The FDA's New Ruling Could Be Good News for the E-cigarette Industry

A recent FDA ruling could be good news for Lorillard, Reynolds American, and Altria.

May 6, 2014 at 6:14PM

Electronic cigarettes, or e-cigs, have been one of the most disruptive technologies to hit the tobacco sector in recent years. The market for them has grown rapidly, and many smokers are now switching to the e-cig over traditional, more harmful cigarettes.

Unsurprisingly, this rise to fame within the smoking community has sent tobacco players such as Altria Group (NYSE:MO)Reynolds American (NYSE:RAI), and Lorillard (NYSE:LO) into a sort of e-cig arms race.

However, one of the industry's major concerns has been the threat of regulation by the FDA. Luckily, the FDA has recently come out and revealed that it will be making a move on the industry, but initial indications imply that impending regulation could be a good thing.

The FDA's plan
The FDA has proposed to extend its reach over the tobacco industry to include the $3 billion e-cig market. The FDA wants rules introduced that will ban sales to minors, free samples, and require nicotine addiction warnings .

The FDA is making this move as it has been claimed the use of bright colors, TV advertisements, and music festival sponsorships have be designed to attract youth, whose use of e-cigs doubled their use of e-cigs during 2012 from the years before. Data from 2013 is not yet available.

Mitch Zeller, director of the FDA's Center for Tobacco Products, commented on the proposal:

For the first time there will be a science-based, independent regulatory agency providing gatekeeping.

However, it would appear that many industry participants are excited about the FDA's involvement in the market.

E-cigs main target market is ex-smokers, many of whom will be used to the existing limitations placed on traditional cigarettes. The new regulations for e-cigs will be no different.

What's more, e-cig companies actually appear to be upbeat about the new regulation. For example, the president of Vapor Corp commented:

I didn't see anything in the proposal that would appear to prohibit growth...The things that have come out are things that are going to enhance public opinion of the product and continue to legitimize us and there's going to be a good comfort level now that the FDA has stepped in.

Additionally, Lorillard (the third largest tobacco company in the United States and owner of Blu eCigs, the leading U.S. electronic cigarette company) issued a press release on the decision applauding the FDA's decision to step in and regulate the industry.

It would seem as if the FDA's move to introduce some regulations for e-cigs is welcome by all. It is generally considered that FDA involvement will reduce consumer concerns over the safety of the product.

This is great news for all e-cig companies, but Altria and Reynolds American in particular stand to benefit.

National rollout
Both Reynolds and Altria are planning national rollouts of their e-cig products during the next few months. It is likely that these rollouts, combined with the free publicity from the FDA's announcement, will add a kick to sales.

While Lorillard has been chasing market share during the past year, both Reynolds American and Altria have been testing their products in single states. This has allowed them to identify consumers' needs and wants before committing themselves to national rollouts. In particular, Reynolds has developed the VUSE digital vapor cigarette which it has rolled out in Colorado, and VUSE has quickly become consumers' e-cig product of choice.

This initial success should be extremely worrying for Lorillard. VUSE appears to have been very successful. If it can replicate the success seen in Colorado when Reynolds rolls it out nationally later this year, Lorillard's first-mover advantage could be under threat.

What's more, industry giant Altria will also begin the national rollout of its e-cig product during the second quarter of this year. Just like the product from Reynolds, its initial sales within trial states have been impressive.

Keeping quiet 
Altria's e-cig offering comes in the form of the MarkTen brand, which the company rolled out in the middle of last year. Until recently, Altria has kept quiet about its initial sales, which implies less-than-impressive results. However, Altria's management broke its silence during the fourth-quarter conference call to reveal that the product's initial sales have exceeded expectations.

Additionally, within just seven weeks, MarkTen achieved brand leadership by taking a market share of 48% within the trial market. Altria intends to leverage lessons learned from its initial rollout when it commences national distribution during the second quarter of this year. Altria's existing dominance in the traditional cigarette market will also allow the company to gain distribution and customer awareness faster than its peers.

Altria also recently acquired Green Smoke, an e-vapor business, to boost its e-cig offering. Green Smoke has been manufacturing and marketing high-quality premium products since 2009, so it knows the market well. The acquisition will bolster Altria's already-strong e-cig development and sales team, and will also expand Altria's product portfolio to address adult smokers' and vapers' different product preferences.

Foolish summary
This is yet another development is the still young e-cig market. It would appear that this move by the FDA will only strengthen e-cig awareness and customer understanding of the product. This is great news for Reynolds and Altria, at a time when both companies are undertaking national rollouts of their e-cig products.

All in all, Reynolds and Altria stand to benefit from this FDA ruling. So does the wider e-cig industry, although Reynolds and Altria are in the best position to profit.


Top dividend stocks for the next decade
The smartest investors know that dividend stocks like Lorillard, Reynolds and Altria simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Rupert Hargreaves owns shares of Altria Group. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers