jewel has been approved by the FDA. Authorized is the key word here. Authorized. So, I know way too much about this, but it is a uh it is a big big turnaround since uh the FDA um would was refusing to authorize uh the Juul ecigarette years ago. Um Juul says, "Exciting day for making cigarettes obsolete in America. The FDA has issued marketing granted orders. These are MGOS." We'll get into this, but it's like slightly different than like FDA approval for a drug uh for the Juul system, recognizing that these products as appropriate for the protection of public health. They don't have to say, the FDA doesn't have to say that it's good to use Juul, just that having Juul on the market has a net positive impact. And that's because cigarettes are already on the market. So they it's this relative calculation that the FDA it's hard to Yeah. It's much harder to argue that Juul should not be able to sell when cigarettes sell daily. Exactly. So the FDA is not saying everyone should go out and start using Juul. They're just saying that keeping Juul on the market is a net good for the American public health, which I'm sure will be hotly debated by a lot of people, but it's what the FDA said. So that over two million adults have switched completely from deadly cigarettes to using Jewel products and they and they approved a few different uh ecigarettes. The big thing is that they approved the and can you talk about the last few years? Yeah. Because I feel like that's basically Juel is just getting hammered by like all these different regulators. Meanwhile, the average gas station is selling fully unregulated vapes that uh are liter seemingly literally tested on children. Um videos have gone viral where where uh I don't think he was inhaling, but having to like make sure that each one uh works and then killer use case for a humanoid robot or just a just a device that inhales like that's just a fan. you don't create. We we've been able to create suction from robotics equipment or or machinery for, you know, probably a hundred years and yet they're still using a human for that. Uh disgusting. But yeah, the full story of Jewel, I know it um pretty well. Uh couple Stanford guys working on a project. They're both smokers. They want to figure out a way to smoke. They way to quit. They don't like uh the current ecigarettes that are on the market. And the key reason why the first version of vapor products was not satisfactory to smokers was that it used a very like not concentrated formulation. And so what what that means is if you remember back in this was like what 2010ish I want to say. Yeah 2010ish people vaping was really big but you had to get this like rig. It was like this war rig that you had to assemble and people would use like different pieces and be like oh I got this battery pack and this motor vape shops that had exploded. It was like building a custom PC. It was like what GPU are you going with? What fans are you going? there. This was I was in high school during that era and uh there would always be some kid at a house party that was blowing smoke from like one side of the room to the other and then making like those those artwork with it. Yes. Fortunately, you hit the hit the soundboard. Give me the Ashton Hall. That was the sound that every vape made in 2010. Um, but the reason I'm glad I'm very glad as a culture we got past that. Yes, it was it was a particular nadier for the American culture right up there with like the Tweety Bird tattoo and the tapout t-shirt. It was all part of the same culture. They say they say Americans don't have culture, but you know, we proved them wrong for that minute. Although it was rough and we I'm glad we moved past. Um, but do there is a scientific reason why the vape cloud had to be so big. Like that was not that was a trade-off that was made by scientists. Not concentrated. it was not concentrated. So in order to get like a cigarette's worth of a hit of nicotine, you needed a massive volume of smoke. You just needed so much vapor. And so uh Adam Bowen, James Monty's, the founders of Juel, they figured out that they there was a way to make the smoke or the vapor more concentrated. And there's a whole bunch of science that goes into it, but nicotine salts are like the main one that people point to. And basically they they figured this out. They they build the device. They actually bring on they run like a sort of standard Silicon Valley playbook. They bring on is it Ees Behar or someone like that? So there's some there's some like iconic designer who worked on like the Jambox and stuff. I don't know. Um there there's they bring on one of these one of these like incredible storied industrial design firms. They make the original jewel device which did have focus what's the whole story with packs too? It was like the same company. Yep. Yep. So when they started they were doing V uh what was it? Uh they did they had Flu Fume or Flume or something. I forget what it was. They had they had a different tobacco vaporizer and then they had and then