The tobacco landscape is changing right in front of our eyes. In the 50 years since a U.S. Surgeon General's report named smoking as a prominent risk factor for lung cancer and heart disease, smoking rates for U.S. adults have been on the decline.
Based on recent data released from the Centers for Disease Control and Prevention via the Morbidity and Mortality Weekly Report, just 17.8% of U.S. adults (42.1 million) are smokers, compared to roughly 42% five decades ago. Even more telling, the number of moderate-to-heavy smokers is on the decline. The MMWR notes that just 7.1% of respondents smoke 30 or more cigarettes daily, compared to 12.7% of respondents in 2005, while people who smoked 20-29 cigarettes per day have declined from 34.9% of all smokers in 2005 to 29.3% as of 2013.
The tobacco industry turns to alternatives
These figures mean the tobacco industry has had to stay on its toes and adapt to ensure its survival. It means increasingly high prices for tobacco products, as well as a slew of alternatives meant to retain previously loyal smokers.
Right now the tobacco industry is attempting to allay falling sales with the use of electronic cigarettes. An electronic cigarette is comprised of a purchased nicotine-based flavored liquid, which is heated, turned into a vapor, and inhaled by the user. The goal of electronic cigarettes is to reduce traditional cigarette consumption, which is known to come with the potential for long-term health risks.
But electronic cigarettes have to answer to a number of skeptics of their own. Questions have yet to be answered about their safety over the long term, as well as whether or not their purpose is genuine. For instance, some of the 400-plus vaping liquid flavors seem as if they're geared toward a younger audience. Concern exists that electronic cigarettes may only wind up getting a younger generation hooked on nicotine.
However, a recently released report out of Penn State University could be just the game-changing news that the electronic cigarette industry was looking for.
A game-changer for electronic cigarettes?
The highlight of last week's release from Penn State is that electronic cigarettes appear to be less addictive than tobacco cigarettes for former smokers.
In order to establish nicotine dependence, Penn State researchers set up an online survey for people who were former smokers and who regularly use electronic cigarettes today. The study notes that more than 3,500 people completed its Penn State Cigarette Dependence Index and Penn State Electronic Cigarette Dependence Index surveys.
The study's findings showed that a higher concentration of nicotine in electronic cigarette liquid, as well as more efficient heating and delivery systems in next-generation electronic cigarettes, have led to greater addiction among users of electronic cigarettes. Additionally, people who've used electronic cigarettes for a long time also "appeared to be more addicted."
However, this increasing addiction aside, Penn State researchers noted that the dependence scores of traditional tobacco users were much higher. This led Penn State College of Medicine professor Jonathan Foulds to postulate, "We think this is because they're [electronic cigarette users] getting less nicotine from the e-cigs than they were getting from cigarettes."
The implication is pretty straightforward: though nicotine remains addictive, the potential to move traditional tobacco smokers to electronic cigarettes, which are believed to have far fewer adverse chemicals in their makeup, could reduce chronic long-term side effects often associated with smoking, and might be an effective path toward turning smokers into ex-smokers.
In spite of Penn State University's positive data for electronic cigarettes, two major hurdles still remain for the industry.
First, as was alluded to above, researchers haven't fully established what the long-term effect of using electronic cigarettes is yet. With fewer chemicals, the assumption is that it should lead to fewer health complications -- but the key word there is "assumption". Until the relationship between long-term use and health is explored, electronic cigarette sales are likely to stay on the back burner for tobacco companies.
Second, and perhaps the more daunting issue, is what happens if the Food and Drug Administration gets involved. The FDA has expressed concern about the proliferation of new companies in the vaping liquid market, and is worried about the quality of product being brought to consumers since the industry isn't currently regulated. Should the FDA get involved and label electronic cigarettes as tobacco products, it could have the potential to bring industry expansion to a crawl.
One company to watch
Investors looking to take advantage of what could be a surge in electronic cigarette usage will want to keep a close eye on Reynolds American (NYSE:RAI). Reynolds is in the process of buying rival Lorillard (NYSE:LO), the owner of the Blu brand of electronic cigarettes. However, as part of the buyout, Lorillard agreed to divest its Blu brand, which currently holds about half of all electronic cigarette market share in the United States, in favor of building Reynolds' Vuse brand from the ground up.
The reason I say Reynolds is worth watching is because Lorillard clearly has a knack for building up electronic cigarette interest. True, it did buy the Blu brand in 2012, but it still built the brand organically once it was absorbed into a market share monster. Lorillard is an electronic cigarette wildcard that could help Reynolds American build Vuse into a viable contender as long as the aforementioned challenges don't sack growth within the industry.
It's pretty obvious we still have a lot of questions that need answering here before electronic cigarette sales can ascend to the next level. Nonetheless, this is an exciting sector worth watching that may have the potential to help Americans quit traditional tobacco products. As more research on these products comes to light, and as the FDA's involvement becomes clearer, we should gain a better understanding of this industry's true potential.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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