Big Tobacco Beware, the Next Big Story Stock Could Involve E-Cigarettes

It’s not too often a product comes along with so much potential. A product with so much pent up demand. A product that is significantly cheaper than alternatives. A product that sells so extremely well right out of the gate the potential to turn a very small speculation into a big score is obvious.

That’s what we’re facing here. The market potential is hundreds of billions. Every retailer who carries it has trouble keeping it in stock. It’s the same type of popularity which turned Crocs (CROX) into a shooting star, made Healys (HLYS), and pushed sales of Snuggies past the four million mark.

Sounds like it has some potential right?

Well, it does have a lot of potential. That is of course, if the World Health Organization (WHO), the FDA, Big Pharma, Big Tobacco, and a U.S. Senator don’t get it completely outlawed.

Disrupting Smokers

I’m talking about the latest nicotine replacement therapy (NRT), electronic cigarettes, or e-cigarettes.

An e-cigarette is a battery powered device that looks like a cigarette. It has a small vaporizer which turns a nicotine cartridge into a breathable vapor. It’s an alternative delivery form of nicotine which, according to many of the e-cigarette retailers, provides the nicotine of a cigarette without a lot of the other contaminants in a regular cigarette (e-cigarette description and pictures).

There’s just so much potential growth. A recent smoking cessation report from consultancy firm Visiongain says, “E-Cigarettes will revolutionize the face of tobacco smoking and could pose a threat to the smoking cessation market.”

As you might expect, a product like this will be in very high demand.

Another Boom Emerges

Jason Cropper, manager of the Electronic Cigarette Company in the U.K., in an interview with Reuters stated, “We can’t keep up with demand. The demand is phenomenal. I’ve got a website run by a lady in Florida and she’s totally out of stock.”

If you go a bit further, it’s easy to see how well these are selling. At the time of this writing, two out of three e-cigarettes at zerotar.net were sold out. Specialty Retailer magazine reports mall kiosks selling e-cigarettes generate about $50,000 in sales per month. There’s not much data out there, but it’s easy to see sales of e-cigarettes are soaring.

From a cost perspective, e-cigarettes are tough to beat. The initial start-up cost of around $100 for charger, battery, vaporizer, etc. The ongoing costs (buying more nicotine cartridges) are around 50 cents to $1 a day (to get the same amount of nicotine as one pack of cigarettes per day).

When you compare that to the cost of $150 to $250 per month (depending on which state you’re in) though, it’s easy to see e-cigarettes are a much cheaper alternative. As an alternative to gum, patches, sprays, lozenges, and inhalers, e-cigarettes are much cheaper as well. And from a health perspective…I think the answer is pretty clear.

From an investment perspective, this is the kind of “disruptive technology” which has changed the face of industry and created fortunes for early investors. Just think of a product, if successful, reaches just 10% of the 500 million+ smokers around the world. That’s the kind of potential we’re looking at here.

Best of all there is one publicly traded company leading the way in the e-cigarette revolution. More on that in moment. First, there’s a big back story here with a lot of pitfalls. It’s a complicated situation with politics set to play a big role in the near future.

Another Competitor Stifled?

What may surprise you is e-cigarettes may not stay on the market much longer even though they’re still relatively new.

It’s no secret how much Big Pharma and Big Tobacco companies spend on lobbying. We watched the impact yet again this past week as the federal government upped the tobacco tax and the House of Representatives passed the Family Smoking Prevention and Tobacco Control Act.

Of course, the bill had the support of Altria (MO), the operator of Philip Morris and owner of the world’s best-selling cigarette brand, Marlboro. The act limited advertising (read: protected market share changes for current competitors) and would give the FDA all sorts of new regulatory powers.

And with a name like “Family Smoking Prevention and Tobacco Control Act,” what politician would want to vote against it?

Big Tobacco would naturally be against the e-cigarette’s success. It’s a direct competitor. In this case, it’s more than just Big Tobacco. Big Pharma has a big stake in this battle as well.

