class of products after cigarettes.
Speaker 3 (34:17):
Talk about what elf bar did or is doing that
is different to Jewel.
Speaker 4 (34:23):
It's hard to explain exactly what elf bar is because
it's kind of a hydra of companies. Like the IP
has been sold so many times, they've rebranded a million times.
There's also puff bar and puff stick, and essentially what
these companies do broadly, I'm not speaking about any particular company,
(34:46):
but broadly, the strategy has been to instead of engage
with the FDA directly and file the PMTA, wait for approval,
then market your product. They've just said, let's push this
product as many play this is possible, get it into
every independent store that maybe doesn't care about the regulatory
status of these products. Let's just flood the market with
(35:09):
these products. And if we get shut down, what's going
to happen is that we're essentially just have a front
company that's just a couple random American citizens that are
acting as a front for us in the US. The
FDA is not really going to be able to shut
them down. They're going to try and shut us down
at the ports. All we need to do then is
just set up a new company structure and import under
(35:32):
a different label. So that's how you see the evolution
of these things, where like I don't even think elf
bar is on the market anymore. I think it might
be called like elf Tech.
Speaker 2 (35:41):
Yeah no, there's like what they all look the same
under like different names, and I'm like, is it exactly?
Speaker 4 (35:46):
So they're all made in the same Shenzen Like the
core company behind elf Bar's shenzhen I Miracle Company. Just
a hilarious name, but it's like the Miracle. But then
also I which I think is like an Apple Friends,
it's very convoluted. But the shenzhen I Miracle Company, they
have a massive facility where they make this stuff and
then they just find a new front man. And I
(36:10):
get emails every single day from a new random Gmail
account that says like huff bar five hundred puffs, like
would you like to white label this? Because they're looking
for someone that has American citizenship distribution lines and can
order their products. And then get them into stores, and
so they're they're really it's not just like a normal
(36:31):
spam campaign. It's very sophisticated. It always gets through Gmail
spam filter for me, and I finally created a filter
that actually cut them out, you know, but eventually, like like,
this is the game that they're running. And so if
you look at the stats, the leading disposable vape company
might be doing one hundred million dollars in sales or
(36:53):
two hundred million dollars in sales, so they don't have
anywhere near the brand awareness as a ZIN which is
doing two billion in sales. But if you think of
them as this aggregate hydra, then it is a massive,
massive category. And so the fundamental reason why this is
happening is because the Center for Tobacco Products at the FDA,
(37:14):
this is a new organization. I mean, they only got
authorization via the Tobacco Control Act in two thousand and nine,
and they've really only been super active in twenty sixteen,
and then of course in twenty twenty, the FDA had
to completely pivot the entire organization to dealing with COVID,
and so resources have been tight. And so even though
they have the ability to review pmtas and issue marketing
(37:36):
granted orders or marketing denial orders. They don't necessarily have
enough field agents to go to every store in America
and make sure that all the stores and all the
products on the shelves are legal and approve and they
so they can kind of do stuff at the ports,
and they can. That's what I find.
Speaker 3 (37:53):
Why don't they stop it at the import stage? I mean,
my experience of shipping goods from Hong Kong to New
York is that they go through everything, right, like you
can't have medications, you can't have food. Agents will stop
and go through boxes or at least sample the boxes.
Why don't they stop them there?
Speaker 4 (38:11):
Yeah, so they try, but it's very difficult because if
the hold at the port is for one company's name
and it's under a different company's name, it can be
very hard to get through. The FDA hasn't really figured
out how to create a blanket ban on everything that
you know is a nicotine containing disposable device. And some
(38:32):
of them might be legal, you know, some of them.
Some of them might have been on the market before
twenty sixteen. They might have pmtas in I don't know.
I'm sure that there's some disposable company that's taking things
very very seriously and they shouldn't be blanket banned at
the ports necessarily.
Speaker 2 (38:48):
This is so fascinating because I actually I once wanted
to do we should do like an elf Bar episode,
and part of the issues we couldn't find a guess
because like it didn't seem like anyone even understood this
company and what it is.
Speaker 4 (39:00):
Oh, it's really really hard. It's really really hard. Your
story is crazy too, Yeah, I mean the puff Bar
story is potentially more interesting because there's a Wall Street
Journal article about the founders and they're these guys who
people they kind of came out of nowhere, and they
didn't have the same story as like Adam Bowen and
jamesons use it. But they're like they're pictures on their
(39:22):
Instagram of them like driving Ferraris and McLaren's on like
the freeways and it's like these guys are bawling and
then they got, you know, shut down. But there's a
whole bunch of rumors swirling in the industry about, oh,
like what exactly happened there? Did they just like take
the money and run? But like it's not like a
traditional startup where oh yeah, they were investors and then
they sold the company. It's much more like they made
(39:45):
a bunch of money and they ran with it or
something like that.
Speaker 2 (39:47):
So we just have a couple of minutes left and
I just want to you know, the actual business of
the pouches, like, how did so let's say Tracy and
I want to start our nicotine a lots branded pouch, right,
lots lots Yeah, we got to start it with a
Z like Zemo corsult setting aside all the regulatory issues.
(40:11):
Is there like a Taiwan semiconductor for pouches that I
just like, we give them our brand, do we give
them our flavors and they make it? Like walk us
through the manufacturing supply chain.
Speaker 4 (40:20):
I was joking with you about Helsingborg Sweden is kind
of the Taiwan of niicten pouches. Zen, of course, is
a Swedish match product. Swedish Match is a former matchmaking company.
They literally made matches to light cigarettes, and then over time,
once cigarettes started declining, they needed other products and Sweden
(40:41):
adopted these smokeless oral nicotine pouches. It's been incredible for
getting Sweden smoke free there's a bunch of incredible data
about how Sweden now has the lowest lung cancer rates
in all of Europe. But there isn't necessarily a TSMC
in the sense that there's not one scaled coman factorer
that everyone is using. Zin of course, has their own facilities.
(41:05):
They have a number of facilities, and they just this
week announced that they're investing I think six hundred million
dollars in a Colorado facility. They already have an American
facility as well as several others across the globe. It's
not an incredibly complex process. It is just at the
end of the day blending up six or seven ingredients
that are powders and then they need to be dumped
(41:29):
into a bag. We have a slightly more complicated process
with our Breakers product because we put a capsule in
the pouch. And so the history of these products is
that it used to be people would just chew loose
leaf tobacco. Then it was ground up tobacco. This is
the dip spit cup that you've seen probably the baseball players. Eventually,
(41:51):
Swedish Match and a couple other companies took the ground
up tobacco product put it in a pouch. That's where
you get general snooze. Camel snooze, and snooze became very popular,
especially in Sweden. Now, the modern oral category that we've
been talking about, the zins of the world, the vellows,
the rogues, the lucy's, these they don't contain any tobacco
(42:14):
leaf whatsoever, which is great, it's a huge step forward.
But the problem has always been that tobacco leaf, although
it did contain carcinogens, it also contained moisture, and so
a snooze product was generally more moist When you take
out the tobacco leaf, you take out the moisture. And
so the number one complaint that we found was that
(42:34):
these tobacco, these tobacco free pouches, they would dry your
mouth out. And so we put a capsule that has
liquid inside in the pouch. Oh the breakers. Yeah, and
so it's somewhat similar to a camel crush the cigarette
where you crush the capsule and it releases flavoring. Same idea,
add the flavor and moisture back into the pouch in
(42:58):
order to kind of get give all the benefits of
the moist pouch that oral tobacco users enjoyed without adding
back any tobacco leaf. And so that's a little bit
more complex for us because we actually have to have
a machine that drops a little capsule into each pouch
and then seals the pouch. And sealing the pouches is
(43:18):
very tricky. You can see that some brands when you
open up the tin, it's just everywhere. It's a little
bit of a mass. But in general, you know, these
products are fairly easy to scale. It's much less complex
than vapor products, which essentially.
Speaker 2 (43:35):
Less complex than semiconductor manufacturing.
Speaker 4 (43:38):
For sure, certainly less complex than semiconductor manufacturing. I mean,
jewels tagline was like the iPhone of vaping, and obviously
there's a lot. There is literally a semiconductor in a jewel.
There is not a semiconductor in any nicotine pouches. Now,
now these disposables, they've gotten so cheap that you can
buy one that has an LED screen or LCD screen
(43:58):
on the outside and it shows you all these things.
