Health and Science

California sues e-cigarette maker Juul alleging targeting of teens and shoddy oversight; 17 shipments sent to someone named 'Beer Can'

Key Points
  • California is suing Juul for allegedly marketing and selling e-cigarettes to teens.
  • The state accuses Juul of shipping products to phony customers, including one named "Beer Can."
  • Juul is widely blamed for fueling a teen vaping epidemic.
A person smokes a Juul Labs Inc. e-cigarette in this arranged photograph taken in the Brooklyn Borough of New York, U.S., on Thursday, Dec. 20, 2018. Altria Group's plan to take a $12.8 billion stake in Juul Labs could be destroying value, Citigroup analysts write in a note downgrading the stock to a sell from neutral.
Gabby Jones | Bloomberg | Getty Images

The age-verification system for e-cigarette maker Juul did not adequately vet customers, permitting "thousands" of deliveries to "phony names and addresses in California," including 17 shipments to an individual named "Beer Can," California's attorney Xavier Becerra alleged in a lawsuit filed Monday.

California's suit alleges Juul illegally marketed to and sold e-cigarettes to minors. The lawsuit outlines alleged weaknesses in the company's age verification system that allowed minors to buy e-cigarettes from the company's online store. It's the latest in a number of legal headaches for Juul, including a whistleblower lawsuit from a former executive claiming the company knowingly sold tainted nicotine pods.

"While Juul's profits soared, their users became addicted and health compromised," California Attorney General Xavier Becerra said in a press conference announcing the lawsuit.

Juul knew minors were buying e-cigarettes from its online store and did not have appropriate processes in place to prevent the sales, California alleges, citing sales data and internal emails. For example, the state claims an individual named "Beer Can" in San Francisco purchased two Juul devices, five starter kits with devices and nicotine pods, and 41 packs of nicotine pods.

California also alleges that Juul did not verify addresses, shipping "thousands" of orders to "non-existent California addresses," such as "10 Los Angeles," "none, San Francisco" and "no signature needed, Palo Alto." California also claims customers could easily make a new account if their first attempt was blocked.

VIDEO3:1203:12
NY Attorney General Letitia James files lawsuit against Juul

The state details an email exchange with Juul's compliance manager, Annie Kennedy, and Tom Canfarotta, an employee of Veratad, the company's age verification vendor. Kennedy asks why a customer was age verified despite listing an incorrect address. Canfarotta responded, "Your current rule set does not require a full address match."

"More than any other complaint, California emphasizes Juul's alleged failures in age-verification in sales and distribution," said Neil Makhija, a consumer protection lawyer and lecturer at the University of Pennsylvania's Carey Law School. "If Juul sent 17 shipments to someone named 'Beer Can,' who else got shipments? And how many of those shipments ended up in the hands of children?"

California's lawsuit also alleges Juul knew that people were abusing its warranty program that allowed customers to receive replacement products if they claimed the originals were defective. The company was "well aware" of the weaknesses in the system, California alleges. The state cites Kirk Johnson, customer service team lead who flagged that "a single customer had redeemed over 300 Juul device warranties in just over a month." California claims this continued through at least January 2019.

The state's lawsuit also takes aim at Juul's marketing.

An internal Juul analysis found 529,000 unique email addresses that had not been age verified were on its digital marketing list, according to the lawsuit. In comparison, 420,000 of the email addresses on the company's marketing list who self-identified as at least 21 years old had passed age verification, California alleges.

Juul is widely blamed for fueling a teen vaping epidemic. The company hired longtime Altria executive K.C. Crosthwaite as its new CEO, hoping to overhaul its image as a company focused on helping adults stop smoking cigarettes.

"While we have not yet reviewed the complaint, we remain focused on resetting the vapor category in the U.S. and earning the trust of society by working cooperatively with attorneys general, regulators, public health officials, and other stakeholders to combat underage use and convert adult smokers from combustible cigarettes," Juul spokesman Ted Kwong said in a statement.

— CNBC's Elly Cosgrove contributed to this report.