The $3 billion nicotine replacement industry has become a cash cow for pharmaceutical companies. All of those patches and gum sales are easy profits and they’re mostly backed by Big Pharma. Nicoderm is owned by ALZA, wholly owned subsidiary of Johnson & Johnson (JNJ). Nicorette and the prescription drugs Wellbutrin and Zyban are marketed by GlaxoSmithKline (GSK). And one of the latest entrants, Chantix, is marketed by Pfizer (PFE). Of course there are many more but you get the point.

They’ve all seen the early success of e-cigarettes. They see the potential impact to their bottom lines. And they are making the moves necessary to stifle the competition.

Unsafe Until Proven Safe

Recently, New Jersey Senator Jim Lauterman tried to put an end to e-cigarette sales in the U.S. According to his press office:

Sen. Frank R. Lautenberg (D-NJ) today urged the Food and Drug Administration (FDA) to take electronic cigarettes, or “e-cigarettes,” off the market until they are proven safe by the federal agency.

Electronic cigarettes, alternatives to cigarettes and other tobacco products, are battery-powered devices that use a vapor to deliver nicotine to smokers. When the smoker inhales through the device, air flow is detected by a sensor, which activates a heating element that vaporizes a nicotine solution stored in the mouthpiece.

Manufacturers and retailers of these products claim that electronic cigarettes are safe, and even that these products can help smokers quit traditional cigarettes. However, no clinical studies have proven these products are effective in helping smokers quit smoking, nor have any studies considered the safety of these products’ long-term health effects. While the FDA has indicated it will evaluate electronic cigarettes on a case-by-case basis, it has not taken any enforcement action against these products, which are currently being sold in mall kiosks across the country and on the Internet.

Sen. Lautenberg is one of the Senate’s leaders in protecting Americans from the dangers of smoking. Sen. Lautenberg wrote the law banning smoking on airplanes, which helped trigger a broader smoke-free revolution. Sen. Lautenberg is also the author of a law banning smoking in buildings that house federally-funded facilities that serve children.

This would subject them to FDA approval. The costs of which would stifle the small upstart companies who make e-cigarettes and delay their access to the open market.

Lauterman, who is an active anti-tobacco advocate and the recipient of $128,250 in campaign contributions from Pharmaceuticals/Health Products companies, is not alone here though. According to WTBW out of South Carolina:

the American Cancer Society Cancer Action Network, the American Heart Association, the American Lung Association and the Campaign for Tobacco-Free Kids applaud Senator Frank Lautenberg of New Jersey’s call for the Food and Drug Administration to exert its authority and immediately remove e-cigarettes from the market.

The Tide is Turning

Despite the past effectiveness of embedding legislation which benefits the current leaders of industry in otherwise popular legislation, this one could face some hurdles.

For instance, David Sweanor, who has worked with many health regulators including the WHO, said in a recent interview, “If there is anyone who believes cigarettes are no more hazardous than e-cigarettes I'd recommend a remedial course in basic sciences.”

And then there’s Dr. Joel Nitzkin. He is the Chair of the Tobacco Control Task Force for the American Association of Public Health Physicians, recently sent a letter to Senator Lautenberg. In it Nitzkin states, “As best we can tell, on the basis of currently available research data, these products [including but not limited to electronic cigarettes] promise a risk of illness and death well under 1% of the risk posed by cigarettes.”

So there is some support for the e-cigarettes to be allowed to be sold. For the time being, this is still a risky place to invest in due primarily to the potential government regulation.

The only thing that somewhat resembles a pure-play on e-cigarettes I’ve been able to find is Ruyan Group (HK:0329). This is the company which has been making e-cigarettes in China and owns most of the patents for e-cigarettes. It also licenses them to international manufacturers. It recently inked a deal with a media company in China to help get the word out to some of China’s 350 million smokers.

On the bad side, it’s a highly illiquid penny stock traded in Hong Kong (it last traded for HKD 0.187). It hasn’t been immune from the economic downturn either. It expects to post a loss when its next report is filed with regulators.

Also, there are dozens of smaller private competitors which have popped up all around the world (and will likely continue to do so). And it has other businesses so it’s not a 100% pure play on the growth of e-cigarettes. So, at this point in time even without the political risks involved, it’s a heck of a risky position to take.

In the end, this is the perfect situation of how a new technology could revolutionize an entire industry.