That's crazy, but it is a simple process. But there
hasn't been major concentration in the co manufacturing space because
most of the big tobacco companies have wanted to make
it themselves.
Speaker 3 (44:14):
Setting aside the very opaque worlds of elf bar, what
is raising financing like for something like a Lucy Goods
Because I can see, on the one hand, okay, maybe
you could make a sort of health argument where at
least you're arguing that this is a product for people
who are addicted to cigarettes to try to move on
(44:34):
to something that has fewer side effects. But on the
other hand, I have to imagine that anything with the
word nicotine in it, there's probably some wariness, and there's
probably investors out there who are very, very worried about
being perceived to be getting people hooked on an addictive substance.
So what is that like? What do you do when
you go out to investors and what are the concerns
(44:57):
that they have there? And who do you actually raise
money from.
Speaker 4 (45:00):
Yeah, it's been tricky. There's a lot of venture capital
firms that have what are called vice clauses in their
limited partner agreements, and a lot of those vice clauses
are very broad. They say things like no weapons, no
drug products, no sex products, these types of things. Now,
over the years, there's been a kind of a steady
(45:22):
flow of companies that have kind of defied those vice
clauses and role is a famous example in the defense
space where a lot of venture funds went back and
revisited their vice clauses because they kind of realized that
they were written in a blanket way. And I think
the vice clause broadly is kind of a mistake for
(45:44):
venture capitalists to lean on because it doesn't allow them
to actually engage with the moral question of what is
the impact of this company. You know, it would be
crazy if a VC said, hey, we have a fraud clause,
we will never invest in a fraud It's like, obviously
that's the case, But it's incumbent on the venture capitalists
(46:07):
to assess the fraudulent nature of the business and avoid
investing in an FTX or at arause, right, And the
same process should be run for quote unquote vice companies,
and that should allow you to determine that maybe Anderil
is a good company and is doing a positive thing
for the world, even though yes, it would trigger a
(46:28):
traditional vice clause. More broadly, I think that derivor of
decision to invest in something like this is that this
is such a such a narrow market in the sense
that if you're investing in B to B software, there's
a new unicorn every six months. There's a new unicorn
(46:48):
in the nicotine space once a decade maybe, and rarely.
So even if you are an investor and you see
something that's promising, it's not really something that you can
build a career around. Where oh, yeah, you were the
first investor in jewel and so you get all the
deal flow for the next ten jewels. That doesn't happen,
(47:09):
whereas that certainly does happen in B to B software.
And so I think the bigger difficulty has just been
with the market structure and the desire of venture capitalists
to participate in this particular industry, because it's not something
that's a gold mine that you can just, you know,
build a whole career around.
Speaker 2 (47:26):
I just have one last question. You're in addition to
founding Lucy, He's according to your Twitter profile, you're an
entrepreneur in residence at the founder's fund, Peter Teal. You
mentioned Teal earlier when you were talking about Soilan in
Zen culture. I think there was an article that all
of jd Vance's staffers are big are big Zin consumers.
(47:52):
I know this is like a blanket statement. It certainly
doesn't nearly encompass every nicotine user at all. But just
from your perspective, how would you describe the synthesis of
nicotine consumption and conservative politics more broadly?
Speaker 4 (48:07):
Oh, it's really hard. I think it's probably something around
the edginess that comes with saying something like nicotine is
not bad for you. It's kind of this, it's kind
of this secret that people love to learn about. They
have this chemical exactly exactly, and so it's very countercultural.
(48:30):
And if you pull people broadly, people believe that nicotine
is what causes cancer in cigarettes, and that's actually a misconception.
And that's why if you look at a tin of
zin or a tin of lucy, the warning just says
this product contains nicotine. Nicotine is an addictive chemical, whereas
(48:50):
on tobacco products it says this product causes cancer. And also,
you can look at the California prop sixty five, is
that it lists cancer parsonogenically.
Speaker 2 (49:02):
Everything cancer, cancer and.
Speaker 4 (49:04):
Comtory basically but not but not these nicotine p which is, like,
you know, notable. I think because obviously California is a
very careful state, as they should be with this stuff.
I think that might be part of it. The other
part of it is, if you look at the lineage
of where oral tobacco has been popular, the the baseball
(49:26):
players and the hockey players that were dipping in the
nineties and early two thousands, that tends to be a
more red state phenomenon, and so the earliest adopters. It's
always hardest to get someone to switch form factors. It's
easy to get someone who's already using a tobacco pouch
(49:48):
to use a tobacco free pouch because it's fundamentally the same,
the same shape of product in their pocket, the same
feeling in their lip. It's much harder to get someone
who's maybe vaping in a blue state to switch over.
Although obviously it's happening now, I really hope that it
doesn't become a culture war issue, or that culture war
(50:11):
issue subsides, because we don't want to wind up with
a situation where all of a sudden, smoking becomes important
to the left and we're seeing Democrats drop dead because
of some protest of Tucker Carlson, like who cares, it's
not important, Like this is so much the stakes are
so much higher than you know, avoiding an association with
(50:35):
you know, a right wing firebrand. And we've seen something
similar with the menthol cigarette ban where Biden, the Biden
administration rolled back plans to ban menthol cigarettes, and the
NAACP condemned the White House for that action because it
was seen as kind of a cynical play for votes.
And realistically, every single demographic or political leaning needs reduced
(51:02):
harm products. They need options that are down as far
down the continue of risk as possible. So I don't know,
maybe the answer here is that we need to we
need to make the like an ultraliberal out.
Speaker 2 (51:15):
The left coating the left coated the left, Yeah, exactly.
Speaker 4 (51:19):
I don't know who the Tucker Carlson of the left
would be. Maybe we could get John Stewart to promote
it or something. But I mean, in general, our our
planet Lucy has been you know, to sponsor podcasts on
both sides of the aisle, and you know, we don't
take a firm stance uh politically because the issues is
so much bigger than that and and the political lines
(51:41):
do not align around the harm that cigarettes are. Calling.
Speaker 2 (51:45):
John Cougan, co founder of Lucy Nicotine, thank you so much,
so many questions. I had been curious about this space
answered there. So really appreciate you coming on outline.
Speaker 3 (51:54):
Yeah, that was so interesting.
Speaker 4 (51:55):
Yeah, thanks for having me on.
Speaker 2 (52:10):
First of all, that was really fascinating about the elf bar,
which the whole thing is so weird to me that
like here's this regulated Philip associated company jewel that like
that sort of went off the market for a while
and then we just got flooded by cotton candy made
in that.
Speaker 3 (52:27):
Consumes more resources and ends up like taking up more space.
I sin fills.
Speaker 2 (52:32):
I see disposable vapes on the street all the time,
and there's like semiconductors in there, and like all this
stuff and batteries and everything, it just gets thrown away.
That's crazy.
Speaker 1 (52:42):
It's also just.
Speaker 3 (52:43):
This weird like gray market where if you walk into
stores in New York, like the elf bars are kind
of hidden away like behind the cash registered, but everyone
knows that they're there, and like clearly no one's really
cracking down on them. Now, there's so much to pull
out of that conversation. One thing that I thought was
(53:04):
really interesting was like just the different pathways, the sort
of like pre market tobacco pathways. I hadn't realized that
there were all the I mean I guess it makes sense,
but I hadn't realized that you had to make a
decision about that so early on. And then the other
thing that I thought was really interesting was John was
talking about how they saw regulation basically a regulated space
(53:26):
as an additional mote, so something that was desirable from
a business perspective, and that's why they targeted it.
Speaker 2 (53:33):
No, that is super interesting. And when you think about like, Okay,
you have to like get in the queue, and you
have to do this testing or the fact stability testing.
So even after you design the power to the gum,
you have to make sure that it's the same try
to keep it on a shelf. Yeah, yeah, shelf stability.
That's interesting. And then this application. And then there's this
que interesting that you mentioned COVID sort of obviously and
(53:58):
probably for good reason, taking resources away from some of
the health regulators who had higher priorities than approving nicotine pouches.
They're in twenty twenty. Just lots of really interesting details
about how we got to this state of the market.
Speaker 1 (54:13):
You know.
Speaker 3 (54:13):
The other thing I'm kind of wondering is what the
distribution network, Yeah, helf bars looks like now, no, and
how like maybe we need to find someone with a
bodega and ask them like, how do you how do
they get how bars in the first place?
