E-Cigarettes: The End of Smoking?

E-cigarettes have the potential to satisfy big tobacco, anti-tobacco activists, consumers, and retailers all at the same time. Can e-cigs overtake traditional cigarettes?

Feb 22, 2014 at 8:30AM

With the U.S. smoking rate in a nosedive, the nation's three largest tobacco companies -- Altria (NYSE:MO), Reynolds American (NYSE:RAI), and Lorillard (NYSE:LO) -- face an existential threat. A committed cadre of anti-tobacco activists is determined to drop the smoking rate all the way to zero. By acting on a number of fronts that include excise tax hikes, laws that ban smoking in public places, and legal victories for anti-tobacco groups, activists have helped lower the U.S. smoking rate from 32% in the 1980s to 18.1% in 2012. However, new measures must be found and implemented in order to drop the rate to zero.

Americans have a strong sense of their right to do to themselves what they please, even when it involves activities they would be better off avoiding. Just look at the push for marijuana legalization, which is starting to sweep across the nation on a state-by-state basis. Except in certain medical contexts, Americans would be better off not smoking marijuana. However, public sentiment is starting to sway in favor of individual rights. This is all the more evidence that anti-tobacco activists need to find a solution other than the heavy hand of government to put an end to the smoking epidemic.

E-cigarettes: Less harmful, less expensive, more profitable
Electronic cigarettes, or e-cigarettes, may be the answer to everyone's problems. Altria, Reynolds American, and Lorillard are each making a push into the nascent category, while even do-gooder health advocates who are waging open war on the tobacco companies have opened up to the possibility of e-cigarettes replacing traditional cigarettes.

Jonathan Foulds, a tobacco addiction researcher at Penn State, says "e-cigarettes are at least 90% less harmful" than traditional cigarettes. He notes that most of the chemicals that smokers inhale are the result of burning tobacco. E-cigarettes neither contain tobacco nor produce smoke. Instead, users inhale vaporized nicotine; the vapor contains significantly fewer harmful chemicals than cigarette smoke.

Foulds concludes that "any cigarette replaced by [an e-cigarette] is probably a step in the right direction."

Andy Schamisso, a former cigarette smoker and the proprietor of Inko's White Tea, is a perfect example of how nicotine addicts can quit smoking cigarettes and start using less-harmful e-cigarettes. Schamisso used to smoke a pack of cigarettes every day, but he completely switched to the NJOY e-cigarette in one week. He likes NJOY because it looks like a real cigarette and because it "[gives] me an appropriate smoky, semi-harsh hit at the back of my throat" that is similar to that of a real cigarette.

Schamisso says NJOY was ideal for helping him quit smoking because it offered him a nicotine hit whenever he needed it. "A key aspect for me was the security I felt having it in my pocket, knowing if something -- stress or whatever -- was hitting me, I could reach in my pocket, pull it out, and have a drag," he says.

In addition, Schamisso spends far less money on e-cigarettes than he used to spend on traditional cigarettes. He used to spend $70 per week to smoke a pack of cigarettes each day, but he now spends about $15 per week on e-cigarettes.

Smokers are not the only ones with a strong financial incentive to switch to e-cigarettes. John Przybylo, owner of e-cigarette retailer Vapor Haus, says retail margins on e-cigarette refills typically run as high as 50%. He says it "costs about $4.50 to make and label a quality bottle of 10ml E-liquid. We sell it for $8.95." On the other hand, gross profit for a convenience store on a pack of cigarettes is typically less than 16%. As a result, retailers may give e-cigarettes significantly more shelf space in the coming years.

That would be good news for Lorillard, which owns Blu -- the leading e-cigarette brand. Reynolds American is introducing its Vuse e-cigarette to a wider market after tests in Colorado and Utah proved successful. Altria recently acquired Green Smoke, a manufacturer of premium e-cigarettes, and hopes to mount a significant challenge to Blu.

Some experts believe e-cigarettes will become a crucial part of tobacco companies' revenue in the coming years. Wells Fargo analyst Bonnie Herzog says, "We have increased conviction that consumption of e-cigs could surpass consumption of conventional cigs within the next decade."

Foolish takeaway
If e-cigarettes gain widespread popularity and lead to the decline of cigarette smoking, it could be a win for all parties involved; tobacco companies would have a new and growing industry to dominate, consumers would have an attractive alternative to cigarettes, and anti-tobacco activists may eventually rejoice as they see zero cigarette smokers. Therefore, investors in Altria, Reynolds American, and Lorillard should closely monitor each company's progress in the e-cigarette market -- it could soon become the most important product category in the tobacco industry.

9 dividend stocks every dividend investor needs
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers