Vaping company Juul recruits customers for shadow grassroots lobbying campaign – CNBC

Over the summer, e-cigarette maker Juul Labs started recruiting customers, painstakingly calling and emailing its users one by one.

The vaping company wasn’t trying to boost sales. Instead, it was looking for loyal customers to help lobby state and local politicians in a new grassroots campaign. The goal was to find people willing to sign petitions, meet with lawmakers, testify at public hearings and tell the press about their success in using the company’s vaping devices to “make the switch” from cigarettes.

The company’s Switch Network is designed to have the look and feel of a grassroots movement where citizens are emboldened by a shared cause to lobby lawmakers for change. Notable grassroots campaigns include the Black Lives Matter movement protesting police brutality against people of color or Parkland, Florida, students lobbying for new gun laws. But Juul’s initiative is different; it’s a sophisticated shadow grassroots lobbying initiative paid for and organized by the company. Politicos inside the Beltway call it an Astroturf campaign.

Juul hired Washington, D.C., political and public relations consultant Locust Street on June 1 to run the state and local lobbying initiative. The company isn’t registered as a lobbying firm. It says it provides “integrated communications and public affairs campaigns for leading corporations and associations,” according to its website.

Juul spokesman Austin Finan said it hired Locust Street “to reach out to Juul’s customer base about sharing their stories about finding alternatives to combustible cigarettes like Juul.”

Founded by one of Hillary Clinton’s former campaign directors, David Barnhart, Locust Street is named after the same road in Des Moines, Iowa, where numerous candidates — including Barack Obama in 2008 — launched their presidential bids. Barnhart ran Clinton’s Iowa caucus campaign that year, and he has stocked his team with a bipartisan group of operatives from her races and other campaigns, according to the company’s website. Barnhart declined to comment.

Locust Street provides strategic communications, media relations, community relations, grassroots campaign organizing and other services, according to its website.

One former administration official described Locust Street as “sort of a political dark arts group.”

Today, Locust Street’s sending emails and calling Juul customers to find people willing to help in the company’s cause — protecting its best-selling nicotine pods from what it calls “unfair and misguided” restrictions, according to Juul’s website.

“I’m reaching out to you on behalf of JUUL Labs, who has contracted with Locust Street to support its services and collect success stories from New Yorkers who has made the switch to JUUL from combustible cigarettes. We received your information as a JUUL user from JUUL Labs and we are only using this contact information to support our services on behalf of the company and to discuss your ‘switch story,'” Locust Street outreach specialist David Conte wrote in an email in August trying to recruit this reporter.

Since Conte sent that email, Juul has become embroiled in a growing scandal. It’s now the target of multiple investigations, including a possible criminal probe by the Justice Department. Altria, which spent $12.8 billion for a 35% stake in the company in December, replaced Juul’s CEO on Wednesday and said the vaping company would suspend all advertising.

Altria’s investment was starting to sour even before an outbreak of a mysterious vaping-related lung disease threw the spotlight onto the e-cigarette industry. Juul’s value dropped by at least 20% by mid-September, people familiar with the company’s valuation told CNBC’s David Faber at the time. Juul and Altria both declined to comment on the company’s market value.

It’s going to get much worse before it gets better. Cities, states, retailers — even foreign nations — are pulling Juul’s products off store shelves. U.S. health officials have fast-tracked rules to pull fruity flavors like mango off the market, laying a lot of blame on Juul for an alarming increase in high school student use. “Juuling” has become a phenomenon in middle and high schools across the nation since the company’s launch in 2014. More than 25% of high school students now say they vape, according to preliminary data from the Centers for Disease Control and Prevention.

The start-up has also been swept up in public panic over the mysterious lung disease tied to vaping that’s sickened at least 805 people and killed more than a dozen in the U.S. as of Monday, according to the CDC and state health officials. Although a majority of the patients reported using THC, the psychoactive ingredient in marijuana, some of them said they were just using nicotine. Doctors say they can’t rule anything out yet and Juul is getting hit as a result.

In Juul’s announcement replacing Kevin Burns as CEO, the company also said it was “refraining from lobbying” the Trump administration on a rule that would remove its best-selling fruit-flavored pods that have become so popular with kids from the market. The company, however, didn’t say it would stop lobbying Congress or the local municipalities and states that have outlawed Juul’s products at the those levels. That leaves ample room for Locust Street to run its “Make the Switch” campaign behind the scenes.

Juul’s Finan, in fact, said the company plans to continue that work. “Although, as we said last week, we are conducting ‘a broad review of the company’s practices and policies to ensure alignment with its aim of responsible leadership within industry,'” he added in an email.

Shortly after San Francisco took steps to ban the sale of e-cigarettes within city limits in June, former CEO Burns sent an email to customers. He said, “smokers are a forgotten group” and the “lack of empathy for adult smokers has led to misguided policy proposals around the country, including the effective ban on vapor products proposed in San Francisco.”