Speaker 2 (54:25):
Yeah, that's a good question. We should just find any
of them, just we could just walk into some of
them and ask them if they'll come on. I also
think it's funny the Helsingborg Sweden has like the Shenzen
or the Taiwan, the Taiwan of nicotine pouches. It's interesting.
I had done Swedish match started off as a match.
Speaker 3 (54:44):
Company, did you know, speaking very.
Speaker 2 (54:48):
Very Ricardo houseman coded that we learned.
Speaker 3 (54:51):
Did you know, speaking of international tidbits about this particular topic,
what's the only I think this is still this is
still true and up to date. But the only country
to have banned cigarettes entirely, uh.
Speaker 2 (55:08):
No, Bhutan, Oh, the happy country.
Speaker 3 (55:12):
Yeah, and I think it failed terribly because it just
started a black market in cigarettes and people were, you know,
taking them over the border, and so I think they
actually ended up reversing it. But kind of interesting, it
really is.
Speaker 2 (55:24):
Like I do think about that conversation from years ago
with Laurence hamp Till about like, you know, when I
was a kid, like the things I knew is like
cigarettes are really bad. Bad people smoke cigarettes. And also
it seemed like they're going away, like it's totally a
matter of time. But then you recognize that there's been
a war against nicotine or tobacco for you know, close
(55:45):
to centuries. It's not going away. It'll just continue to
evolve in different forms. They're never going to get rid
of it.
Speaker 3 (55:51):
Okay, well on that Lindy note, shall we leave it there?
Speaker 2 (55:55):
Let's leave it there.
Speaker 3 (55:56):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (56:02):
And I'm Joe Wisanthal. You can follow me at the Stalwart.
Follow John Cougan He's at John Cougan. Follow our producers
Carman Rodriguez at Carman Arman, dash O Bennett at Dashbot
and Kilbrooks at Kilbrooks. Thank you to our producer Moses onm.
For more Oddlogs content, go to Bloomberg dot com slash
odd Lots, where we have transcripts, a blog, and a
(56:22):
newsletter and you can chat about all of these topics.
We don't have a nicotine room, but people will find
a way to talk about it. In the discord Discord
dot gg, slash odlogs.
Speaker 3 (56:32):
And if you enjoy odd Lots, If you want us
to do a deep dive into elf bars and the
business model there, then please leave us a positive review
on your favorite podcast platform. And remember, if you are
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connect your Bloomberg account with Apple Podcasts. In order to
(56:53):
do that, just find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening, Bead
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:21):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal.
Speaker 3 (00:26):
And I'm Tracy Alloway.
Speaker 2 (00:27):
Tracy, have you tried a zin yet?
Speaker 3 (00:31):
No, I've resisted. Multiple people, including you, have offered me
zin's before, and I have so far resisted the temptation.
But I don't know how long I'm going to be
able to hold out.
Speaker 2 (00:44):
For those who don't, I guess there are some There
might be some people who don't know what a zin is. Actually,
it occurs to me. It's a little pouch that people
put under their lip on their gum, and it's filled
with tobacco free nicotine salt. So it's sort of a
smoking alternate or even a vaping alternative, And so people
(01:05):
like who want nicotine can get it that way. But
there's also like this big culture of it, like zen
memes are everywhere now.
Speaker 3 (01:11):
Yes, and there have been times where it's been really
hard to find them. Right, So, first of all, they're
made by Philip Morris, is my understanding. But then secondly,
sales have jumped like I can't remember the exact timeframe,
hundreds and yeah, and so there have been shortages of
this product, and if you go, you know, online, on
certain subreddits in places like that, you can see people
(01:33):
actively trying to find where they can get Zen's. There's
also a lot of other nicotine delivery products nowadays too.
There's obviously the vapes and elf bars. I had a
this is a slight aside, I had a green tea
flavored vape type thing.
Speaker 2 (01:51):
Yeah, it was.
Speaker 3 (01:53):
Great, and it made me feel so healthy. It's the
only nicotine product that actually made me feel healthy.
Speaker 2 (02:00):
Do you remember, you know, speaking of nicotine and I'm
fascy by nicotine. It always sort of goes in waves.
I see cigarettes once again. I go to parties sometimes
a lot of people are smoking. Do you remember the
episode we did with Larry Hamptil years ago about Yeah,
so he made an observation about the history of nicotine
that like there was some Russian czar and like the
(02:20):
fifteen hundreds or something like that, ye who threatened to
cut off the noses of anyone who consumed tobacco. And
I guess that didn't work. But it really shows that,
you know, you have these like crackdowns and people get
really anti nicotine consumption, but it really just doesn't go
away like nicotine. It's Lindy nicotine consumption.
Speaker 3 (02:39):
I feel like we should just caveat this entire conversation,
or at least I should.
Speaker 2 (02:43):
With you know, don't do drugs, folks.
Speaker 3 (02:45):
I do not endorse nicotine consumption. However, everything in the
world is relative and on a continuum, and I can say,
you know, when I was in high school in Japan,
I used to smoke clove cigarettes. Like there were days
where I would smoke like a whole pack of clothes,
which is just insane when I think about it now,
and so certainly relative to a pack of clothes, I
(03:08):
feel better about some of these new nicotine products. The
one that I kind of like, and we're going to
talk about it now, is the gum.
Speaker 2 (03:17):
Yes, right, because Nicorette has existed for a while, but
now we're seeing that more and more companies are doing
it with different flavors and stuff like that. We are
truly again, nicotine is definitely having a moment right now.
Speaker 3 (03:31):
Yes, and beyond personal preferences and consumption, it is just
a really interesting business. So there are these new products
being developed and sales of them have exploded in recent years.
But then secondly, in the background. As with all nicotine
and tobacco products, there's always the regulatory threat and what
(03:53):
policymakers actually decide to do about these things, and the
health considerations and things like that. So it's just a
interesting industry to observe and talk about totally.
Speaker 2 (04:03):
And you know, you mentioned the Zin shortages, which are
real because I've gone into stories and they just like
don't have any et cetera. But there are all these
other like ZIN competitors. There's Zemo, there's Zalt, there's Rogue,
there's they have in them. Right, my guess would be
(04:24):
will Zen exists, and so let's come up with a
name that's sort of But anyway, we're going to be
speaking with the CEO and co founder of yet another
one of these nicotine pouches, because I want to actually
understand how this business really works. And in fact, it's
the company that makes the gum that you like.
Speaker 3 (04:44):
Yeah, so the gum. The reason I found it is
actually because you gave me a sort of industrial quantity
of it for some reason, and so I have it
stored in a drawer at home, and uh, yeah, by
all accounts, it's s seem to be increasing and so
it is very emblematic of this new era of nicotine products,
(05:07):
and we should talk more about what that business actually
looks like.
Speaker 2 (05:10):
I am very excited. We have indeed the perfect guest
we are going to be speaking with, John Coogan. He
is the co founder of Lucy Nicotine, which is one
of these ZIN competitors. They make the pouches, they make gums,
they make something called breakers, which I don't really know
what that is. I haven't tried it yet, maybe we'll learn.
And they've been around since twenty sixteen, so long before
(05:32):
the Internet, this Internet became flooded with memes about all
of this stuff. He was early on the bandwagon, so
to speak, or before there was even a bandwagon. And
we're going to understand how this business actually works and
why so many people are consuming this stuff. So John,
thank you so much for coming on odd.
Speaker 4 (05:53):
Lots, Thanks for having me.
Speaker 2 (05:55):
On what is nicotine culture.
Speaker 4 (05:57):
Nicotine culture has evolved a lot, but right now, I mean,
I think the Z internet is great portmanteau to describe it.
It's certainly become a little fratty, a little broie, but
that doesn't actually capture the broader nicotine user because there
are millions and millions of nicotine users, and the average
(06:19):
smoker is, you know, a gen xer or boomer, and
they are definitely not posting zen memes on Instagram. But
that's certainly what's driving this new wave of consumers moving
down the continuum of risk and moving away from cigarettes,
(06:40):
which I see as a very positive thing.
Speaker 3 (06:43):
So, speaking of Bros, you co founded Soilent before co
founding Lucy, and I always thought of Soilent as the
sort of I think someone wrote this at some point,
but the slim fast for men? What was it about?