they had a the same kind of technology to heat up material and you could in theory put tobacco leaves in there and then vaporize that and just warm it up and breathe that in. And that would it would be like smoking a pipe or like vaping tobacco I guess loosely. But obviously like everyone was just using it for cannabis. Yeah. And so that takes off that becomes this like fantastic business on its own. Um and then they had this other product I forget what it was called but it was a it was a tobacco vaporizer like an ecigarette similar to Jewel. They wind up selling that to JTI in Japan or like doing this crazy licensing deal to get that out. Then they wind up splitting the company once both products are kind of taking off, but they're on very very different trajectories. And it's very clear that they will be under very different regulatory regimes because the FDA is set up in a way that there are a number of different organizations within the FDA. So the FDA approves cancer drugs and that's in the FDA drugs. They approve biologics, they approve veterary medicine, they approve uh medical devices. So like when you go in an MRI machine, the FDA has approved that. Yeah, I'm pretty sure. And like when you do like a one stick blood test, like that's a device. It's not a drug. So there's a different group. In 2000, I mean, we can go like way back. Like cigarettes were never regulated by the FDA. Let's go back to the to the very first time a human 10,000 years ago. Yeah. Basically. Yeah. I mean, the first wooden pipe. Seriously? Like it used to it probably was somebody threw some tobacco leaves on a fire and No, I mean it was used in like in like religious rituals. They would bury people with tobacco leaves on their gums. People would chew it up. There was a whole bunch of different ways to you know the original like peace pipe. It was piece it was part of that along with other things that you could possibly smoke. Like as long as there have been stuff around like dudes have put it lit it on fire and breathe it in. Lit it on fire breathe it in always. Always. And and there's actually evidence that like monkeys do this too. They'll like go out and find like rotted fruit and like drink it and and drink the fermented fruit and get all drunk and like come back to the crew and be like I found the drugs basically. Anyway, um so cigarettes uh you know in invented as a part of the industrial revolution. So we figure out how to make the cigarette rolling machine and all of a sudden people go from smoking you know like a few cigars which had to be hand rolled. They're very expensive. It's kind of inconvenient. You can't really huff down that many cigars. Although JP Morgan famously went to his doctor and was like, "I'm not feeling too good, doc." And he's like, "Well, you got to cut down the cigars. Why don't you take it from 20 cigars a day to 10 cigars a day?" JP Morgan absolute dog. He's like, "I think I can do that. I'll have to taper off a bit. Yeah, it's gonna not It's not going to be overnight, but I think I can get there. Imagine if I smoke a full cigar. Like, my tongue burns. It's so rough. I'm I'm not built like JP Morgan. We're built different. Built different. It was what a what an era. Anyway, so the cigarette rolling machine creates this like massive boom in cigarette adoption because it becomes super easy and super cheap. So Warren Buffett has this famous quote about like it's the best business in the world. He'd never own a cigarette company for moral reasons, but he's like you make them for a penny, you sell them for a dollar. Extremely high margin. And the cigarette rolling machine is so efficient that the raw goods that go in and the reason that prices uh that that that these companies were able to capture that much margin for so long is basically regulatory capture. There's a whole bunch of different reasons. Um one is there's actually distribution monopolies because uh all the big tobacco companies have trucks that go and deliver them to tobacco stores that are licensed. And so if if you have a set amount of tobacco store licenses like gas stations that have a tobacco license and then you have a relationship with that particular 7-Eleven and on the back like they can't sell them anywhere in the store. So the store can't become like a vape shop at least it couldn't for a long time. There's only a set amount of store space. They call it the power wall behind the the the the cashier that you can actually sell stuff. And and Marboro is there being like we are the reason you exist. like we you make so much money off of us. We want all of this. Don't let anyone else in there. So, there's a whole bunch of other things. There's also brand moes and and you know, these are the most powerful brands of all time. The idea is if you were starting a cigarette company today, you would need a billion dollars. So that's a more modern phenomenon because cigarettes, it's discovered in the 50s that they're g giving people cancer because people are people went from consuming like the