The Food and Drug Administration is bringing down the hammer on Juul Labs. It accuses the leading electronic cigarette maker of illegally marketing its vaping device as safer than traditional cigarettes without authorization to make such a claim, and it has threatened fines and seizure of its products if it doesn't immediately stop.

In a press release announcing the warning sent to Juul, acting FDA Commissioner Ned Sharpless said claiming that a product reduces the risk of harm caused by smoking can only be supported by scientific evidence, which the company has yet to provide. "Juul has ignored the law and very concerningly, has made some of these statements in school to our nation's youth," Sharpless said.

It gave Juul Labs 15 days to respond to the letter explaining what corrective actions it is taking and how it plans on remaining in compliance with the law.

Juul e-cig and flavor pods

Juul flavor pods are popular with adults and teens but will be prohibited under new regulations. Image source: Juul Labs.

Standing on the brakes to curb teen use

The government is coming down hard on the electronic cigarette industry. In the days after the FDA warning shot to Juul, the Trump administration announced it was also moving to ban the sale of all e-cig flavors; the only one that would be allowed would be tobacco flavor. Even mint and menthol, which are still permitted for regular cigarettes, would be banned.

The agency has determined there is an "epidemic" of teen use of electronic cigarettes, especially because of Juul devices, whose sleek design have made them a favorite among youth. It is investigating every aspect of their design, manufacture, and marketing.

In a separate letter sent to Juul Labs, the FDA questioned the company's use of the word "switch" in its "Make the Switch" promotional campaign, suggesting it implied there was some health benefit from doing so. The Federal Trade Commission is investigating a separate ad campaign called "Vaporized," which it claims enticed teens to use its e-cigs by using youthful models in their 20s and early 30s. Various social media campaigns using paid influencers are also under scrutiny.

The FDA also wants to know why Juul uses nicotine salts in its device, why it chose the concentration of nicotine salts that it did, and any and all scientific data surrounding the efficacy of the compound. The agency also accused Juul of withholding information from its previous document requests, stating Juul had given Congress more information than it gave the agency.

An investment in controversy

It appears Juul has an uphill battle. While the FDA has long been suspicious of the e-cig maker because of the device's popularity among teens, the issue really came to the fore after Altria (NYSE:MO) invested $12.8 billion in the company and then-Commissioner Scott Gottlieb accused both companies of reneging on their commitments to limit teen access to its products.

Gottlieb has subsequently said he doesn't see a pathway for Juul to get its e-cig approved by the FDA when it submits its application next year, despite Juul initiating numerous actions to comply with the government's demands.

Beyond outright telling teens not to use its products, supporting raising the minimum vaping age to 21, and age-gating its website like other cigarette companies, Juul has pulled its products from stores open to the general public. It has also introduced an ID scanning system that locks a Juul device until a retailer verifies a customer's age; created an online portal to track where a Juul was purchased; canceled its social media accounts; and launched a "3 Strikes and You're Out" program for retailers, which revokes their license to sell Juul products for a year if they're caught three times selling to minors or selling too many devices to a customer.

No way out

Those actions, however, would appear immaterial if the FDA determines Juul Labs violated regulations on illegally marketing its devices as reduced-risk. The threat of fines and confiscation of products seems very real.

Even though some of the allegations seem specious, while others are based on anecdotes, the future of Juul's marketability in the U.S. is very much in doubt. It's hard to see how the escalating tension between the agency and the company doesn't lead Juul and Altria to pursue international markets as the only viable path for growth.