He asked customers to take a minute to complete a survey indicating which “grassroots actions” they would be “willing to take to protect your vapor access.”

Juul is taking a page out of Marlboro maker Altria‘s political playbook. The tobacco giant’s investment in December brought Juul more than just capital to fund expansion plans to accommodate its blockbuster growth. It gave the young e-cigarette company access to Altria’s vast regulatory expertise, legal team and political network.

And Juul needed the help. Parents with addicted teens were increasingly sounding the alarm in 2018 on its rising popularity in high schools, questioning marketing tactics that appeared to target young users and filing lawsuits against the company. Former Food and Drug Administration Commissioner Scott Gottlieb specifically called out Juul about a year ago, along with four other e-cigarette companies, for fueling an epidemic of teen vaping.

FDA officials saw e-cigarettes as a possibly less harmful alternative to smoking and way to help adults quit. The agency in early 2018 started hearing from teachers who said their students were increasingly using e-cigarettes, particularly Juul. Then the results from the CDC’s annual National Youth Tobacco Survey came in around the end of that summer.

“It was a shocking rise,” said Gottlieb, who resigned from the FDA in April and is now working at venture capital firm New Enterprise Associates. He’s also a contributor to CNBC. “I don’t think anyone expected that order of an increase.”

The FDA would conduct what it called a “surprise inspection” of Juul’s San Francisco headquarters in October 2018, carting away thousands of documents.

It’s familiar territory for Altria. Formerly called Philip Morris Cos., the tobacco giant was one of the original signers of the 1998 Tobacco Master Settlement Agreement with 46 states and several U.S. territories that, among other things, reined in the industry’s advertising — particularly kid-friendly Joe Camel ads.

“We have years of experience and literally hundreds if not thousands of interactions with the FDA that we’d be happy to provide perspective on,” Altria’s CEO, Howard Willard, told investors after closing on the Juul deal in December.

Much like the Switch Network, Altria runs the Citizens for Tobacco Rights, a lobbying group that “helps adult smokers, dippers, and vapers stay informed about tobacco issues and learn how to become effective legislative advocates.”

The tactic is not limited to tobacco. Ride-hailing companies Uber and Lyft encourage riders to contact their local officials and oppose regulation. Start-up Airbnb runs more than 200 “home sharing clubs” around the world to connect hosts who can advocate for “fair” laws.

Edward Walker, a sociology professor at the University of California, Los Angeles, who studies corporate lobbying, said his research shows that companies tend to mobilize their customers when they face significant policy threats or are involved in controversial issues. Juul fits both.

“This is an incredibly widespread thing,” Walker said in an interview. “I think Juul is in the perfect scenario to be using this because it’s both kind of a start-up and it’s also talking about a controversial, highly regulated substance.”

Juul’s ramped up its federal lobbying over the past year as regulators and lawmakers have closed in. It spent nearly $3 million lobbying Congress and federal regulators in the first half of this year, up from roughly $2.4 million for all of 2018 and $120,000 the year before, according to federal lobbying records. That doesn’t include its local and state lobbying or its contract with Locust Street.

That also doesn’t include Altria’s spending. The maker of Marlboro cigarettes is also helping lobby the e-cigarette restrictions, according to the company’s lobby disclosure forms. Altria spokesman Steven Callahan said the majority of Altria’s federal lobbying supports raising the legal age to buy tobacco products to 21.

“We are not lobbying in opposition to the administration’s current e-vapor proposal. We look forward to reviewing the FDA’s new e-vapor guidance when it is issued,” he said in an email.

Juul additionally sponsors political newsletters in D.C., including Politico and Axios, and has run political ads in The Washington Post and New York Times.

In San Francisco alone, Juul has spent more than $11 million lobbying against a ban on the sales of e-cigarettes. That includes a $7 million donation Juul recently made to the Coalition for Reasonable Vaping Regulation, according to local campaign finance data through Sept. 21. Finan declined to comment on Juul’s lobbying, referring questions to its disclosure forms.

The company issued a press release late Monday saying it would no longer support Proposition C, a ballot initiative parents’ groups say the company has bankrolled that proposes to overturn San Francisco’s ban on e-cigarettes.

What Juul’s doing isn’t “unheard of,” said Beau Phillips, founder of Reset, a strategic communications firm in Washington, D.C. “They are in a unique position given their marketplace size and a niche where the products could literally kill you.”

Juul through its political action committee or its employees has donated nearly $300,000 to political parties or candidates, according to data compiled by the Center for Responsive Politics.

The company says its mission is to help the world’s billion smokers and give them a satisfying alternative to traditional cigarettes. Critics say the company is merely trying to hook a new generation of kids on nicotine after decades of falling teen smoking rates.

“The Juul guys were sort of Silicon Valley types who were not used to having people be suspicious,” said another former administration official who met with the company last year. “I think, honest to God, they view themselves as having a harmless product and at best a life-saving product for smokers.”

