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Kroger Joins the Growing List of Retailers Dumping E-Cigs

By Rich Duprey - Updated Oct 14, 2019 at 4:46PM

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Rising health concerns and growing regulatory uncertainty are causing national chains to abandon the product.

Even if the electronic cigarette industry survives the coming regulatory onslaught, will users have anywhere to buy its products? Supermarket giant Kroger (KR -0.68%) recently became the latest national retailer to say it would no longer sell e-cigs in its stores or fueling centers.

It was joined by pharmacy chain Walgreens (WBA 0.90%), and follows announcements by a list of businesses backing away from the cigarette alternatives because of a sudden surge in lung illnesses and deaths, as well as mounting regulatory scrutiny. With the Food and Drug Administration proposing to ban all flavored e-cigs, and several states already having done so, it's becoming more of a hassle and liability for retailers to keep stocking them.

E-cig users may soon have few places other than dedicated vape shops and head shops to purchase devices and supplies, making them appear like societal outcasts who need to turn up their collars or pull the brim of their hats lower before ducking into a store.

An IQOS store in Japan

Electronic cigarette manufacturers may have little recourse other than to open their own stores if retailers keep abandoning them. Image source: Philip Morris International.

A major health concern

In an update released on Thursday, the U.S. Centers for Disease Control and Prevention said 26 people have died in 21 states from vaping, and 1,299 people have suffered lung injury across 49 states. The sudden surge in cases is causing a kind of hysteria around the issue, with the governor of Montana even temporarily banning the sale of flavored e-cigs in response to the health scare. 

Yet it's increasingly looking like regular e-cigs or vape devices aren't the cause of the illnesses and deaths, but rather illicit home-brew cartridges sold online and in some vape shops. Generic products related to no one company, but going by the name Dank Vapes, have figured prominently in the investigation of the health threat, and more than three quarters of those who've been stricken with illness were reported to be using these  THC-containing products. THC is the psychoactive compound found in marijuana and has figured into 78% of the cases in the past 90 days, according to the CDC.

But because there has often been little distinction in the reporting on the issue, legal manufacturers like Juul Labs and British American Tobacco (BTI 1.85%) are having their brands lumped together with the unapproved products. It's also a likely factor in the decision by Philip Morris International (PM 1.83%) and Altria (MO 1.81%) to end merger negotiations.

Keeping a safe distance

Retailers are willing to wash their hands of the matter. Beyond Kroger and Walgreens, Walmart, Costco, Dollar General, and Rite Aid have all said they will also stop selling e-cigs, and the online connection of the illnesses and deaths to the illicit products led Alibaba to say it, too, will stop selling all vaping components in the U.S.

The Dank Vapes product at the center of the controversy is essentially empty packaging that buyers fill with their own concoctions. While legal manufacturers of vape cartridges and e-liquids use lab-tested and -approved ingredients, the unbranded products have no such backing. 

Prior to the current crisis, Juul Labs had been considering opening its own stores to sell its e-cigs as a way to limit teenagers' access to the devices. Philip Morris International has dedicated stores in countries where its IQOS heated tobacco device is sold. And now that they're available in the U.S., though only in the Atlanta area currently, we may also see IQOS stores here. But such stores may become a necessity, rather than an adjunct to other outlets, if retailers keep distancing themselves from electronic cigarettes.

 

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Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$53.89 (1.81%) $0.96
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
PM
$108.57 (1.83%) $1.95
The Kroger Co. Stock Quote
The Kroger Co.
KR
$51.16 (-0.68%) $0.35
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
BTI
$45.08 (1.85%) $0.82
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$42.46 (0.90%) $0.38

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

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