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.
Bloomberg Audio Studios, Podcasts, Radio News.
Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Wisenthal.
And I'm Tracy Alloway.
Tracy, have you tried a zin yet?
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.
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 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.
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 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.
Yeah, it was.
Great, and it made me feel so healthy. It's the only nicotine product that actually made me feel healthy.
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 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.
I feel like we should just caveat this entire conversation, or at least I should.
With you know, don't do drugs, folks.
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 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.
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.
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 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.
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 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.
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, and we should talk more about what that business actually looks like.
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 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.
Lots, Thanks for having me.
On what is nicotine culture.
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 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, which I see as a very positive thing.
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 that space? You know, going from a company like Soilent and starting something new.
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 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 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 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 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 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 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 of getting one of these businesses working.
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? What's in it?
Like?
What am I sticking up in my gums?
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 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 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. 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 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 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, 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.
What's the difference between Lucy and nick Caret, which you just mentioned.
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 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, 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 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 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 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.
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.
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 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 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 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 the most money on nicotine every year, so there's the strongest economic incentive to go after smokers.
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.
That's very edgy. So yeah, exactly, Yeah, it's very edgy. So people are starting to you know what's boy with that?
Ye, cigarettes are like the really hip one right now that all the Yeah, yeah, and.
I can't support that anyway.
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?
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 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 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 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 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. 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.
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 for nicotine gum sales.
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 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 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 enjoy it, and some people don't get anything out of it.
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 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 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 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.
Good question.
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 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 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 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 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 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 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 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. 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 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, 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 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 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. 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 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 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 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 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 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? 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. 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. 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 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 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 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.
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.
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 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, 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 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 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 now the second largest class of products after cigarettes.
Talk about what elf bar did or is doing that is different to Jewel.
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, 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 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 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.
Yeah no, there's like what they all look the same under like different names, and I'm like, is it exactly?
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 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 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 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, 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 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.
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?
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 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.
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.
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 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 a bunch of money and they ran with it or something like that.
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. 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.
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 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. 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 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, 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 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 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 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 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.
Less complex than semiconductor manufacturing.
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 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.
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 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 that they have there? And who do you actually raise money from.
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 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 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 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 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 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, 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.
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. 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?
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. 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 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.
Everything cancer, cancer and.
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 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 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 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 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 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.
The left coating the left coated the left, Yeah, exactly.
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 do not align around the harm that cigarettes are. Calling.
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.
Yeah, that was so interesting.
Yeah, thanks for having me on.
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.
Consumes more resources and ends up like taking up more space. I sin fills.
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.
It's also just.
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 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 as an additional mote, so something that was desirable from a business perspective, and that's why they targeted it.
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 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.
You know.
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?
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.
Company, did you know, speaking very.
Very Ricardo houseman coded that we learned.
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.
No, Bhutan, Oh, the happy country.
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.
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 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.
Okay, well on that Lindy note, shall we leave it there?
Let's leave it there.
This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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 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.
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