December 2016

Njoy Files for Bankruptcy Amid Regulatory Pressure, Dwindling Profits

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By Sarah Willis

One of the vaping industry’s first manufacturers, NJOY, mainly known for producing disposable e-cigarettes, filed for Chapter 11 bankruptcy through the U.S. District Court of Delaware on September 16.

Founded as Sottera Inc. in 2006, NJOY became very well-known in 2010 for its involvement in the landmark lawsuit, Sottera Inc. v. U.S. Food and Drug Administration, where the U.S. Court of Appeals for the District of Columbia Circuit held that the FDA had the authority to regulate e-cigarettes as tobacco products rather than medical devices.

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The Scottsdale, Arizona based company claimed that low sales, along with the expense of compliance costs stemming from the new FDA regulations, were cause to file for financial relief. After the failure of the new Kings 2.0 device, an updated version of the widely sold Kings disposable e-cig, the company seemed to have little choice than to file, especially after revenue reports from 2013 showed a loss of over $85 million.

“NJOY has incurred substantial expenses in addressing and preparing for the proposed FDA regulations, and in addressing and complying with the numerous state and local laws,” NJOY founder, Mark Weiss said, adding that his company had to spend $2.5 million last year to ward off a patent-infringement lawsuit.

This shocking announcement came five months after the FDA announced the new regulations, and just six weeks after the regulations went into effect, making NJOY the first major manufacturer of e-cigs to file for bankruptcy.

NJOY’s estimated deficit had reached more than $234 million and accounts payable had reached $16 million when the company filed for bankruptcy. Attempts to sell NJOY were made earlier this year, but the company had too much debt it simply could not pay off, according to Jude Gorman, general council at Reorg Research.

The FDA deeming regulations and the associated costs of compliance are both contributing factors to the bankruptcy filing, but the declining demand of disposable e-cigarettes and more consumers purchasing new high-tech open systems may be another reason for the company’s revenue loss.

Products manufactured by NJOY include various flavored disposable and rechargeable e-cigarettes, and vape pens. Prefilled tanks are made to go along with the devices as well.

NJOY still holds at least 4.5% of the vaping market and a representative for the company says their products will continue to be available in over 24,000 stores and in 23 of the top 25 convenience store chains across the country.

Numerous high profile investors will be losing out in the wake of the bankruptcy announcement including cofounder of PayPal, Peter Thiel, musician Bruno Mars, and Sean Parker, founder of the file sharing company Napster, who had a $10 million investment in the company.

Whether caused by low sales, the burdening cost of the FDA regulations, or the lack of desirable product variety, this first bankruptcy filing for the vaping industry could prove to be a harsh reality for many other vapor product companies.

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