How much of Smile Direct Club revenue comes from haram?

Smile Direct Club offers custom clear aligners that help individuals straighten their teeth. 

The company earns its revenue from the following segments: 

Aligner:

Includes revenue generated from producing and selling teeth aligners.

Smilepay Financing: 

Smile Direct Club offers its consumers the option to finance their treatment using interest-bearing debt. According to the company’s financial reports, 63% of consumers choose to finance their treatment.

Retainers and Other Products:

Includes revenue generated from selling retainers and other products such as whitening gels and toothbrushes.

The contributions from each of Smile Direct Club’s revenue segments in their latest annual report were as follows:

An area of concern for Practical Islamic Finance is Smile Direct Club’s revenue generated from financing activities which represents 7.5% of its total revenue.

Practical Islamic Finance concludes:

A material part of Smile Direct Club’s revenue comes from haram.

Does Smile Direct Club rely on interest to operate?

Year-to-Date
for period ended
6/30/2021
Fiscal year
ended
12/31/2020
Fiscal year
ended
12/31/2019
Interest Income
Total Revenue $373,642$656,780 $750,428
Interest Expense $19,505$45,010 $15,734
Total Expenses $453,007 $841,753$1,240,701
Interest Income / Revenue
Interest Expense / Total Expense4.31%5.35%1.27%
*Numbers in thousands, U.S. dollars

Practical Islamic Finance concludes:

Riba is used but not currently relied upon in Smile Direct Club’s operations.

What is Smile Direct Club Environmental, Social, and Governance (ESG) impact?

Environment

According to the company’s latest earnings report, the company “has no material expenditures for compliance with Federal, State or local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.”

Social

Smile Direct Club has an average Glassdoor rating of 3.3 out of 5.0 from over 764 current and previous employees.

Governance

The American Association of Orthodontists (AAO) has recently filed complaints with 36 state dental boards, alleging that SmileDirectClub violates regulatory standards. While it is still unclear if Smile Direct Club is guilty, 12 of the cases have been closed, and no legal action has been taken against the company. 

In addition, in March 2020, CBC News’s Marketplace released an investigative report that found the company had made misleading claims about their aligners and gave questionable treatment plans. These findings forced the company to make some structural changes. These changes included increased employee training, changes to their forms so that customers better understand their responsibility to visit a dentist six months before starting treatment, and making the contact information for treating doctors more accessible after approval for treatment.

Practical Islamic Finance concludes:

It is unclear whether Smile Direct Club’s net ESG impact is positive or negative.

Comfort Rating

From Smile Direct Club business, financials, and ESG reviews, Practical Islamic Finance rates Smile Direct Club stock as: 

Uncomfortable to invest in from a Halal perspective.

Justification for our rating

Given 63% of Smile Direct Club’s customers choose to finance their treatment, PIF believes financing with interest service, Smilepay, is a major part of the company’s operations. Consequently, we are Uncomfortable investing in Smile Direct Club from a Halal perspective.

Sources

Smile Direct Club 2020 10K 

Clear Aligners, Teeth Straightening & Oral Care | SmileDirectClub

SmileDirectClub, Inc. (SDC) Stock Price, News, Quote & History

Glassdoor

Getting Your Teeth Straightened at a Strip Mall? Doctors Have a Warning

This Company Says It Will Fix Your Smile. It May Shush You if It Doesn’t.

Hidden camera investigation finds misleading information, questionable treatment plans from SmileDirectClub