The established firms are going to pull what strings they can to prevent competition, but they’ll only be able to hold out so long. People want to quit smoking and in countries where e-cigarettes have been outlawed (e.g. Canada) that hasn’t stopped folks from buying them. Change will likely come regardless of the regulation. The regulators just determine who the winners will be and determine when change will be “approved”.

The opportunity in e-cigarettes is astounding (although, I’m holding off a bit to see how the politics plays out a bit further) opportunity to invest in a new cost-saving technology which is sure to be in very high demand.

It’s the perfect example of how change brings great opportunity. At the Prosperity Dispatch we’ve been focusing on emerging technologies like this for a while. Everything from stem cells to human genome applications to viable alternative energy technologies and everything else which have years and years of growth ahead of them as they change the entire landscape of their industries. Now we can add e-cigarettes to the list of “disruptive technologies” to keep an eye on.

Good investing.

Disclosure: Author has no position in any of the stocks mentioned

Comments

[David Allen:]

Nicotine is a poison, used to control big huge tomato worms. Why anyone would want to inhale this stuff in their lungs is beyond me.

Apr 12 08:40 PM

[socphd71:]

Interesting.

I can't find where you detailed the World Health Organization's opposition.

For balance, you might have mentioned that many of these large drug companies are headquartered in NJ, the state Sen Lautenberg represents.

For the time being, I'd bet on the cigarette and drug companies. Very few physicians, or professionals of any kind, work in Public Health.

However, with articles like yours and the news capacity of the internet, I suspect that there a large underground market will continue, without regard to legislation. After all, the "War on Drugs" is decades old and always a defeat for the warriors.

Apr 12 08:50 PM

[Living4Divi...:]

Andrew - I agree that a product like this could take off in the health-conscious western world. I hope it does, as cigarette smoking is a vile habit.

The third world is 80% of the planet's total population. In the third world, they smoke like fiends. Especially in China. Concerns over health are minimal. The Third World is Big Tobaccos GROWTH MARKET.In the third world cigarette tobacco pack prices are less than in the the western world. Approx 2.00 per day. So the net savings to a third worlder (even at electronic nicotine costs of 1.00/day) amounts to only $1/day.

Furthermore, I disbelieve the cost you stated for of nicotine replacements - you state they cost 0.50 to 1.00 per day. All other nicotine replacement therapies are much MORE expensive than cigarettes on a daily basis (e.g. nicorette gum, patches, etc.) Are you sure about your figures?

Apparently you have never been to a third world country. They are not health-conscious as they are in the west. Furthermore, to invest $100 in a smoking-cessation product is a huge expense to most poor third-worlders. At 0.50 per hour in china - this is equivalent to 200 hours labor = 5 weeks worth of work. Not a likely investment.

You assert that this is the end of Big Tobacco. I seriously doubt it.

Your article is nothing but a bunch of speculative hype.

Apr 12 08:50 PM

[grbn:]

if it becomes legal the government will tax it so high that the cost will equal the current cost of cigarettes. End of problem

Apr 12 09:33 PM

[allforone:]

I know someone who has a dealership in the e-cigs and he can't get enough of them. I've seen them, held them and passed some on to friends to try. The cost is $79 + local tax with a 3 day money back no questions guarantee - and no one has returned one yet. They are 1/2 price of actual cigarettes, last longer, no fire hazard, no butts (and after spending Easter day with cigarette fiends my clothes smell horrible and I feel the effects of second hand smoke) and NO SMELL.
If the government today would outlaw cigs tomorrow I would be one happy person. If someone wants to get nicotine the e-cig is the way to go. There are no tars or cancer causing carcinogens inhaled or expelled. Is there any wonder why the American Cancer Society is against e-cigs? They would be out of business in a matter of a generation.
Now nicotine has been noted to improve althimers patients, so these might be the wonder drug transmission of the 2000's. It runs in my family and I'd like to have the option of getting nicotine without the cancer risk. I have never smoked and have no desire to start but if it actually helps let it be.
The word on 'taxing' is e-cigs are not tobacco based so it doesn't fall under current tobacco laws and they are not advertised as systems to stop smoking so they don't fall under that catagory, but if there is money on the table an elected lawmaker won't waste time in getting their hands in the pot for the illusionary 'good for all'.
A relative noted that after 2 or 3 weeks his taste buds started working again and he could enjoy food like before he started smoking. There are different flavors, cig, fruit, energy drink. He said he started on the cig flavor and after taste returned he likes the strawberry flavors, like sucking on a pixy stick. When he craves a cigarette he uses the cig flavor and wants to puke. Cigs actually taste that bad for real.
Enough of my experience and observations.
Next?

