NJOY has filed for Chapter 11 bankruptcy protection the district court of Delaware, Convenience Store Decisions reports. In the court documents, NJOY cites the failed launch of an updated “Kings 2.0” disposable e-cigarette that didn’t meet sales expectations and left the company with insufficient cash flow. Read the NJOY bankruptcy petition here or look at the bankruptcy declaration — which tells the back story more fully — here.
NJOY Bankruptcy: Background
For the past several weeks, NJOY customers have noticed a disturbing lack of availability in the company’s products. Customers have been unable to buy many refill flavors — and several types of disposable e-cigarettes — through the NJOY website for quite some time. Several readers have written to ask us about NJOY’s “out of stock” messages, and until now we’ve been unable to guess as to the cause. Now, it appears that we finally know.
According to the bankruptcy paperwork, NJOY currently has outstanding debts totaling more than $32 million. NJOY’s debts include:
- $15.2 million in loan debt
- $3.85 million in promotional fess owed to Caesar’s Entertainment
- $4.00 million in legal fees
- $2.9 million in purchase credits owed to retailers who accepted product returns
- Many smaller debts
The Failed NJOY Kings 2.0 Launch
Based on the background information given in the bankruptcy declaration, it seems that NJOY tried to follow the incredible success of the Kings disposable e-cigarette by introducing an improved model at the end of 2013. NJOY referred to the product internally as “Kings 2.0.” Although the first-generation Kings experienced massive sales, profits tapered quickly during the following years.
It’s possible that the events affecting the e-cigarette industry as a whole affected NJOY’s business as well. Many of the people who used cigalikes as new e-smokers eventually moved on to mods. At the same time, the total number of e-smokers stopped growing as rapidly as it once did. It’s been problematic for all of the companies selling cigalikes, and NJOY’s earnings from the Kings product dropped rapidly.
According to NJOY’s bankruptcy filings, Kings sales totaled:
- $92.9 million in 2013
- $22.6 million in 2014
- $7.4 million in 2015
Rebuilding the NJOY Brand
Creating an upgraded version of a successful product and building up inventory for the anticipated demand obviously isn’t cheap. If the demand never materializes, it’s a big problem. So, NJOY relaunched its brand in 2014 with a new selection of disposable and rechargeable cigalikes along with products like the Convenience Vaping System and the Artist Collection e-liquids.
Apparently, the expenses incurred in developing and stocking all of these new products were enormous. Suddenly, disposable e-cigarettes weren’t NJOY’s primary products anymore. NJOY had become a vaping company, stocking new types of refill tanks and cartridges, batteries of different sizes and e-liquids in a variety of nicotine strengths.
Litigation Expenses
In 2014, UK-based Imperial Tobacco acquired Dragonite — the company formerly known as Ruyan. The acquisition didn’t have as much to do with Dragonite’s products as it did Dragonite’s patents. After acquiring Dragonite, Imperial Tobacco began suing popular e-cigarette companies for patent infringement. NJOY was one of those companies.
Ultimately, most of the companies that Imperial Tobacco sued reached royalty agreements to continue using the patented technologies. The exact terms of the settlements weren’t disclosed. In NJOY’s case, though, reaching the settlement incurred millions of dollars in legal fees.
NJOY Reorganization in the Works?
If you’re an NJOY user, you might be wondering about the future of NJOY and its products. Right now, it’s difficult to say. NJOY is attempting to reorganize — not to end operations. In the NJOY bankruptcy documents, the company lists certain critical vendors with whom NJOY must maintain relationships in order to continue doing business at all. NJOY has asked the court to authorize payment to those critical vendors so they can receive the “vital goods” needed to continue operating. In addition, NJOY has asked for authorization to pay certain owed customs duties.
If the court authorizes NJOY to pay its customs duties and the funds owed to critical suppliers, it’s likely that you’ll start to see those “out of stock” messages on NJOY’s website go away. Even if the reorganization effort doesn’t produce a new NJOY that continues to do business indefinitely, they’ll most likely be able to continue selling products pending the result of the bankruptcy proceedings. After all, a product sold at its retail price earns a lot more money for creditors than a product sold to a liquidator.
In the long run, we do hope that NJOY will continue to do business. Of the e-cigarette companies that still have wide distribution in brick-and-mortar stores, NJOY is nearly the only one with no affiliation to a tobacco company. In addition, NJOY’s 2009 lawsuit against the FDA was instrumental in keeping e-cigarettes on the market in the United States. It would be very sad to see them go.
