Do e-Cigarettes Threaten the Future of Big Tobacco Companies?

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E-cigs have become much more than a tobacco-smoking substitute. Vaping (the term for inhaling vapor from an e-cigarette device) has inspired a myriad of flavor variations. Taste sensations such as Crème Brûlée and Grandma's Apple Pie can now be neatly delivered in an e-cigarette. In fact, entire cottage industries have developed around serving up palate pleasers with mouth-watering names such as Peach Schnapps and Vivid Vanilla.

The e-cigarette trend may have started as a way for smokers to get a more benign nicotine fix, but it is developing into a completely different experience all its own, spawning its own loyal culture.

Currently estimated at $1.2 billion a year, could vaping threaten the way the $89 billion tobacco industry does business? Big tobacco companies seem to think so. Altria (NYSE: MO  ) , Lorillard (NYSE: LO.DL  ) , Reynolds American (NYSE: RAI  ) , and Philip Morris International (NYSE: PM  ) have all jumped onto the e-cigarette bandwagon with acquisitions and new product development. To be sure, vaping has caught their attention.

Social initiatives to limit smoking have made some impact on tobacco sales, but it is entirely possible that the e-cig trend may ultimately undermine traditional smoking much more significantly.

Here are two reasons this may turn out to be the case.


1. E-cigarettes offer an elevated experience

Where e-cigs may have once represented a way for would-be tobacco users to surreptitiously get a fix indoors or wean themselves from a nicotine addiction, many vapers report they like e-cigs better. For them, vaping offers an enjoyable experience without an offensive smell and a heavy social stigma.

What's more, flavor vaping is entirely nicotine-optional. Users can choose to indulge in vaporized flavors and aromas without the addictive chemical. Flavor vaping takes the physical sensations typically associated with smoking, removes most of the bad stuff, and rewards the user with a tasty experience.

These users may not just be lapsed smokers; they may have converted to e-cigarettes for good.

2. Vaping has taken a strong hold on youth

Much to the consternation of parents and communities, e-cigs have become a distinct feature in the culture of high school – and even middle school – children.

Estimates vary, but the CDC reports that as many as 10% of high school students tried e-cigarettes last year. What's more, researchers fear the numbers may be even higher if flavor vaping is included. Kids who choose non-nicotine vaping – available in flavors like bubble gum and cotton candy – tend to dismiss the term "e-cigarette" in favor of "e-hookah" or "e-pen." These users may have been missed in the last head count, as even the CDC concedes it may not have asked the right question.

While many have raised alarms that young e-cigarette users have an increased likelihood to go on to develop a tobacco smoking habit, it is just too early in the life of this product to see these types of trends.

A more likely scenario – and perhaps the one feared most by big tobacco – is that e-cigarettes may actually be cannibalizing the next generation of smokers. According to the 2012 Surgeon General's Report, 9 out of 10 adult tobacco smokers began by age 18 and nearly all by age 25. Following this, young people who miss the early tobacco habit may never become traditional smokers. This means the bottom could potentially fall out of the way tobacco companies have traditionally ensured a steady stream of customers.

No wonder the big tobacco companies want a piece of the e-cigarette industry.

How sure is the future?

Safety, continued adoption by consumers, and the future of regulation will all affect the success of the vaping revolution.

Currently, the American Cancer Society has declined to take a stand on whether electronic cigarettes should be banned in the U.S. Nevertheless, they acknowledge that the FDA has found some potential carcinogenic agents in e-cigs and that it is just too early to understand the long-term effects of use.

Municipalities and parent groups are calling for restrictions on vaping, and the FDA would like to regulate e-cigarettes as drug-delivery devices. These initiatives are young, and their outcome will surely affect the future success of e-cigarettes in the United States. As of yet, much of the data cited is anecdotal, and opposition to use has not been highly effective to date.

In the end, what may have been a defensive move on the part of the tobacco companies to become e-cigarette players may be what keeps vaping viable in the U.S. Social opposition to e-cigs may be mounting, but they now have one of the most formidable lobbying machines in the U.S. by their side when it comes time to deal with regulators. That is mighty strong support, indeed.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2014, at 2:23 PM, pupmastermp3 wrote:

    No one under the legal smoking age should ever use an electronic cigarette. Adults that do not smoke should not use an electronic cigarette. I was a smoker for 27 years. I made many attempts to quit during that time. I used the patch, the gum, the lozenge, and will power. On December 17, 2010 I purchased an electronic cigarette and I have been a non smoker since that very first puff. My health has improved as well. I no longer suffer from sinus infections, ear infections or the constant chest congestion I became used to having. I can climb many flights of stairs without getting winded as well. I believe if it were not for the electronic cigarette, I would have been a smoker for the rest of my life. Dying a painful, perhaps horrific death. But more important than that, I am not killing the people around me anymore. I have seen 100’s of people in my own community switch from cigarettes to electronic cigarettes with the same results.

    As to the idea that they are marketed to kids because of the colors and flavors and only kids would want that, I would direct you to the alcohol isle at most super markets where you can purchase birthday cake, Pop Tart, and Ice Cream vodka. I would also send you to the Apple store where you can buy your new Iphone in many vibrant colors. Then there are the flavored coffee creamers like White Chocolate Raspberry, and even Girl Scout Cookie. Adults like flavors and colors. Are Coffee Mate and International Delight marketing to kids? How about Smirnoff, Pinnacle, and Absolut?

    A comprehensive review conducted by Dr. Igor Burstyn of Drexel University School of Public Health based on over 9,000 observations of e-cigarette liquid and vapor found "no apparent concern" for bystanders exposed to e-cigarette vapor, even under "worst case" assumptions about exposure.

    Link to study:

  • Report this Comment On March 12, 2014, at 4:08 PM, BreakerBeth wrote:

    Pupmaster, many congratulations to you for quitting and thank you for the link!

  • Report this Comment On March 14, 2014, at 5:05 AM, Interventizio wrote:

    Yes I think that even if regular tobacco products are posed to decline further, they'll be replaced by possibly even more lucrative ways of smoking.

    Smoking is going nowhere any time soon, that's granted.

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Beth Nichols

Beth began investing mid-life, and soon found the perfect community to learn and idea-bounce at The Fool. She is proud to have won the Fool's "Ultimate Rule Breaker" contest, and most enjoys investments that blend rule breaking with a good night's sleep.

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