E-Cigarettes Mark Return of Advertising for Tobacco Companies

The last TV ad for a tobacco product aired on Jan. 1, 1971. But the rules changed when e-cigarettes hit the market. How will the FDA and tobacco companies react?

Jan 15, 2014 at 9:20AM

This month marks 50 years since Big Tobacco was thrown into the dungeon of capitalism. The release of the Surgeon General's Report on Tobacco and Health on Jan. 11, 1964, was the beginning of the end for all tobacco advertising, marketing and promotions. The final television ad for tobacco cigarettes ran on the Johnny Carson Show on Jan. 1, 1971. With the death of Joe Camel 26 years later, Big Tobacco was finally forced by federal law from actively marketing its product to its customers.

But Big Tobacco is back in the ad business, thanks to electronic cigarettes, e-cigarettes for short. E-cigarettes, which deliver a nicotine mist directly into the lungs without tobacco, are a hybrid of science and technology custom made for Big Tobacco's cultural return. Even the name – e-cigarette – is brilliant, adopting the shorthand of the hipster.

Although e-cigarettes make up only 1% to 2% of the still-huge $100 billion worldwide cigarette market, industry estimates project that sales of "vapor" cigarettes will exceed that of tobacco cigarettes within a decade.

Back to the future

E-cigarettes mark the return of Big Tobacco to the big league of advertising. It's just like the bad old days, only better. In addition to television, point-of purchase display ads, T-shirts, giveaways, and billboards, there's the Internet and Tweeting thrown in.

Since 2007 ad spending in this category, driven mostly by non-tobacco start-up "vapor" e-cigarette companies, has increased from $7.2 million in 2007 to $20.8 million in 2012. In just the first quarter of 2013, ad spending for vapor cigarettes totaled $15 million.

But now that Big Tobacco companies such as British American Tobacco (NYSEMKT:BTI), Phillip Morris (NYSE:PM), and Reynolds American (NYSE:RAI) have jumped into the market in the last half of 2013, ad expenditures on e-cigarettes are expected to rocket in 2014. Ironically, Big Tobacco didn't take e-cigarettes seriously, dismissing the product in public statements as recently as the middle of 2013.

Of course e-cigarette ad campaigning is freaking out anti-smoking forces. For the past 25 years, anti-smoking groups have worked to change the perception of smoking from glamorous to low-brow with ad campaigns funded by Big Tobacco lawsuit settlements. It must seem like a bad dream with the likes of Jenny McCarthy and Avicii offering celebrity e-cigarette endorsements to make smoking cool again.  

Is it safe?

The criticism of e-cigarettes is all too familiar. The product injects nicotine directly into the lungs and not surprisingly, there are health concerns.

E-cigarettes contain carcinogens and other known hazardous chemicals, including diethylene glycol, which is found in antifreeze . Kids like e-cigarettes, although the "Vapor Industry" is careful to explain its product is not for children. But the vanilla and cookies, bubble gum, cola, and cherry crush e-cigarette flavors are not aimed at the troops (which do not get cigarettes in their c-rations any more). Reports of child e-cigarette poisonings are increasing.

The Vapor Industry and Big Tobacco also assert that e-cigarettes help people to stop smoking tobacco cigarettes. So far studies on the effectiveness of e-cigarettes as a smoking cessation device are mixed.  

Another possibility is that e-cigarettes have arrived just in time to reinforce Big Tobacco and the Vapor Industry from the rising competition of legalized marijuana, now green-lighted by voters in Washington and Colorado. Coincidentally enough, Reynolds American seems to have made the point that it thinks it can compete with legalized marijuana with its Colorado rollout of its Vuse vapor cigarette in the second half of 2013. After just 12 weeks the company deemed the launch a success and is now planning a national rollout.

For the past two years there has been buzz  of an impending e-cigarette advertising ban since a court ruling that the devices were not pharmaceutical devices, but tobacco products. An FDA proposal has finally emerged, but it is currently in review by the Offices of Budget and Management, which could exceed 90 days. 

In the meantime, many cities and colleges are enacting restrictions. Whatever happens, bet on Big Tobacco and the Vapor Industry to ride the ad wave as hard and fast as they can.  Depending on your point of view, e-cigarettes represent capitalism at its best or worst.

Either way -- and even without advertising -- there is big money to be made selling the world another bad habit.

Fool contributor John Mitchell has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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