Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Is the E-Cig Industry on the Verge of Collapse?

By Rich Duprey - Sep 25, 2019 at 6:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An array of global forces are aligning against it.

The electronic cigarette industry is on the brink of a catastrophe, as a cascade of calamities is hitting manufacturers all at the same time.

In just the span of a few days, the following has occurred:

  • CBS, Viacom, and AT&T's WarnerMedia have announced they will stop running ads for electronic cigarettes on their television stations.
  • Walmart said it will no longer sell them in its stores.
  • India just banned all e-cig sales.
  • Juul Labs e-cigs mysteriously disappeared from all e-commerce sites in China just days after they were launched.
  • The Food and Drug Administration is examining a sudden rise in lung illness among e-cig users, particularly those smoking Juul devices, while New York State and Minnesota have banned the sale of flavored e-cigs ahead of a federal ban to be imposed by the FDA.

Electronic cigarettes once held the promise of weaning smokers away from the deadly effects of traditional cigarettes. But they now stand accused of being almost as harmful and addictive as what they are meant to replace. The global e-cig industry seems poised on the edge of collapse.

Broken electronic cigarette cartridge

A broken e-cig cartridge. Image source: Getty Images.

Safer, but still risky

It's a strange fate for a device that was once hailed as potentially ending the scourge of cigarette smoking. Numerous studies found that e-cigs were substantially less harmful than traditional cigarettes because much of the toxic chemicals that caused illness were present in the smoke created by burning tobacco. Because e-cigs heat a nicotine-infused liquid (and more recently tobacco itself) to the point of creating a vapor, some government agencies like Public Health England concluded that e-cigs were around 95% less harmful than smoking.

Since their introduction in 2003, e-cigs have grown into an $11 billion global market, with most of that growth occurring in just the past few years. Sales were expected to hit over $18 billion by 2024. All of that is now in danger.

Doing itself no favors

The incidence of teenage use of e-cigs, especially Juul devices, created an "epidemic" in the opinion of FDA regulators, who began cracking down on manufacturers. Altria's ( MO 0.27% ) near $13 billion investment in Juul for a 35% stake in the company is now looking like a debacle that could even cause a possible merger with Philip Morris International ( PM 0.42% ) to fall apart.

Juul attempted to remake its image by launching anti-vaping campaigns aimed at teens, but critics accuse it of operating more like previous anti-smoking campaigns that were designed to attract more smokers than they repelled.

Former FDA commissioner Scott Gottlieb told The Wall Street Journal, "I think Juul put the entire category at risk by pursuing top-line growth and market share without a real eye toward what was going on and who was using them."

Now manufacturers are under intense scrutiny. And they face a deadline early next year to submit pre-marketing applications to the FDA that few but the largest will likely be able to achieve because of the expense and complexity of the process.

Yet even those like Juul -- which might be able to navigate the regulatory labyrinth -- are at risk of failing to gain approval, with Gottlieb saying he believes there is no path forward for the device.

A foreboding future

It's not just the U.S., either. The ban just announced in India is predicated on language similar to the FDA's, calling teen use of e-cigs an "epidemic." Juul and Philip Morris had global ambitions and were targeting India with their competing Juul and IQOS devices (the latter being a heated tobacco version and the biggest seller outside the U.S.). But India's ban now jeopardizes their ability to grow worldwide.

Certainly much of the rest of Europe has been more accommodating -- even welcoming -- toward e-cigs. But as concern about underage access grows, e-cig makers may find more restrictions and bans imposed, at which point the entire market could implode.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$44.61 (0.27%) $0.12
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
PM
$90.79 (0.42%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.