What was it about nicotine products that attracted you to
(07:03):
that space? You know, going from a company like Soilent
and starting something new.
Speaker 4 (07:08):
It was a few things. So with Soilent, we just
kind of stumbled into it. We were actually running out
of money and hungry, and we needed a meal replacement
to kind of help us stay healthy and provide for
our food needs, and so we just kind of made
this product. It went viral because we wrote this very
(07:31):
edgy blog post about how our CEO quit eating food
for thirty days straight and lived on this er members exclusively. Yeah. Yeah,
And so it was the ultimate stress test. And so
even though we were a new company, and we couldn't
show that, oh we had one hundred thousand people consume
our product, they all liked it. We were able to
show that one person was able to consume it in
(07:53):
the extreme, and so if this one guy can can
use this product for thirty days straight, you can probably
have it for you know, launcher and after snack, and
so it went very viral. It was very controversial. But
what we learned was that the market for meal replacement
shakes and protein shakes was not oligopolistic or monopolistic in
any way. We actually kind of learned this in a
(08:15):
pitch with Peter Teel where we went in to present
the company and he kind of laid out how the
market would evolve and explain to us that this would
be a potentially a very good business, but not a
venture backable business. Of course, we wound up not taking
his advice and raising a bunch of venture money and
the company didn't do that well because of that. But
we learned that it was much more important if we
(08:38):
were going to be consumer products entrepreneurs to go into
products that had moats. So in the nicotine space, there's
a pretty significant regulatory mote, yeah, and also take things
much slower. So we've been in business for eight years now,
raised a lot less money, were much more profitable, much
more cash flow positive, and we're trying to accumulate more
(09:02):
brand power, more market power, more moats and that's really
what motivated us. Of course, there was also the personal need.
My co founder was quitting smoking. He didn't like any
of the alternatives. It's kind of the classic story that
you see in this in this category. And we thought
that there was enough expertise among our team members to
(09:23):
launch a product in a more regulated space. One of
our co founders is a PhD from Caltech and had
worked in biotech and dealt with the FDA on the
cancer drug side of things, and so we knew that
we could we could both work with the FDA but
still do all the standard e commerce shipping shopify, you know,
make a product, sell it online. The blocking and tackling
(09:44):
of getting one of these businesses working.
Speaker 2 (09:46):
So, as I mentioned, you know, I've tried, I've consumed
Zen in my life. I've consumed some of the others
because they're all over the place and often you know,
in zores and stuff. So I've tried them all. I'm
going to be honest here, I'll pop one in my
mouth from time to time. I have no idea what
I'm putting in there, you know, it's like, oh, yeah,
the cave, there's no tobacco. Whatever. What's a nicotine pouch?
(10:09):
What's in it?
Speaker 4 (10:10):
Like?
Speaker 2 (10:10):
What am I sticking up in my gums?
Speaker 4 (10:14):
Yeah, it's pretty it's pretty simple. I mean, the goal
of these products is really just to deliver pure nicotine
and remove the tobacco and any of the nitrosamines or
harm causing agents as possible. Now you can't. I mean,
you could just take a vial of pure nicotine and
drop like a liquid drop on your gums, but that's
(10:37):
a terrible form factor. It doesn't really work. So what
these products have done, generally speaking broadly, is they bind
the nicotine to a like a bulking agent, usually a cellulose.
We use microcrystalline cellulose, which is essentially just you take
a tree, you grind it up, you get wood pulp.
You chemically treat that a little bit to get kind
(10:58):
of a powder. And so when you're done with the pouch,
you notice that even though you might not be getting
any nicotine from that, pouch, there's still something in there
that's the cellulose. And then you also add flavors, maybe
a sweetener. There's different things that you can do to
increase moisture, adding different oils, but that's pretty much it.
(11:19):
You want to keep the number of ingredients as low
as possible because you only want to use ingredients that
have been studied for years and years in the mouth.
So when someone says, how do we know that oral
nicotine is acceptable? While we can look at the data
from Sweden, we can also look at what's happened with
oral nicotine users in nicoret for fifty years, and then
(11:41):
what about cellulose. Well, cellulose is used in a lot
of products, same thing with a lot of these flavoring chemicals.
So you take these flavors and if they've been used
in sodas for fifty years and they're not causing cancer,
well then that's a good case that you can go
and make to the FDA that hey, this flavor is
also is also to consume. And this is really important
(12:02):
because as we saw during the vape crisis, the nicotine
was not the principal agent of harm in the It's
called evoli. The e cigarette and vapor acute lung injury
kind of fiasco. What was going on was that there
were a certain class of vapes that included vitamin e acetate,
(12:22):
which was not safe to ingest into your lungs, and
so that hadn't been tested. So all of these companies,
zen every company in the space, wants to keep the
number of ingredients as low as possible and only use
things that have been studied for a really, really long
time so they can go and make a really really
strong case to the FBI.
Speaker 3 (12:57):
What's the difference between Lucy and nick Caret, which you
just mentioned.
Speaker 4 (13:02):
So there's a few differences from our gum. So we
have a variety of products. One is a nicotine lossenge
that's actually approved as a smoking cessation aid by the FDA.
The FDA has a number of ways that you can
bring a nicotine product to market. One is through the
drug pathway. That's what Nicorette went through. So Nicorette is
an approved smoking cessation aid. We are our nicotine los
(13:24):
ange is also an approved smoking cessation aid, so we
can go and say this product is proven to help
you quit smoking. Our gum goes through what's called the
Tobacco Products Pathway, which is the pre market tobacco application pathway.
There's also the modified risk Tobacco Product Pathway, which is MRTP.
It's all very complex and there's a few different ways
to bring products to market, but in terms of our gum,
(13:46):
we have focused on differentiating around the brand. We recognize
that when my co founder was quitting smoking, he noticed
that Nicorette was working for him as a product ingesting
nicotine orally was helping him not smoke. But when he
pulled out a packet of Nicorette, everyone would say, why
(14:08):
are you on this medicine? You must be a really,
really bad smoker. So there was a lot of work
to be done into destigmatizing nicotine gum and trying to
trying to make it feel less medicinal and more aspirational.
And then we've done a lot of work on the flavor, texture,
and strength side. So Nicorette actually in the United States
(14:29):
they sell a two milligram and four miligram gum. Internationally
they do sell a six miligram gum. We found that
the six miligram gum worked very well, and so in
the United States we have also chosen to sell a
six miligram gum, which is stronger, and if you notice
what's going on in the pouch market, Zin sells a
three miligram and six miligram product. Clearly, six miligram and
(14:51):
stronger products are more effective for getting for convincing smokers
to switch, and so we've been really interested in that,
but obviously there's obvious there are also risks that come
with that because it is a stronger product.
Speaker 2 (15:04):
Sitting aside the health questions about nicotine and so forth,
how much are you seeing people consume any of these
cigarette alternatives as a help to get people to quit
smoking versus someone who wants to consume nicotine and maybe
was never a smoker in the first place.
Speaker 4 (15:24):
It's hard to say. I mean, we do survey all
of our customers when they come in, and about a
third of them are former smokers or directly like the
product that they used right before they ordered was cigarettes.
Another third comes from e cigarettes and vapor products, so
that's the product that they were using right before. And
then another third is basically people that are coming from
(15:44):
other pouches, like they've tried other brands and then they
come to us because they've heard of us. Ideally it
would be you know, one hundred percent cigarettes, but it
is very, very difficult to target smokers. We actually tried
on Facebook in the early days, and when we targeted
people who were interested smoking, there was a lot of
overlap with people who enjoy smoking meats. I don't know
if that's like a Zuck thing, but it but it
(16:07):
was very It was very tricky because if you are
a smoker, it's not like you're following, you know, smoking
pages on Instagram. You're probably just doing this in the background,
and you can do some general, broad level correlations between Oh,
smokers tend to be into this type of thing, they
tend to be in this age demographic. But it's much
(16:27):
harder to target than say, Okay, someone follows this particular band,
I'm going to try and sell them a shirt with
that band on the shirt. It's very direct. It's much
harder to target smokers. But obviously, like everything that we
do is focused on that because that's where the biggest
impact for the mission is. But then also smokers spend
(16:49):
the most money on nicotine every year, so there's the
strongest economic incentive to go after smokers.
