Source: Flickr user Melanie Tata.

Regardless of whether you're a smoker, an ex-smoker, or someone who has never picked up a cigarette in your life, you're probably well aware that smoking rates in the United States are on the decline. Through improved education regarding the dangers of smoking tobacco and the increasing availability of alternatives to get people to quit, fewer adults are smoking cigarettes today than at any time on record, per the Centers for Disease Control and Prevention.

Just 42.1 million adults (17.8% of the U.S. population) are smokers. What's more, the percentage of heavy smokers (those who smoke 20 or more cigarettes per day) is also dropping.

Electronic cigarettes play their part
The emergence of electronic cigarettes has surely played a role in the decline of tobacco use. Electronic cigarettes heat a liquid solution that is sometimes flavored and which often contains nicotine. This liquid is heated until it vaporizes, with the user then inhaling the vapor.

Source: TBEC Review.

The surface perception is that electronic cigarettes are safer than tobacco products and their some 8,000 known chemical compounds. Report after report has linked chemicals found in cigarette smoke with a number of increased health risks, including cancer. However, little is known about electronic cigarettes' impact on consumers' long-term health, allowing e-cig sales to expand nicely over the last half decade.

More bad news for electronic cigarette users
Unfortunately, electronic cigarettes have come under fire (no pun intended) in recent months from a slew of reports detailing their potentially damaging health effects. Just last week we examined a study from nonprofit hospital organization National Jewish Health that linked the liquid used in e-cigarettes to a higher potential for respiratory viral infections. It didn't matter whether the liquid contained nicotine -- the negative effect was the same on the epithelial cells being examined. 

Source: TBEC Review.

Another damaging abstract surfaced this week from a six-author study published online in the New England Journal of Medicine. The study observed, by means of nuclear magnetic resonance spectroscopy, that formaldehyde-containing hemiacetals are formed during the vaping process. This is particularly concerning since formaldehyde is a known carcinogen.

Based on data from the study, not only is "hidden" formaldehyde a byproduct of vaping, but the amount of formaldehyde consumed by an electronic cigarette user could be five to 15 times higher than for a traditional tobacco cigarette user. In sum, 3 milligrams of e-cig liquid at high voltage during the study generated 14 mg of formaldehyde. By comparison, researchers estimated the typical smoker would get 0.15 mg per tobacco cigarette, or 3 mg per pack.

One thing to consider here is that while formaldehyde is carcinogenic, there's no way to determine with any certainty whether it's the formaldehyde or any number of other cancer-causing agents in tobacco smoke that lead to cancer. Still, a study that finds there's more of a cancer-causing agent in a product perceived to be safer than traditional cigarettes is bound to be potentially bad news for future sales of these products.

The electronic cigarette industry's many hurdles
These two studies represent a handful of the many challenges electronic cigarette companies are expected to face in coming years.

Source: TBEC Review.

It takes time to piece together studies on electronic cigarettes, so at this point there still isn't much knowledge of their long-term health effects. Until more is known about their impact on a person's respiratory system over time, it's unlikely sales of these products will take off.

The bigger problem for the e-cig industry could be the expected involvement of the Food and Drug Administration. Although the FDA can't directly regulate tobacco companies, it can regulate tobacco products. One idea that has been proposed is for the FDA to classify electronic cigarettes as a tobacco product.

Why would the FDA make this move? First, it would put the product under tight control until more is known about the long-term health profile. The FDA has always taken a "better safe than sorry" approach to its product approvals, so regulating the industry would simply be consistent with its actions throughout history.

Second, regulating the industry would ensure adolescents don't have access to electronic cigarette products. One prevailing concern with electronic cigarettes (especially with their perception of being safer) is that they could attract a newer and younger generation of users. Remember, most vaping liquid contains nicotine, and nicotine is still addictive. The last thing the FDA wants is for nicotine addiction rates to rise in America's youth.

Finally, regulating the industry would ensure vaping liquid and other products remained consistent from one batch to the next. We'd like to believe electronic cigarette companies already provide high levels of quality control, but we simply have no absolute idea of what is in e-cig vaping liquid. Food and Drug Administration regulation could change that.

Source: Flickr user MilitaryHealth.

This all translates to one outcome
I view the latest abstract release in the New England Journal of Medicine in the same way I viewed last week's release: bad news for electronic cigarette manufacturers such as Lorillard (NYSE:LO.DL) and Reynolds American (NYSE:RAI).

Reynolds American is buying Lorillard, the owner of blu eCigs, the most dominant brand by market share in the U.S. Yet, in an odd move, Lorillard is divesting the blu brand, and the combined Reynolds-Lorillard company will instead focus on building up the Vuse brand. Development of this brand might be difficult in light of increasingly negative studies and potential FDA involvement in the industry.

Electronic cigarettes still account for just peanuts for the tobacco industry when all is said and done. Although e-cig sales are approaching $2 billion per year they're nowhere near a match for the $85 billion in sales traditional tobacco products deliver just within the United States each year.

In short, the electronic cigarette industry might wind up being nothing more than smoke and mirrors instead of the solid investment most people once thought.

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.