equivalent of like one cigarette a day during the cigar era to smoking a pack a day and in everything like the dose is the poison. The the like the concentration is so important in biology. Um you can the human body is like pretty resilient and if you've smoked like one cigarette in your life, you're probably going to be fine. If you smoke two packs a day, you're going to be in a real real tough spot. And so the American populace starts smoking like pack a day. Surgeon General comes out and says, "We're noticing something. A lot of people who smoke get lung cancer and they die much faster than people that don't smoke. So there's something going on here." Yeah. Big debate, big big law fight. There's finally this master settlement agreement where basically the discussion the negotiation is between the all the state governments and all the all the US governments saying hey you tobacco companies you have given everyone cancer this has a financial cost to us because when a cancer patient comes into our health care system that's funded by the taxpayer we have to pay for chemotherapy and that has a cost and so you put that cost on us the government you have to pay And so that was kind of the the the main concession of the master settlement agreement was all the big tobacco companies. They kind of like one of them broke rank and was like telling on the other ones. It's this big drama. Basically, they have to make all these payments and these payments still happen today. And there's some interesting uh finance that goes on where uh if you're like a local county that's getting like cash flow from the tobacco companies, you can go and finance that out and pull that forward and then build a bridge that costs like you're like, "Yeah, I'm getting $5 million a year for a tobacco company potentially forever. let me pull that forward and finance that out. So there's like all these different finance arrangements to like move the money around. But basically, you can just think about it as like the big tobacco companies competers fund our infrastructure. They actually do. They fund a ton of stuff because it's like billions of dollars uh changing hands every every year. Um but as part of that agreement, the the the initial like the initial debate was like, okay, the the big tobacco companies are going to pay. What else are they going to do? Most of the legislation came not from the FDA, but from the FTC saying and the FCC, the Communications Commission, saying you can't advertise. You can't do billboards anymore. There used to be billboards in Time Square of like, you know, camels like smoking like and it would it would have and those were some really we got to Yeah, it was it was wild. It was wild. Um and so they um it was it was the uh it was the it was the best era of out ofome advertising, but now you can go to adquick.com. Out of home advertising made easy and measurable. Say goodbye to the headaches of out ofome advertising. I am gonna put uh keep keep ranting. I'm gonna put one of these ads. Pull it up. Okay. So, basically, sorry, not ads. One of these one of these uh one of their old ads. Yeah. Um so, I mean it was literally the government saying out of home advertising is too effective. You can't do it. We need to nerf it because you're getting you're getting everyone hooked on smoking. So that was the initial kind of uh agreement was the the big tobacco companies would no longer be allowed to sell uh would no longer be allowed to advertise and they had to make these payments. Then in like early turn of the millennium 2000 something like that uh this company Enjoy comes out with one of the first ecigarettes. There we go. Camel. Wow. I mean you see this as a 17year-old. thinking this day I turn 18 that's going to be me. Wait, is it is it 18 or 21? It's 21 now. That also changed recently. Um, so Enjoy comes out with one of the first big ecigarettes. It's it's an example of that. Uh, you know, older technology that has the big vapor cloud. Um, and the FDA hits them with a lawsuit and says, "Hey, you are selling an unapproved medical device. This is a device. It's electronics and it's a medical product because you're making a medical claim. And that medical claim is this product helps you quit smoking. Smoking addiction, cigarette addiction is a is a disease. And so by selling a product that helps you quit smoking, you need to be regulated by the FDA. Enjoy fights this back and forth. It goes all the way to the Supreme Court. Enjoy wins because they were kind of not saying that at least they made the argument that they were not saying this is to help you quit smoking. They were just saying this is a cool thing to do separately. Don't worry about it. Don't ask us about the relation to smoking. This is classic. Um but in the interim the FDA is able to put an import restriction on the company. So they're making the product I believe in China, probably overseas somewhere because it's electronics, it's equipment. They bring it in at the ports and the FDA says, "Hey, while we sort out this