Desperate to shake its image as a teen-friendly company, Juul unveiled an ad campaign in January featuring testimonials of former smokers who “switched” to Juul from cigarettes. By using the word “switch” instead of “quit,” Juul maintained it wasn’t violating rules that require FDA approval for “smoking cessation” devices. The FDA has approved skin patches, chewing gum and lozenges as official “nicotine replacement therapy” — but not e-cigarettes.

The FDA thought otherwise and hammered Juul in a Sept. 9 warning letter that said the company violated the FDA’s rules by marketing its e-cigarettes as a safer alternative to cigarettes. Referring to Juul’s products “as ‘99% safer’ than cigarettes, ‘much safer’ than cigarettes, ‘totally safe,’ and ‘a safer alternative than smoking cigarettes’ is particularly concerning because these statements were made directly to children in school,” the FDA said, citing testimony from a House hearing in July.

Juul last week said it would suspend all print, broadcast and digital product advertising. But the company’s website still has plenty of material on its Switch Network, including a chance to upload videos for people to share their own “switch story.”

“It was a friend of mine who suggested I try the Juul,” Carolyn, a woman who appears to be in her 50s, said in a 30-second commercial posted on the company’s website that was removed after receiving questions about it from CNBC on Friday. “The idea of going back to smoking, I couldn’t even imagine doing that. I just don’t enjoy it anymore. I don’t think anyone, including myself, thought I could switch.”

The video closed out with Carolyn sitting on a back patio looking out over a lake with the text: “Carolyn made the switch October 2016. Make the switch.” Juul’s Finan said the ads on its website were under review, like the rest of its business practices.

Juul describes its Switch Network as “a platform for advocates committed to protecting adult access to vapor products that help adult smokers switch from combustible cigarettes. Through their own stories and civic actions, members of the Switch Network advocate for policies that preserve the adult smokers’ right to switch, while also preventing underage access and use.”

In the four short years since Stanford University graduates James Monsees and Adam Bowen launched Juul, it’s lined up an all-star cast of politicos to run its lobbying and public relations teams. Its roster of Washington insiders included Tevi Troy, who worked with Health and Human Services Secretary Alex Azar when they were both in the George W. Bush administration; Jim Esquea, an assistant HHS secretary under former President Barack Obama; and Ted McCann, a senior policy advisor to former House Speaker Paul Ryan.

It’s also tapped political talent from the current White House, hiring Vice President Mike Pence’s director of media affairs, Rebeccah Propp, as its communications director, and former White House aide Johnny DeStefano as a consultant. Former White House spokesman Josh Raffel, who worked closely with Jared Kushner and Ivanka Trump, is now a Juul spokesman.

One of its top lobbyists, Jon Berrier, managed the Iowa campaign for the Bush-Cheney campaign in 2004 and later worked in the White House and on the reelection campaign of former California Gov. Arnold Schwarzenegger, according to Berrier’s LinkedIn profile.

Juul, meanwhile, is still busting at the seams. In its four short years, it’s become the dominant player in the industry with about 50% of the market and roughly 3,900 employees. The company had more than 600 job postings advertised on LinkedIn in September, including new lobbyists, regulatory attorneys, youth prevention managers, “flavor chemists” and data scientists to pick apart its user data. Those plans will likely be scaled back as its new CEO — former Altria executive K.C. Crosthwaite — restructures its staff, according to a person familiar with the matter. It had almost 500 postings still advertised on LinkedIn as of Monday.

Juul was also still advertising last week for so-called community partnership directors near St. Paul, Minneapolis area, Austin, Texas and elsewhere focused on “leading efforts that raise awareness, understanding and appreciation of JUUL Labs mission, building effective strategic relationships and creating programs that bring to life the company’s commitment to and investment in being responsibly run, ethical and trustworthy,” according to job postings on LinkedIn. The company has since noted that it’s closed the application process for those positions.

One of the positions that was still open as of Monday is for a senior campaign manager, whose duties include “developing grassroots resources — including consumer databases — to support legislative priorities.” Juul has already hired people focused on community relationships in South Carolina and San Francisco, where the company is headquartered, according to LinkedIn.

Locust Street says successful political campaigns “begin and end locally,” according to its web site. It boasts having advocacy teams in place in all 50 states. Its grassroots services include coordinating “local, multi-state or national campaigns” and providing “boots-on-the-ground support.”

Juul will need that help if it’s going to change its image among voters. One-third of adults surveyed from Aug. 12 through Sept. 12 viewed Juul unfavorably, up from just 6% last summer, according to Morning Consult.

And while Juul said it will not lobby the White House on its impending plan to remove flavored e-cigarettes from the market, President Donald Trump himself already appears to be more sympathetic toward the industry, redirecting concern to counterfeit products and efforts to curb underaged use. Just two days after announcing the plan to pull fruit flavored pods off the market in the Oval Office with First Lady Melania Trump, President Trump tweeted:

“While I like the Vaping alternative to Cigarettes, we need to make sure this alternative is SAFE for ALL! Let’s get counterfeits off the market, and keep young children from Vaping!”