Speaker 2 (16:54):
By the way, Tracy, there are more cigarette memes to
these days, like some Instagram act that I think, you know,
it's like cool people smoking cigarettes and stuff like that,
So that's on the on the rise. Anyway, let's not
do that.
Speaker 4 (17:07):
That's very edgy. So yeah, exactly, Yeah, it's very edgy.
So people are starting to you know what's boy with that?
Speaker 2 (17:13):
Ye, cigarettes are like the really hip one right now
that all the Yeah, yeah, and.
Speaker 4 (17:17):
I can't support that anyway.
Speaker 3 (17:21):
Wait, so on this note, I mean, the amount of
smokers in the world has declined dramatically, and if Lucy
is in theory targeting people who are trying to stop
smoking cigarettes, then is this how is this a growth
market for sales?
Speaker 4 (17:39):
Oh, it's a huge growth market. So just to give
you some background, the nicotine market in the United States
is seventy five billion dollars. Fifty five billion of that
is still cigarettes, so that's seventy two percent of the total.
Now ten billion is smokeless which includes oral nicotine, but
these pouch products, and I guess you would include our
(18:00):
in this as well, that's only like two and a
half billion, maybe three billion. The mass that like, still
the majority of smokeless nicotine is those traditional tobacco pouches
you might have seen, like dip or General Snooze, those
types of products which oddly have a higher regulatory status
(18:22):
with the FDA. Right now, Beach Match has two products,
Zen and General Snooze. Zen has yet to be approved
for PMTA, which is kind of like the level one approval. Meanwhile,
General Snooze has both PMTA and MRTP, which allows them
to say that General Snooze is less harmful than cigarettes,
which is great because it probably is, and I agree
(18:44):
with the FDA on that, but it's just interesting that
the FDA has chosen to kind of fast track General Snooze.
I mean, it's an older product, so it's easier to
you know, run the data on I suppose. And then
e cigarettes and vapor that's a five billion dollar category,
but it's declining, and it's declining faster than cigarettes. So
over the last year, the cigarette market has declined by
(19:05):
five percent, whereas the e cigarette vapor market has declined
by something around ten percent. And the decline in vape
is actually accelerating. So just in the last month it
went down sixteen percent. And so the way we see
the market growing is that this fifty five billion dollars
cigarette market that should be zero, right, and it's getting there.
(19:26):
It's five percent, and the actual the declines are accelerating.
So every year there's something like a billion dollars of
value that's up for grabs, and we're hoping that almost
all of that codes to oral nicotine if someone is
switching from smoking.
Speaker 3 (19:42):
But I guess what I'm getting at is is there
like a generational cliff risk where you mentioned baby boomers earlier,
but where older smokers, you know, stop buying cigarettes all together,
either because they age out of the market or because
you know, governments around the world have breast desire to
get people to stop smoking. And is that a risk
(20:05):
for nicotine gum sales.
Speaker 4 (20:09):
Yeah, it could be in the sense that, like the
overall nicotine market could decline over the next one hundred
years and we could be talking about, you know, in
twenty sixty, we could be talking about a US market
that's not seventy five billion, but twenty five billion. I
think if you look back to the pre cigarette era,
humans were consuming nicotine, and I think that there will
(20:32):
be a continued trend there just because of the way
the nicotinic receptor has evolved. In the brain and the
desire for humans. I mean, Joe mentioned that nicotine consumption
is Lindy in some ways, and I think that's right.
We just made a terrible mistake during the Industrial Revolution
by building the cigarette rolling machine, which allowed us to
(20:55):
ramp up the burning ash that we were inhaling to
the point where people were smoking twenty cigarettes a day.
But over time, we do think that there will continue
to be some amount of ambient nicotine use. I don't
think it'll ever be everyone. And you can just tell
from talking to people that some people nicotine they really
(21:18):
enjoy it, and some people don't get anything out of it.
Speaker 2 (21:21):
I have a lot of questions I want to just
get afore we get I want to learn more about
how these packs are as symboled and market and sold.
But before we do that, I just want to get
a slightly understand the regulatory environment for nicotine a bit more.
If I start a pouch company, A like, what do
I need to do to be able to legally sell it?
And then B you know, I've been wondering about this
(21:43):
for a while, and since you know the business, I'm
just going to ask you. Even though it's not pouch
or gum related. You know, the FDA went after Jewel
and rapidly massively constrained what it's able to sell. I
think some of that's been actually loosened a little bit.
But then so they killed Jewel more or less, and
(22:03):
then you just saw this explosion of disposable vapes. And
those vapes taste like candy. I mean, Tracy mentioned the
green tea ones, but they have ones that really taste
like you're inhaling cotton candy, and they're disposable. People trash
them all over the place. So there's got to be
all sorts of like waste because whatever in those batteries.
So they basically opened the door to these candy flavored
(22:27):
ones that are significantly more wasteful and they end up
on landfills or in gutters and in sewers and something.
How did that happen? Like what was it that, like
the elf bar like from China or whatever was able
to become massive even while Jewel was so heavily constrained.
Speaker 3 (22:45):
Good question.
Speaker 4 (22:45):
Yeah, let me give you a little bit of the prehistory. Sure,
and we can work we can work up to the
Jewel story. So cigarettes were unregulated for the entire twentieth century.
But in the fifties, sixties, seventies, Surgeon General warning comes out.
People start learning that cigarettes cause cancer. There's the Master
Settlement Agreement in the nineties where all of the tobacco
(23:09):
companies came to create a settlement with the US government.
The basis for this was, you know, billions and billions
of dollars paid to American governments, essentially because the tobacco
companies were placing a negative externality on the healthcare system. Yeah,
and so that was it wasn't it wasn't a necessarily
(23:30):
like a moral judgment, even though you could argue that
it should have been. It was you are causing cancer,
which is putting stress on the healthcare system, so you
need to pay the government for that cost. And then
after that there were a lot of restrictions, mostly on advertising,
so mostly FTC related now an FCC related now. Later
(23:53):
in early two thousands, the vaporizer is invented by this
Hans Licks in China, and a company called Enjoy starts
building really popular e cigarettes for the United States. These
get popular and the FDA wants to regulate them. The
(24:14):
FDA makes a claim that Enjoy is a combined drug
and medical device product, and it's delivering nicotine for the
purpose of smoking cessation, which is or cigarette addiction prevention.
So cigarette addiction is a disease and this product was
designed to relieve that disease, which makes it a drug
(24:36):
and medical device. That case went all the way to
the Supreme Court and Enjoy actually won, So the FDA
lost and the Supreme Court said that the FDA could
not regulate e cigarettes. Shortly after, this didn't make any
sense in this so Enjoy actually went out of business
because they had a whole bunch of import restrictions while
(24:58):
they were fighting this case, so they went bankrupt. Eventually,
a hedge fund guy bought the company, turned it around,
and they just got approved and now it's a multi
billion dollar company. But the Obama administration in two thousand
and two thousand and nine passed the Tobacco Control Act
the TCA. This gave the FDA regulatory authority over all
(25:19):
nicotine containing products. Essentially, now the FDA, they have a
number of regulatory sub organizations within the overall organization. So
there's drug, medical device, there's veterinary, there's biologics, there's a
whole bunch of different there's supplements, you know, the protein
powders that you get, and they all regulate things slightly differently.
(25:39):
The Tobacco Group was new and they took some time
to spin up. So by twenty sixteen they had put
into place what's called the pre Market Tobacco Application Process,
the PMTA, and so all new products that were brought
to market would need to submit what's called the PMTA
to the FDA, and then the FDA would review that
(26:00):
and say is this suitable for the protection of public health.
If it is, they will approve it and you will
be able to continue selling this product. Otherwise they will
give you what's called a marketing denial order, which means
that you cannot sell your product in the United States. Now,
there was a grace period for products that were on
the market before twenty sixteen, so that includes our products,
(26:23):
that includes Zen, that includes Jewel, So all of these
products they still had to file the pmtas, but they
had a grace period where they could continue to sell
while the FDA approved and reviewed those applications. Now, so
if you want to start a product now, you cannot
(26:43):
sell a single unit in the United States until the
FDA gets back to you with your application. So to
your question of if you want to start a pouch company,
we just can't. If you wanted to do it legally,
what you would have to do is you'd have to
raise some money, develop your product, run a whole battery
of tests, including stability tests, which could take a year,
because you need to wait around to see if the
(27:05):
product is different at month twelve than month one. Then
you submit that data and the huge packet it's you know,
thousands and thousands of pages to the FDA. They review it.