lawsuit, you can't bring any more in." And so this is kind of like the banhammer that they bring down. It winds up bankrupting the company. Yeah. They wind up winning the court case in the uh in the Supreme Court. Later, a hedge fund guy actually buys the company out of bankruptcy, turns it around, gets it FDA approved, and sells it to Altria for like a couple hundred million dollars or maybe actually a couple billion dollars, I think. Uh let's hear it for the hedge fund guys making some money. selling some vapes to to We're not endorsing the end product. We're endorsing financialization. Yeah. Yes. And financial and and restructuring. Yeah. Uh and it and it was and it was a successful thing. And if you think about that as as much as we're joking, like it is good to get a big tobacco company uh get shift their revenues away from cigarettes as fast as possible. And so like the enjoy thing even though there's a lot of issues with that product in many ways it's a very interesting uh outcome and it's probably you know moving in the right direction. Um anyway so uh it goes to the Supreme Court and it is revealed in this court case that the FDA does not have the ability to regulate ecigarettes and so it has to go through the House and Senate. So when Obama gets elected in 2008, they pass the the US government at the federal level passes the uh the Tobacco Control Act, the TCA. Uh and in there it says, hey, the FDA does have regulatory authority on over everything that contains tobacco. So now if you doesn't matter if you're creating a new cigarette, doesn't matter if you're creating a new ecigarette or a new nicotine pouch or nicotine gum, you need FDA, you need the FDA to review your product, which is good. It's probably pretty good because people should know what they're putting in their body and they should know that the government, you know, reviewed this and said, "Okay, yeah, it doesn't have anything crazy in there." Like it it at the very least like you said it has 2 milligrams of of nicotine in there, does it? Like let's test that. And then so the companies test that, they send it to the FDA and then the FDA waits and then the FDA gives you the thumbs up or the thumbs down. You can continue to sell it or you can't. This is what Juel just got with the marketing granted order. The FDA said, "We have approved. We we have reviewed your application. All the data we we we there's nothing that we see that would be worse than cigarettes and therefore we will allow you to continue selling." Um but so Juel was started before all before this stuff went into effect. So 2008 is when the FDA gets regulatory authority, but the government move slowly. So it's not until 2016 that the first real FDA rule goes into effect. Wow. Basically, they have to staff up a new arm because they have their biologics division, they have their drug division, they have their, you know, veterary division. They have the FDA has their medical devices division. They don't have a tobacco division. They need to find a head of the tobacco division. They need to find, you know, a whole bunch of people to staff that, scientists that know how to review nicotine and know review ecigarettes and review all this stuff and and it's a it's a massive organization. They have to hire a lot of people. So, they do all of that and then they have to decide what are we going to do? What is that structure going to look like? And they come up with the PMTA process, the pre-market tobacco approval process. What this says is that going forward, we're not really looking backwards. We're not going to go review Marorrow Reds. Those have been on the market forever. Everyone knows they're bad. Everyone's aware of that. But going forward, new products that contain nicotine, that contain tobacco. We want to review it before it hits the market. But we're also going to create a grace period for stuff that was launched before 2016. Anything launched before August 8th, 2016, you can keep selling it while we review it because, hey, look, you you've built a business. If it's going to take us a couple years to review your application, if we just spike your revenue to zero, maybe you created a fantastic product that actually helps uh keeps people really healthy, maybe it's an amazing product. We don't necessarily want to take you off the market, crash your revenues to zero, you have to lay everyone off, your company goes bankrupt, and then two years later, we say, "Hey, you're approved." And then we have to like build you back up. Like, let's just keep things going as they are. We'll maintain the status quo. We won't ban you. We won't uh we won't approve you or authorize you. um will keep you in limbo. That limbo was supposed to be like a year because it's like it's a big document. I I'm pretty sure Jules's document was probably like a 100,000 pages of scientific research. It's a lot it's a lot of stuff to review. But everyone thought it was like oh it's going to be like a year or two. Um the the the deeming rule goes into effect August 8th, 