The number of deaths being attributed to the recent electronic cigarette health scare has risen to 33, while nearly 1,500 have suffered some lung illness or injury. The U.S. Centers for Disease Control says almost everyone who gets sick requires hospitalization, and half the cases require intensive care.
Although most of those who got sick reported having used THC, the psychoactive compound found in marijuana, and many had obtained a THC-laced e-liquid by purchasing an illicit brand on the internet or in vape shops, officials still don't know what's causing the illnesses and deaths, and it is beginning to take a toll on the e-cig industry.
When smoking is seen as the safer choice
Cowen & Co.'s latest consumer survey for September showed the incidence of cigarette usage jumped 1 percentage point after several consecutive months of declines. While at 14.7% it is still near the all-time low it hit in August of 13.7%, and it remains 100 basis points below where it was a year ago, that the increase comes as the vaping crisis grabs headlines is significant.
Wells Fargo analyst Bonnie Herzog also saw a trend toward more traditional cigarette usage, seeing volumes fall 6.2% in the four-week period ending Oct. 5, better than the 6.9% decline the industry experienced over the previous 12 weeks.
Both of those data points underscore the effect the vaping illness outbreak is having on e-cig industry leader Juul Labs, along with the relentless regulatory criticism being heaped upon it. According to market intelligence site SimilarWeb, Juul is having more difficulty converting visitors to its website into sales, and the numbers are declining sequentially. It notes, "[A]lthough there is growth, growth rates appear to be declining."
Ripple effects across the industry
SimilarWeb's findings also presaged the strong growth in IQOS that Philip Morris International (NYSE:PM) experienced in the third quarter, finding a 30% surge in visits to IQOS global websites. The tobacco giant said IQOS shipment volumes rocketed 84% higher during the period, and that was before Altria (NYSE:MO) began trialing sales in Atlanta before rolling them out nationally across the U.S.
The market intelligence site views Philip Morris' decision to break off merger talks with Altria and focus attention on its IQOS heated tobacco device as "sensible" given the regulatory environment and health concerns around regular e-cigs. Juul's weakening performance and IQOS strength make staying focused on its own business a smart move. Altria's $13 billion investment in Juul has likely been materially harmed, and the chance of Altria writing down a portion of the investment has increased dramatically.
The CDC is recommending that people stop all vaping, which may be drastic considering the confines of where the illnesses and deaths are occurring. This dovetails with the Food & Drug Administration's animus against the e-cig industry and refusal to recognize the reduced risk the devices represent compared to traditional cigarettes.
Tarred with the same brush
As indicated by industry data, people may be beginning to abandon e-cigs and return to smoking, which many people would view a less-than-optimal outcome. Nielsen data shows that although e-cig sales are still growing, having risen 25.5% in the four-week period ending Oct. 5, it is the slowest rate of growth in over 18 months, as sales had been running at a rate of better than 50%.
As more investigations are conducted into the vaping crisis to determine its origins, health agencies may eventually clear the broader e-cig industry of complicity in the illness and deaths that occurred, but by then the damage may be done, as users may have already decided to revert to smoking cigarettes again.