You're at the back of the queue. This could take
tens of millions of dollars. There's rumors that bigger companies
have spent hundreds of millions of dollars on these applications.
(27:27):
And I mean, Zin's been on the market since twenty fourteen.
I'm not exactly sure when they submitted their PMTA, but
you know it's been five six years since pmtas first
were submitted. The FDA is prioritizing vapes first because of
the vape crisis, which we'll go into about duel, and
they're also organizing based on market share. So theoretically Zin
(27:51):
should be the first oral product that they review and
so your new pouch, the you know, the odd lots pouch,
that's that's going to be at the back of the queue.
And so it could be three, four or five years.
No one really knows, but it requires a lot of
a lot of time. Now with the Jewel story, there
are a bunch of fascinating things with that that we
(28:13):
could go into. Essentially, they were on the market before
twenty sixteen, so it was legal for them to sell
that product. It got really really popular twenty eighteen twenty nineteen.
Around that time, we have the vape crisis EVOLI as
it's known in the industry, and there were I think dozens,
if not hundreds of deaths that were attributed to acute
(28:37):
lung injury from vaping or e cigarette use. Now, the
CDC came in studied everything. It turned out that it
was related mostly to these marijuana cannabis vapes that had
the vitamin E acetate ingredient. No one's ever proven that
Jewel killed anyone. I don't think that they did, but
that's conjecture. Nevertheless, there was kind of a pan about
(29:01):
two separate issues. One was people in the abstract were
dying from vapes as a class of product from the
vitamin eestate. And then separately, underage users were adopting jewels
in mass and so before Jewel was introduced, about twenty
percent of underage kids we're using vapor products, and within
(29:25):
a few years of Jewel being on the market, that
number climb to almost forty percent. And so this data
is collected through what's called the NYTS, the National Youth
Tobacco Survey, So pediatricians across the country are required to
ask kids when they come in I think it's thirteen
to eighteen. They asked them have you used nicotine products?
(29:48):
They ask a lot of questions, but this is for
tobacco specifically. They ask have you used nicotine products? What
products have you used? Have you used over the last
thirty days? Have you ever tried this product? Have you smoked?
What brands? They ask all these different questions. It's all
compiled into this great data set that then is used
for regulation. And so the E cigarette numbers were spiking.
(30:08):
Now cigarette use was declining, which is great. We don't
want underage kids smoking, but we also don't want them
using nicotine at all because until you're a full grown adult,
your brain's still developing. And most importantly, if you start
using nicotine at fifteen sixteen, you're going to be addicted forever.
It's going to be something that's very ingreat It's the
same thing with gambling, it's the same thing with drinking.
(30:30):
Like the underage there are reasons we have age restrictions
on all of these things. Now, fortunately the industry has
moved forward in many ways, and tobacco is now twenty
one plus. It's kind of crazy to think that back
during the jewel craze, you could just ask like a
cool senior to go out and buy you jewel legally
on their lunch break. Now it's twenty one plus, which
(30:52):
is I think, much better. But obviously people are still
worried about bleedover because there are eighteen year olds with
fake IDs who can figure out how to get something
that's like plus. And if you look at the underage
alcohol use rates, that's at something like fifty percent, and
same thing with cannabis, it's something around fifty percent. And
so Jewel received because of all this pressure. They were
(31:15):
fighting with the FDA. They were submitting their their products
and they got into this battle with the FDA, who
at that time was run by Scott Gottlieb, Trump appointee,
former venture capitalist at Nea, very very sharp guy, but
he was kind of warning them that hey, this is
getting out of control. You need to do something. And
then they took money from Altria and kind of got
(31:37):
in bed with Big Tobacco. Jewel was they had a
lot of kind of weird marketing stuff in the early
days that came out, stuff like visiting schools and then
also they were like they had a sister company that
was originally part of their company that was selling cannabis vapes,
which is kind of crazy time just like yeah, it's
just like it doesn't it's crazy.
Speaker 2 (32:00):
There's a good documentary on Netflix. Basically like they went
into schools and the like don't vape kids, and then
everyone went out and vaped. It seemed very strange and
I was shocked by it.
Speaker 4 (32:10):
Yeah, yeah it was. It was very very poorly executed,
and yeah, they just made a ton of mistakes and
they became kind of the tall poppy, the you know,
the the sacrificial lamb for our society, for the for
the sin of underage nicotine use. They became somewhat of
(32:30):
a scapegoat in my opinion, because after Jewel was quote
unquote banned. Now, what actually happened was they received a
marketing denial order from the FDA. The FDA essentially rejected
their PMTA. That meant that they needed to stop selling
their products nationally, and they'd actually already stopped selling flavored products,
(32:51):
so the mango jewel pods that were so popular, they
had voluntarily pulled those off the market. They've still kept
those off the market voluntarily. They legally could sell those,
but Jewel got a stay of the marketing denial order
in the courts, so they were able to continue selling.
And if you look at Jewels numbers, they're still doing
about a billion dollars in sales, and they've never really
(33:12):
stopped doing a billion dollars of sales because they were
only off shelves for a couple of weeks while the
marketing denial order was in effect. It got stayed in
the court and then most recently it got reversed because
now they're not the biggest problem. And it's interesting if
you look at the some of the social media posts
that announced the Jewel ban quote unquote, yeah, the comments
(33:34):
are all from former Jewel users, like former kids that
used it joking about, like, why are they banning Jewel?
Don't they know We've moved on to el bar and
all of our favorite products. And that's where we get
into the story of the new disposable market, which is
(33:55):
now the second largest class of products after cigarettes.
Speaker 3 (34:17):
Talk about what elf bar did or is doing that
is different to Jewel.
Speaker 4 (34:23):
It's hard to explain exactly what elf bar is because
it's kind of a hydra of companies. Like the IP
has been sold so many times, they've rebranded a million times.
There's also puff bar and puff stick, and essentially what
these companies do broadly, I'm not speaking about any particular company,
(34:46):
but broadly, the strategy has been to instead of engage
with the FDA directly and file the PMTA, wait for approval,
then market your product. They've just said, let's push this
product as many play this is possible, get it into
every independent store that maybe doesn't care about the regulatory
status of these products. Let's just flood the market with
(35:09):
these products. And if we get shut down, what's going
to happen is that we're essentially just have a front
company that's just a couple random American citizens that are
acting as a front for us in the US. The
FDA is not really going to be able to shut
them down. They're going to try and shut us down
at the ports. All we need to do then is
just set up a new company structure and import under
(35:32):
a different label. So that's how you see the evolution
of these things, where like I don't even think elf
bar is on the market anymore. I think it might
be called like elf Tech.
Speaker 2 (35:41):
Yeah no, there's like what they all look the same
under like different names, and I'm like, is it exactly?
Speaker 4 (35:46):
So they're all made in the same Shenzen Like the
core company behind elf Bar's shenzhen I Miracle Company. Just
a hilarious name, but it's like the Miracle. But then
also I which I think is like an Apple Friends,
it's very convoluted. But the shenzhen I Miracle Company, they
have a massive facility where they make this stuff and
then they just find a new front man. And I
(36:10):
get emails every single day from a new random Gmail
account that says like huff bar five hundred puffs, like
would you like to white label this? Because they're looking
for someone that has American citizenship distribution lines and can
order their products. And then get them into stores, and
so they're they're really it's not just like a normal
(36:31):
spam campaign. It's very sophisticated. It always gets through Gmail
spam filter for me, and I finally created a filter
that actually cut them out, you know, but eventually, like like,
this is the game that they're running. And so if
you look at the stats, the leading disposable vape company
might be doing one hundred million dollars in sales or
(36:53):
two hundred million dollars in sales, so they don't have
anywhere near the brand awareness as a ZIN which is
doing two billion in sales. But if you think of
them as this aggregate hydra, then it is a massive,
massive category. And so the fundamental reason why this is
happening is because the Center for Tobacco Products at the FDA,
(37:14):
this is a new organization. I mean, they only got
authorization via the Tobacco Control Act in two thousand and nine,
and they've really only been super active in twenty sixteen,
and then of course in twenty twenty, the FDA had
to completely pivot the entire organization to dealing with COVID,
and so resources have been tight. And so even though
they have the ability to review pmtas and issue marketing
(37:36):
granted orders or marketing denial orders. They don't necessarily have
enough field agents to go to every store in America
and make sure that all the stores and all the
products on the shelves are legal and approve and they
so they can kind of do stuff at the ports,
and they can. That's what I find.