2016. They're like hey turn it in by 2018. But then it gets pushed back to 2022. Then it gets pulled forward. Then COVID happens and the FDA has to pivot. Then the jewel crisis happens where everyone is starting. You're building a nicotine company this entire time. Yes. Yes. So that you're on the the regulatory roller coaster. Yeah. So we started the company but in in 2016 before the deeming rule went into effect so that we could bring our product to market and then work through the FDA approval process because we basically saw that the door was closing and if the door closed and you needed to get approval before selling a single unit well then all the all of a sudden the equation goes from okay you're building this company like any other normal company and then yes there is this binary outcome that can happen with the FDA but if your science is you should be approved and that and that is knowable. Uh as opposed to okay now in theory there are a bunch of loopholes that people exploit all the time. But in theory if you want to start a new e ecigarette company or a new nicotine pouch company or a new nicotine gum company in theory you should have to formulate the product, run all the tests, submit to the FDA and wait for them to get back to you before you sell a single unit in the United States. And what uh you know, somebody that's self-funding a business like this might be interested in investing $2 million today. Yeah. To do all that and then waiting for five, 10, however many years, maybe you never get approved. Yeah. So, you're basically sinking capital into a business that may never be able to sell a single unit. Yeah. And uh I know very few investors that would be interested in that kind of proposition at all. Or founders that want to make something and then wait forever for permission. Yeah, you could you could spend millions of dollars and wait a decade, which is exactly what we did. Um but we were able to actually grow the brand and sell the product and like set up operations and iron out things and iterate a little bit during that time fortunately. Um, but yeah, it's extremely hard to underwrite. And it's particularly hard to underwrite because at the end of the light at the end of the tunnel, let's say that you were to today start a new nicotine company. You you happen to have $100 million sitting around to go do a bunch of studies and you happen to have 10 mil 10 10 years to wait for the FDA to get back to you and then you're going to launch the product. Well, when you launch the product at the end of the day, you still have to contend with the fact that you're selling a a consumer product in a highly in a highly competitive space. Yes. Essentially a commodity product. Yeah. Some differences in formulation, little bits here. Have breakers. That's unique. Little little bit a little bit on the ingredient side, flavoring side. Our gum is better than their gum, but it's both gum, which is a tough tough thing to argue. Exly. Exactly. And so and and then and then aside from that, it's like what's the how do you actually build the brand? Like even if you even if your product is better, you're highly restricted on marketing. Yeah. You're extremely extremely restricted on marketing. So even if you did have $100 million to spend, how do you how do you spend it effectively? Yeah. Like some of the best marketing for Lucy. Yeah. Is like Joe Rogan sitting UFC sitting by UFC. He just happens to enjoy Lucy. So he's just commentating and people pick that up. But you can't just like pay for that. Like if you went to Joe and you're like he'd be like no like I'm not that's not how I work. Yeah. Yeah. Yeah. And so and so those kind of serendipitous brand building moments would just not happen if you're just like in the lab waiting for the FDA to get back to you. And then also you have the monopolies on distribution and and the in intense channel competition from the big tobacco companies. So it's like you come out with this product, you finally get approved after 10 years. You're like, "Hey, I got I think my formula is a little bit better. I think my branding is a little bit better." You go to 7-Eleven and they're like, "But you're not going to wait, are you going to pay us, you know, $100 million in slotting fees this year like like PMI might or Altria might?" I got a pitch a while back. Yeah. uh for somebody that had made effectively made a nicotine pouch, but it was just a slightly different chemical. Yeah. Like small small small change and was just bringing it to market. Yeah. Yeah. and uh hearing knowing what you guys have gone through to get where you are today and and knowing this sort of history that that you had shared in pieces with me through throughout the last couple years was like the the idea that the FDA is just going to let you get like raise venture capital and let you get away with selling nicotine in this like nonstudied form. It just it was it was tough. I ended up not not uh not getting uh conviction but uh even though the founder is super super sharp [Music]