E-Cigs Have Gained Yet Another Powerful Enemy

The Centers for Disease Control and Prevention is against the rise of e-cigs.

May 22, 2014 at 1:57PM

Yet more bad news has recently emerged for the e-cig industry, as it turns out that the director of the Centers for Disease Control and Prevention, Dr. Tom Frieden, aggressively opposes e-cigs. Unfortunately, this could be bad news for Altria (NYSE:MO), Reynolds American (NYSE:RAI), and Lorillard (NYSE:LO).

Dr Frieden's opposition to e-cigs may come as a surprise to many. Indeed, the CDC is supposed to be on the lookout for ways to prevent and treat illnesses, so e-cigs, which are considered a reduced-risk alternative to smoking, should be great news for the organization.

However, Frieden's biggest concern about e-cigs is that they are a 'tobacco product' and he has stated five reasons why he believes e-cigs should be banned.

1. They are likely to get yet another generation of kids hooked on smoking as the number of kids trying e-cigs is rising.

2. If smokers who would have quit turn to e-cigs instead, then this could do more harm than good as e-cigs still contain nicotine.

3. If ex-smokers get back into the habit by using e-cigs, this is once again likely to do more harm than good due to nicotine addiction.

4. If people who want to quit smoking use e-cigs over nicotine-replacement products such as gum, this could lead to a relapse.

5. E-cigs re-glamorize smoking, and over the long term this could undo some of the work the CDC has done to eliminate smoking during the past few years.

Another problem is the issue of using e-cigs around kids, teens, and pregnant women and exposing them to nicotine via secondhand smoke; all of the above are very valid points.

Still, Dr Frieden does have some good things to say about e-cigs. The Dr. acknowledges that stick to stick, e-cigs are less toxic than cigarettes and e-cigs have helped some people quit, although the above risks override the advantages.

FDA decision helps
Many of the CDC's concerns around the use of e-cigs have their root causes in the glamorization of smoking, especially for kids.

Fortunately, the FDA has recently moved to address these concerns. The FDA wants rules introduced that will ban sales to minors and the provision of free samples, and require nicotine addiction warnings.

The FDA is making this move because of claims that the use of bright colors, TV advertisements, and music festival sponsorships have been designed to attract youth, who doubled their use of e-cigs in 2012 from prior years. Data for 2013 is not yet available.

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

For example, Lorillard, the owner of the leading U.S. electronic cigarette company Blu eCigs, 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 welcomed 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.

Set to benefit
Both Reynolds and Altria are rolling out their own e-cig products nationally during the next few quarters after conducting initial tests within 'trial' states.

Unfortunately for Lorillard, which has been able to achieve national dominance within the e-cig market as a first mover, the company will have to ramp up its marketing activities in order to compete with its larger peers.

Still, with the FDA's decision to regulate e-cigs still fresh in the minds of many consumers around the U.S., it is likely that Reynolds, Altria, and Lorillard will see their e-cig sales benefit from raised awareness.

Foolish summary
So the CDC's opposition against e-cigs is worrying but hopefully the FDA's decision to regulate the product will both reduce opposition to e-cigs and increase public awareness about the product.

All in all, this implies that Altria, Reynolds, and Lorillard will all see jumps in e-cig sales as public awareness increases. Altria and Reynolds will benefit the most because the FDA's decision comes at a time when they are increasing their promotional activity ahead of national roll-outs.

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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.

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Jun 12, 2015 at 5:01PM

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