Speaker 3 (37:53):
Why don't they stop it at the import stage? I mean,
my experience of shipping goods from Hong Kong to New
York is that they go through everything, right, like you
can't have medications, you can't have food. Agents will stop
and go through boxes or at least sample the boxes.
Why don't they stop them there?
Speaker 4 (38:11):
Yeah, so they try, but it's very difficult because if
the hold at the port is for one company's name
and it's under a different company's name, it can be
very hard to get through. The FDA hasn't really figured
out how to create a blanket ban on everything that
you know is a nicotine containing disposable device. And some
(38:32):
of them might be legal, you know, some of them.
Some of them might have been on the market before
twenty sixteen. They might have pmtas in I don't know.
I'm sure that there's some disposable company that's taking things
very very seriously and they shouldn't be blanket banned at
the ports necessarily.
Speaker 2 (38:48):
This is so fascinating because I actually I once wanted
to do we should do like an elf Bar episode,
and part of the issues we couldn't find a guess
because like it didn't seem like anyone even understood this
company and what it is.
Speaker 4 (39:00):
Oh, it's really really hard. It's really really hard. Your
story is crazy too, Yeah, I mean the puff Bar
story is potentially more interesting because there's a Wall Street
Journal article about the founders and they're these guys who
people they kind of came out of nowhere, and they
didn't have the same story as like Adam Bowen and
jamesons use it. But they're like they're pictures on their
(39:22):
Instagram of them like driving Ferraris and McLaren's on like
the freeways and it's like these guys are bawling and
then they got, you know, shut down. But there's a
whole bunch of rumors swirling in the industry about, oh,
like what exactly happened there? Did they just like take
the money and run? But like it's not like a
traditional startup where oh yeah, they were investors and then
they sold the company. It's much more like they made
(39:45):
a bunch of money and they ran with it or
something like that.
Speaker 2 (39:47):
So we just have a couple of minutes left and
I just want to you know, the actual business of
the pouches, like, how did so let's say Tracy and
I want to start our nicotine a lots branded pouch, right,
lots lots Yeah, we got to start it with a
Z like Zemo corsult setting aside all the regulatory issues.
(40:11):
Is there like a Taiwan semiconductor for pouches that I
just like, we give them our brand, do we give
them our flavors and they make it? Like walk us
through the manufacturing supply chain.
Speaker 4 (40:20):
I was joking with you about Helsingborg Sweden is kind
of the Taiwan of niicten pouches. Zen, of course, is
a Swedish match product. Swedish Match is a former matchmaking company.
They literally made matches to light cigarettes, and then over time,
once cigarettes started declining, they needed other products and Sweden
(40:41):
adopted these smokeless oral nicotine pouches. It's been incredible for
getting Sweden smoke free there's a bunch of incredible data
about how Sweden now has the lowest lung cancer rates
in all of Europe. But there isn't necessarily a TSMC
in the sense that there's not one scaled coman factorer
that everyone is using. Zin of course, has their own facilities.
(41:05):
They have a number of facilities, and they just this
week announced that they're investing I think six hundred million
dollars in a Colorado facility. They already have an American
facility as well as several others across the globe. It's
not an incredibly complex process. It is just at the
end of the day blending up six or seven ingredients
that are powders and then they need to be dumped
(41:29):
into a bag. We have a slightly more complicated process
with our Breakers product because we put a capsule in
the pouch. And so the history of these products is
that it used to be people would just chew loose
leaf tobacco. Then it was ground up tobacco. This is
the dip spit cup that you've seen probably the baseball players. Eventually,
(41:51):
Swedish Match and a couple other companies took the ground
up tobacco product put it in a pouch. That's where
you get general snooze. Camel snooze, and snooze became very popular,
especially in Sweden. Now, the modern oral category that we've
been talking about, the zins of the world, the vellows,
the rogues, the lucy's, these they don't contain any tobacco
(42:14):
leaf whatsoever, which is great, it's a huge step forward.
But the problem has always been that tobacco leaf, although
it did contain carcinogens, it also contained moisture, and so
a snooze product was generally more moist When you take
out the tobacco leaf, you take out the moisture. And
so the number one complaint that we found was that
(42:34):
these tobacco, these tobacco free pouches, they would dry your
mouth out. And so we put a capsule that has
liquid inside in the pouch. Oh the breakers. Yeah, and
so it's somewhat similar to a camel crush the cigarette
where you crush the capsule and it releases flavoring. Same idea,
add the flavor and moisture back into the pouch in
(42:58):
order to kind of get give all the benefits of
the moist pouch that oral tobacco users enjoyed without adding
back any tobacco leaf. And so that's a little bit
more complex for us because we actually have to have
a machine that drops a little capsule into each pouch
and then seals the pouch. And sealing the pouches is
(43:18):
very tricky. You can see that some brands when you
open up the tin, it's just everywhere. It's a little
bit of a mass. But in general, you know, these
products are fairly easy to scale. It's much less complex
than vapor products, which essentially.
Speaker 2 (43:35):
Less complex than semiconductor manufacturing.
Speaker 4 (43:38):
For sure, certainly less complex than semiconductor manufacturing. I mean,
jewels tagline was like the iPhone of vaping, and obviously
there's a lot. There is literally a semiconductor in a jewel.
There is not a semiconductor in any nicotine pouches. Now,
now these disposables, they've gotten so cheap that you can
buy one that has an LED screen or LCD screen
(43:58):
on the outside and it shows you all these things.
That's crazy, but it is a simple process. But there
hasn't been major concentration in the co manufacturing space because
most of the big tobacco companies have wanted to make
it themselves.
Speaker 3 (44:14):
Setting aside the very opaque worlds of elf bar, what
is raising financing like for something like a Lucy Goods
Because I can see, on the one hand, okay, maybe
you could make a sort of health argument where at
least you're arguing that this is a product for people
who are addicted to cigarettes to try to move on
(44:34):
to something that has fewer side effects. But on the
other hand, I have to imagine that anything with the
word nicotine in it, there's probably some wariness, and there's
probably investors out there who are very, very worried about
being perceived to be getting people hooked on an addictive substance.
So what is that like? What do you do when
you go out to investors and what are the concerns
(44:57):
that they have there? And who do you actually raise
money from.
Speaker 4 (45:00):
Yeah, it's been tricky. There's a lot of venture capital
firms that have what are called vice clauses in their
limited partner agreements, and a lot of those vice clauses
are very broad. They say things like no weapons, no
drug products, no sex products, these types of things. Now,
over the years, there's been a kind of a steady
(45:22):
flow of companies that have kind of defied those vice
clauses and role is a famous example in the defense
space where a lot of venture funds went back and
revisited their vice clauses because they kind of realized that
they were written in a blanket way. And I think
the vice clause broadly is kind of a mistake for
(45:44):
venture capitalists to lean on because it doesn't allow them
to actually engage with the moral question of what is
the impact of this company. You know, it would be
crazy if a VC said, hey, we have a fraud clause,
we will never invest in a fraud It's like, obviously
that's the case, But it's incumbent on the venture capitalists
(46:07):
to assess the fraudulent nature of the business and avoid
investing in an FTX or at arause, right, And the
same process should be run for quote unquote vice companies,
and that should allow you to determine that maybe Anderil
is a good company and is doing a positive thing
for the world, even though yes, it would trigger a
(46:28):
traditional vice clause. More broadly, I think that derivor of
decision to invest in something like this is that this
is such a such a narrow market in the sense
that if you're investing in B to B software, there's
a new unicorn every six months. There's a new unicorn
(46:48):
in the nicotine space once a decade maybe, and rarely.
So even if you are an investor and you see
something that's promising, it's not really something that you can
build a career around. Where oh, yeah, you were the
first investor in jewel and so you get all the
deal flow for the next ten jewels. That doesn't happen,
(47:09):
whereas that certainly does happen in B to B software.
And so I think the bigger difficulty has just been
with the market structure and the desire of venture capitalists
to participate in this particular industry, because it's not something
that's a gold mine that you can just, you know,
build a whole career around.
