SCOTTSDALE, Ariz. -- NJOY, one of the first independent U.S. manufacturers and distributors of e-cigarette and vaping products, declared bankruptcy last week citing an accumulated deficit of $234.4 million and $16 million currently in accounts payable, according to bankruptcy documents.
Filed on Sept. 16, Chapter 11 documents detail NJOY's attempts at product innovation, the market challenges it faced and its ultimate attempt to sell the company in recent months, a McLane/CSP Daily News Flash reported.
The bankruptcy comes as the e-cigarette category showed “solid gains” in the past four reporting weeks, primarily due to pricing and promotional activity from the major tobacco manufacturers, according to Bonnie Herzog, managing director of beverage, tobacco and convenience-store research for Wells Fargo Securities, New York. In her most recent newsletter, Herzog called the NJOY bankruptcy a sign the category is “undergoing greater competition.”
Here’s why Scottsdale, Ariz.-based NJOY said it filed for bankruptcy …
NJOY launched its second-generation Kings 2.0 e-cigarette at the end of 2013. “Unfortunately, Kings 2.0 was not ultimately accepted by the marketplace,” NJOY said in court documents.
The company stopped manufacturing the product in January 2014 and incurred a major expense in replacing it with “an improved product.” Product-return costs mounted and customer orders declined.
Following a 2013 peak of $92.9 million, Kings’ gross sales dropped to $22.6 million in 2014 and $7.4 million in 2015.
In July 2014, the company incurred expenses from relaunching and repackaging the NJOY brand, introducing new versions of Kings and bringing out new rechargeable e-cigarettes and vaping products.
Also in 2014, NJOY launched an updated, online-sales and marketing platform. In connection with the launch, the company hired additional sales and marketing professionals. It also increased spending on programs to build brand awareness and marketing.
The company defended a “substantial” patent-infringement lawsuit in 2012, which they settled in November 2015. NJOY incurred attorneys’ fees of $2.5 million.
On May 5, 2016, the U.S. Food and Drug Administration (FDA) issued final "deeming" rules that brought e-cigarettes and vaping products under its jurisdiction. NJOY cited the “substantial expense in addressing and preparing for” the upcoming regulations, including registration with the FDA, obtaining premarket approval for new products and the challenge of new, restrictive sales and marketing requirements.
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