E-cigarettes Shifting to the Domain of Big Tobacco

The precipitous rise in the sales of e-cigarettes, combined with impending regulations too expensive for small companies to meet, are shifting manufacturing and distribution into the domain of big tobacco. A number of corporations worldwide are getting on the bandwagon as e-cig sales are expected to grow from $1.5 billion, in 2013, to $5 billion in 2015.

The rise of the e-cigarette has not taken place without controversy. Smaller companies such as Logic Technology and Vapor originally marketed the e-cigarette as a healthier alternative to smoking tobacco, which emits over 4000 chemicals when lit, according to the American Lung Association. Many of these chemicals are known carcinogens and the role that tobacco plays in a host of illnesses, including lung cancer, emphysema, and heart disease, is no longer argued by cigarette companies.

Just like conventional cigarettes, the key ingredient in e-cigarettes is nicotine. Nicotine has been widely studied and shown to be at least, if not more, addicting than heroin. For a veteran smoker, a less harmful alternative to tobacco cigarettes that still contains nicotine makes a lot of sense.

Target marketing strategies for e-cigs now focus on children, however, with attractive teen-oriented designs and fruity, candy-like flavors. Many fear that the youth who start using e-cigs will develop long-term habits or graduate to smoking conventional cigarettes. Schools have been scrambled to enforce restrictions on the product and healthcare advocates are pushing for regulations that place limits on sales to minors.

And e-cigs may have other risks. Some suggest that the vapor may contain dangerous chemicals although studies have not yet been done to evaluate the health risks. Also several instances of exploding batteries have been reported, clearly underscoring the need to refine the basic design.

Now that sales are big, competition is challenging existing companies, decreasing growth margins for some and forcing others out of business. And with safety and sales regulations likely on their way, the manufacture and marketing of e-cigarettes will inevitably shift into the domain of big tobacco.

In 2012, Lorillard, makers of Kent, Newport, and Old Gold, acquired Blu eCigs for $135 million dollars and SKYCIG, based in the U.K. Lorillard now has a 49 percent share of the market. Their annual stock dividend is 4.2 percent.

British American Tobacco, who owns a 42 percent stake in Reynolds American, worth $11.5 billion, introduced its e-cig VUSE into Colorado and Utah, and is spreading across the U.S.

Altria, the parent company of Phillip Morris, rolled out its MarkTen brand of e-cig in Indiana in the summer of 2013, expanding into Arizona in December. They’ve recently announced plans to acquire Greensmoke, whose products include rechargeable and disposable e-cigarettes.

Phillip Morris, makers of Marlboro and a late-comer to the e-cig party, announced, on November 20, 2013, their plans to enter the market. The company pays a dividend yield of 4.3 percent.

The coming regulations will help decide the winners, losers, and survivors. Altria advocated for minimum age laws and safety regulations, while arguing for marketing freedom. And that will probably become the mantra of all big tobacco companies in the near future as it should help squeeze out the smaller ones. Although the market is still very young and wide open, sales of e-cigarettes are already shifting into the domain of the big tobacco companies.

By Robert Wisnewski

Sources:

The Sunday Leader
Forbes
The American Lung Association
Ad Age