The E-Cig Market Grows Up

It's not just about smoking anymore.

Mar 26, 2014 at 10:06PM

Aside from the fact that the electronic-cigarette market has grown from virtually nothing to $1.7 billion in annual sales in a little over five years, one sign of the industry's maturation is the segmentation and innovation that's occurring absent government regulation. Having moved beyond simple nicotine replacement therapy, the industry now also encompasses "vaping" and "tanks," where users take pride in decking out their "mods" with bling as they enjoy flavored juices that they drip on coils.

Of course, politicians, anti-smoking crusaders, and regulators are trying to snuff out this cycle of growth and ingenuity through taxes, regulations, and prohibition, but the genie is already out of the bottle and it may be too difficult to contain it once again.

According to Wells Fargo, which assiduously tracks the e-cig market, sales are expected to hit $10 billion by 2017. That's still just a relatively small percentage of the overall $100 billion tobacco industry, but with triple-digit growth rates still in its future, e-cigs have the potential to eventually surpass tobacco sales.


Of course, the tobacco companies understand this, and it's why they've jumped into the market with both feet, buying up smaller e-cig and vaping players. Lorillard (NYSE:LO) was among the first to recognize the market's potential and bought blu eCig for $135 million in 2012 (and, more recently, SkyCig), quickly capturing the lion's share of the market, or around 40% these days, but as more of the tobacco giants introduce their own products onto the market, we'll likely see those percentages change.

For example, Reynolds American (NYSE:RAI) introduced its Vuse brand into the Colorado market last year and almost immediately captured 62% of the market there. Altria (NYSE:MO), which controls roughly half of the tobacco market, is rolling out its MarkTen brand and just purchased Green Smoke for $110 million, signaling the importance being placed on the category. Reynolds is even said to be eying a takeover of Lorillard in part to gain access to its lucrative e-cig business.

But perhaps more significant than all the jockeying for position going on with the tobacco giants is the culture growing up around e-cigs, vaping, and tanks, varying methods of all doing essentially the same thing: tobacco-less "smoking."

It's agreed that calling the early devices electronic cigarettes was an essential part of the growth process to get smokers to switch, but its equally true that calling anything a "cigarette" is going to be a lightning rod for controversy and carry with it a hard-to-shake stigmatism. That's part of the reason personal vaping systems are commonly referred to as "mods" these days, or a modified e-cig that describes a big-battery PVS. Some like to refer to them as "vaporizers," "wands," or "vape pens," but they can also connote marijuana usage as well and so invite a whole new level of disapproval.


MODE Vape. Source:

What these devices really want to do, though, is simply distinguish themselves from "cig-alikes." Rather than being used solely as an alternative to smoking, vaping involves heating up flavored juices and puffing on inhalers for the enjoyment realized. Rebuildable atomizers, or RBAs, allow users to adjust the draw to deliver more flavor; vaping bars provide like-minded people a place to hang out in and talk vaping culture; and the "vaping lifestyle" is even chronicled in the pages of magazines like VPR and Vape.

In short, the industry has already grown, and inasmuch as it offers a safer means of ingesting nicotine, it also is much more than that. Convenience Store News reports that Wells Fargo says vaping has the potential to upset the growth dynamic of e-cigs completely. Because vaping and tanks are growing faster and have more committed users than e-cigs, they could surpass e-cigs, though they risk becoming commoditized.

Because the marketplace has been left unregulated, we've seen tremendous innovation. That will be stifled to a certain degree after the FDA promulgates its rules, but regardless of the impact on public health, cig-alikes, vaping, and tanks are a huge opportunity for the tobacco industry -- and Altria, Lorillard, and Reynolds American will be sure to control large swaths of it for years to come.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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