Speculation Mounting About Juul Bankruptcy

Juul Labs may be preparing to file for Chapter 11 bankruptcy, according to reports by Bloomberg and The Wall Street Journal and a tweet by Reorg reporter Harvard Zhang.

The vaping company has reportedly received inquiries from lenders and will soon formally request debtor-in-possession financing options.

“We will continue the preparation process for both a restructuring and other strategic options as we determine what path is best for our company,” a Juul spokesman said on Oct. 4.

Chapter 11 allows a company to continue operating while it works with a court and its creditors to reorganize its finances. It doesn’t necessarily herald the end of the company.

A pioneer in the vaping business, Juul Labs has gone from dominating the U.S. e-cigarette market to fighting for its survival in a relatively short time.

Following its initial success, the company quickly came under regulatory scrutiny over its marketing practices. Critics blame Juul Labs for contributing to an “epidemic” of underage vaping.

Thousands of lawsuits have been filed against Juul over the past several years, alleging that the company marketed its e-cigarettes to children. Juul has said it never marketed to underage users.

In June, the U.S. Food and Drug Administration ordered Juul’s products off the market, then stayed the decision pending Juul’s appeal.

Last month, Juul agreed to pay at least $438.5 million in a settlement with more than 30 states.

The uncertainty over Juul’s ability to remain on the market could make it difficult for the vaping company to raise money or secure traditional loans to pay for legal settlements or court judgments.

In September, Juul’s largest shareholder, Altria Group, terminated its noncompete agreement with Juul. Altria’s decision gives Juul more options to secure its business, including the freedom to sell itself—or a significant stake—to one of Altria’s competitors.

The rumors about a possible Juul bankruptcy are not new. Clive Bates, director of The Counterfactual, described them as a “nothing burger with a side of thin air.”

“It has been obvious since @FDA maliciously denied Juul’s marketing application that Chapter 11 is a possibility,” Bates wrote in a tweet. “The ‘scoop’ is that this has not changed.”