Between the 1930s and 1950s, doctors proclaimed that cigarettes were safe and even had possible health benefits. Fortunately, times have changed, and the public is now well aware of the dangers of tobacco, the leading cause of death in the United States.
However, this year's Surgeon General's Report on Smoking and Health, which started in 1964, revealed even more troubling statistics. While lung cancer and respiratory disorders are commonly associated with smoking, other major health problems, such as liver cancer, colorectal cancer, diabetes, and rheumatoid arthritis are now linked to tobacco use. Secondhand smoke has also been implicated in causing strokes.
The Surgeon General's Report has made a positive impact on smoking trends -- between 1965 and 2012, the percentage of American smokers dropped from 42% to 18%. However, 42 million American still smoke, and the three largest American tobacco companies -- Altria (MO +0.63%), Reynolds American (RAI +0.00%), and Lorillard (LO +0.00%) -- generated combined revenues of $39.5 billion in fiscal 2012, a 2% increase from the previous year.
For decades, the tobacco industry and the U.S. government have been at odds with each other -- in 1984, tobacco companies were required to add health warning labels, and in 1998, they were forced to pay for anti-smoking ads. Excise taxes have also steadily risen -- a pack of cigarettes in the U.S. can now cost as much as $14.50 in New York State (a 16% jump from the previous year).
In response to a shrinking U.S. market and rising government pressure, Altria, Reynolds American, and Lorillard have recently shifted gears by promoting e-cigarettes (electronic cigarettes), which are touted as a new way to satisfy smokers while reducing health risks.
Blu eCigs. (Source: Company website.)
However, is the public being misled by this new promise of safer cigarettes? Let's take a look at 3 main things that consumers need to know about the e-cigarette market.
1. How do e-cigarettes work?
A traditional cigarette is made of dried tobacco leaves. Tobacco smoke eventually becomes tar, the particulate matter that gathers in the lungs and causes respiratory problems and cancer. Nicotine, the stimulant found in tobacco leaves, is what makes cigarettes so addictive.
Nicotine gum and patches, the two most common methods to stop smoking, deliver nicotine into the blood without the cancerous effects of tobacco smoke.
E-cigarettes were designed with a similar idea in mind. The user puts a nicotine cartridge into the device, which is subsequently vaporized by a heated electric charge. The nicotine is inhaled in a liquid vapor form, eliminating the problems of secondhand smoke.
An illustration showing how e-cigarettes work. Source: Winningjaguar.com
Supporters believe that the e-cigarette can help smokers eventually quit smoking, since the physical stimuli are more similar to those of actual smoking than nicotine gum and patches. Many models even include LED tips which light up as the user inhales.
2. Are e-cigarettes safe?
Although e-cigarettes do not contain tobacco, regulatory bodies aren't convinced that they are any safer. In July 2013, the WHO issued a statement advising against the use of e-cigarettes until further studies could be conducted.
A major problem is the fragmented state of the e-cigarettes market and the widely varying nicotine content in products, which can range from 6 mg to more than 100 mg. A normal cigarette contains approximately 12 to 17 mg of nicotine. Just 0.5 mg to 1.0 mg of nicotine per kilogram of a person's body weight can be lethal.
By itself, nicotine does not cause cancer. However, it is highly addictive and can cause high blood pressure and an elevated heart rate, which can lead to other cardiovascular problems.
When we take a look at the new e-cigarettes from Altria, Reynolds, and Lorillard, we can see that these products generally contain between 6 mg to 24 mg of nicotine per cartridge.
|
Company |
E-cigarette brand(s) |
Nicotine content |
Market share |
|
Altria |
MarkTen |
15 mg |
Less than 1% |
|
Reynolds American |
VUSE |
12-17 mg |
2% |
|
Lorillard |
Blu Ecigs, SKYCIG |
6-24 mg |
49% |
Sources: Industry websites.
Therefore, e-cigarettes might be less hazardous to your health than traditional cigarettes, but they are hardly a perfectly safe alternative.
3. Why is Big Tobacco getting involved?
There are a few main reasons that Big Tobacco is suddenly so interested in selling e-cigarettes in the United States:
-
Health findings on e-cigarettes are still inconclusive, so they haven't been regulated yet. This means that e-cigarettes aren't subject to excise taxes (in most states), graphic warning labels, or other rules.
-
The U.S. market for traditional cigarettes continues to shrink. To preserve their bottom lines and hefty dividends, cigarette companies have had to dramatically cut costs, slim down operations, and reduce their workforces.
-
Big Tobacco needs to diversify its product offerings beyond smoking and chewing tobacco. Altria, for example, also owns cigar maker John Middleton Cigars and large stakes in brewer SABMiller and winemaker Ste. Michelle Estates.
Most importantly, if e-cigarettes can gain traction in the United States, one of the toughest tobacco markets in the world, they will likely flourish in overseas markets. Philip Morris International (PM +1.85%), which was spun off of Altria in 2008 to handle its overseas operations, could use e-cigarettes to offset declining rates of smoking in the European Union (28%) and developed nations in Asia (28%).
In other words, Philip Morris, Altria, and Reynolds aren't introducing e-cigarettes due to the realization that tobacco is deadly and addictive. They are doing so because revenue growth at Lorillard -- the market leader in e-cigarettes -- has been quite impressive:
|
Revenue growth YOY |
Earnings growth YOY | |
|
Philip Morris International |
0.1% |
5.1% |
|
Altria |
6.6% |
112.5% |
|
Reynolds American |
0.9% |
8.8% |
|
Lorillard |
12.6% |
(8.8%) |
Source: Yahoo Finance, Jan. 20.
The Foolish takeaway
In closing, e-cigarettes could represent a positive step toward curbing smoking rates in America, leading to lower rates of lung cancer, respiratory problems, and other serious health issues.
However, they should not be considered a better treatment than nicotine gum or patches just yet. Moreover, consumers should only consider e-cigarettes a new smoking cessation device, and not an excuse to start smoking.