Speaker 2 (47:26):
I just have one last question. You're in addition to
founding Lucy, He's according to your Twitter profile, you're an
entrepreneur in residence at the founder's fund, Peter Teal. You
mentioned Teal earlier when you were talking about Soilan in
Zen culture. I think there was an article that all
of jd Vance's staffers are big are big Zin consumers.
(47:52):
I know this is like a blanket statement. It certainly
doesn't nearly encompass every nicotine user at all. But just
from your perspective, how would you describe the synthesis of
nicotine consumption and conservative politics more broadly?
Speaker 4 (48:07):
Oh, it's really hard. I think it's probably something around
the edginess that comes with saying something like nicotine is
not bad for you. It's kind of this, it's kind
of this secret that people love to learn about. They
have this chemical exactly exactly, and so it's very countercultural.
(48:30):
And if you pull people broadly, people believe that nicotine
is what causes cancer in cigarettes, and that's actually a misconception.
And that's why if you look at a tin of
zin or a tin of lucy, the warning just says
this product contains nicotine. Nicotine is an addictive chemical, whereas
(48:50):
on tobacco products it says this product causes cancer. And also,
you can look at the California prop sixty five, is
that it lists cancer parsonogenically.
Speaker 2 (49:02):
Everything cancer, cancer and.
Speaker 4 (49:04):
Comtory basically but not but not these nicotine p which is, like,
you know, notable. I think because obviously California is a
very careful state, as they should be with this stuff.
I think that might be part of it. The other
part of it is, if you look at the lineage
of where oral tobacco has been popular, the the baseball
(49:26):
players and the hockey players that were dipping in the
nineties and early two thousands, that tends to be a
more red state phenomenon, and so the earliest adopters. It's
always hardest to get someone to switch form factors. It's
easy to get someone who's already using a tobacco pouch
(49:48):
to use a tobacco free pouch because it's fundamentally the same,
the same shape of product in their pocket, the same
feeling in their lip. It's much harder to get someone
who's maybe vaping in a blue state to switch over.
Although obviously it's happening now, I really hope that it
doesn't become a culture war issue, or that culture war
(50:11):
issue subsides, because we don't want to wind up with
a situation where all of a sudden, smoking becomes important
to the left and we're seeing Democrats drop dead because
of some protest of Tucker Carlson, like who cares, it's
not important, Like this is so much the stakes are
so much higher than you know, avoiding an association with
(50:35):
you know, a right wing firebrand. And we've seen something
similar with the menthol cigarette ban where Biden, the Biden
administration rolled back plans to ban menthol cigarettes, and the
NAACP condemned the White House for that action because it
was seen as kind of a cynical play for votes.
And realistically, every single demographic or political leaning needs reduced
(51:02):
harm products. They need options that are down as far
down the continue of risk as possible. So I don't know,
maybe the answer here is that we need to we
need to make the like an ultraliberal out.
Speaker 2 (51:15):
The left coating the left coated the left, Yeah, exactly.
Speaker 4 (51:19):
I don't know who the Tucker Carlson of the left
would be. Maybe we could get John Stewart to promote
it or something. But I mean, in general, our our
planet Lucy has been you know, to sponsor podcasts on
both sides of the aisle, and you know, we don't
take a firm stance uh politically because the issues is
so much bigger than that and and the political lines
(51:41):
do not align around the harm that cigarettes are. Calling.
Speaker 2 (51:45):
John Cougan, co founder of Lucy Nicotine, thank you so much,
so many questions. I had been curious about this space
answered there. So really appreciate you coming on outline.
Speaker 3 (51:54):
Yeah, that was so interesting.
Speaker 4 (51:55):
Yeah, thanks for having me on.
Speaker 2 (52:10):
First of all, that was really fascinating about the elf bar,
which the whole thing is so weird to me that
like here's this regulated Philip associated company jewel that like
that sort of went off the market for a while
and then we just got flooded by cotton candy made
in that.
Speaker 3 (52:27):
Consumes more resources and ends up like taking up more space.
I sin fills.
Speaker 2 (52:32):
I see disposable vapes on the street all the time,
and there's like semiconductors in there, and like all this
stuff and batteries and everything, it just gets thrown away.
That's crazy.
Speaker 1 (52:42):
It's also just.
Speaker 3 (52:43):
This weird like gray market where if you walk into
stores in New York, like the elf bars are kind
of hidden away like behind the cash registered, but everyone
knows that they're there, and like clearly no one's really
cracking down on them. Now, there's so much to pull
out of that conversation. One thing that I thought was
(53:04):
really interesting was like just the different pathways, the sort
of like pre market tobacco pathways. I hadn't realized that
there were all the I mean I guess it makes sense,
but I hadn't realized that you had to make a
decision about that so early on. And then the other
thing that I thought was really interesting was John was
talking about how they saw regulation basically a regulated space
(53:26):
as an additional mote, so something that was desirable from
a business perspective, and that's why they targeted it.
Speaker 2 (53:33):
No, that is super interesting. And when you think about like, Okay,
you have to like get in the queue, and you
have to do this testing or the fact stability testing.
So even after you design the power to the gum,
you have to make sure that it's the same try
to keep it on a shelf. Yeah, yeah, shelf stability.
That's interesting. And then this application. And then there's this
que interesting that you mentioned COVID sort of obviously and
(53:58):
probably for good reason, taking resources away from some of
the health regulators who had higher priorities than approving nicotine pouches.
They're in twenty twenty. Just lots of really interesting details
about how we got to this state of the market.
Speaker 1 (54:13):
You know.
Speaker 3 (54:13):
The other thing I'm kind of wondering is what the
distribution network, Yeah, helf bars looks like now, no, and
how like maybe we need to find someone with a
bodega and ask them like, how do you how do
they get how bars in the first place?
Speaker 2 (54:25):
Yeah, that's a good question. We should just find any
of them, just we could just walk into some of
them and ask them if they'll come on. I also
think it's funny the Helsingborg Sweden has like the Shenzen
or the Taiwan, the Taiwan of nicotine pouches. It's interesting.
I had done Swedish match started off as a match.
Speaker 3 (54:44):
Company, did you know, speaking very.
Speaker 2 (54:48):
Very Ricardo houseman coded that we learned.
Speaker 3 (54:51):
Did you know, speaking of international tidbits about this particular topic,
what's the only I think this is still this is
still true and up to date. But the only country
to have banned cigarettes entirely, uh.
Speaker 2 (55:08):
No, Bhutan, Oh, the happy country.
Speaker 3 (55:12):
Yeah, and I think it failed terribly because it just
started a black market in cigarettes and people were, you know,
taking them over the border, and so I think they
actually ended up reversing it. But kind of interesting, it
really is.
Speaker 2 (55:24):
Like I do think about that conversation from years ago
with Laurence hamp Till about like, you know, when I
was a kid, like the things I knew is like
cigarettes are really bad. Bad people smoke cigarettes. And also
it seemed like they're going away, like it's totally a
matter of time. But then you recognize that there's been
a war against nicotine or tobacco for you know, close
(55:45):
to centuries. It's not going away. It'll just continue to
evolve in different forms. They're never going to get rid
of it.
Speaker 3 (55:51):
Okay, well on that Lindy note, shall we leave it there?
Speaker 2 (55:55):
Let's leave it there.
Speaker 3 (55:56):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (56:02):
And I'm Joe Wisanthal. You can follow me at the Stalwart.
Follow John Cougan He's at John Cougan. Follow our producers
Carman Rodriguez at Carman Arman, dash O Bennett at Dashbot
and Kilbrooks at Kilbrooks. Thank you to our producer Moses onm.
For more Oddlogs content, go to Bloomberg dot com slash
odd Lots, where we have transcripts, a blog, and a
(56:22):
newsletter and you can chat about all of these topics.
We don't have a nicotine room, but people will find
a way to talk about it. In the discord Discord
dot gg, slash odlogs.
Speaker 3 (56:32):
And if you enjoy odd Lots, If you want us
to do a deep dive into elf bars and the
business model there, then please leave us a positive review
on your favorite podcast platform. And remember, if you are
a Bloomberg subscriber, you can listen to all of our
episodes absolutely ad free. All you need to do is
connect your Bloomberg account with Apple Podcasts. In order to
(56:53):
do that, just find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening, Bead
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