Apr 12 11:56 PM

[Bullish 2 U 22:]

I believe this, that someone is beating the 'greed drum' again.
I am reading-currently-"A Random Walk Down Wall Street" by
Burton G. Malkiel & i URGE any one who is buying into this E-
Cigarette garbo as a potential $$ maker 2 read this book so
that u dont lose ALL of your $$.History teaches that a sucker
is born everyday.Read about The Tulip Bulb Craze, The South
Sea Bubble, The Florida RE Craze & The Conglomerate Boom. Fellow investors dont speculate-invest. Peace.

Apr 13 01:19 AM

[wtp:]

Thanks for the welcome and useful info on this topic. Last time it was alcohol prohibition, worked out great if I recall . . .

Apr 13 03:06 AM

[Leonard the...:]

Short MO

Doesn't matter if the ban it or not, people will get it. A lot of blackmarket activty ramping up in the face of these price hikes.

Apr 13 09:03 AM

[TeresaE:]

"Last time" is still now, it is called the (failed) War on Drugs.

Prohibition of any kind NEVER works.

It is impossible to regulate stupid or crazy, yet we allow our government to keep trying.


On Apr 13 03:06 AM wtp wrote:

> Thanks for the welcome and useful info on this topic. Last time
> it was alcohol prohibition, worked out great if I recall . . .

Apr 13 09:21 AM

[ECONOMICS 101:]

Hi David,
You are correct as to the "why" but please understand, it is an addiction. As a smoker of 20+ years (started when I was 25) and tester of all quit-smoking products it's hard to stop. Any product that helps is welcome.
Yours Truly,
Johnathan Vrozos


On Apr 12 08:40 PM David Allen wrote:

> Nicotine is a poison, used to control big huge tomato worms. Why
> anyone would want to inhale this stuff in their lungs is beyond me.

Apr 13 09:55 AM

[ECONOMICS 101:]

Allforone,
As a smoker, thank you for the insight. I will be trying this product soon and hope it helps me to quit. By Johnathan Vrozos


On Apr 12 11:56 PM allforone wrote:

> I know someone who has a dealership in the e-cigs and he can't get
> enough of them. I've seen them, held them and passed some on to
> friends to try. The cost is $79 + local tax with a 3 day money back
> no questions guarantee - and no one has returned one yet. They are
> 1/2 price of actual cigarettes, last longer, no fire hazard, no butts
> (and after spending Easter day with cigarette fiends my clothes smell
> horrible and I feel the effects of second hand smoke) and NO SMELL.
>
> If the government today would outlaw cigs tomorrow I would be one
> happy person. If someone wants to get nicotine the e-cig is the
> way to go. There are no tars or cancer causing carcinogens inhaled
> or expelled. Is there any wonder why the American Cancer Society
> is against e-cigs? They would be out of business in a matter of
> a generation.
> Now nicotine has been noted to improve althimers patients, so these
> might be the wonder drug transmission of the 2000's. It runs in
> my family and I'd like to have the option of getting nicotine without
> the cancer risk. I have never smoked and have no desire to start
> but if it actually helps let it be.
> The word on 'taxing' is e-cigs are not tobacco based so it doesn't
> fall under current tobacco laws and they are not advertised as systems
> to stop smoking so they don't fall under that catagory, but if there
> is money on the table an elected lawmaker won't waste time in getting
> their hands in the pot for the illusionary 'good for all'.
> A relative noted that after 2 or 3 weeks his taste buds started working
> again and he could enjoy food like before he started smoking. There
> are different flavors, cig, fruit, energy drink. He said he started
> on the cig flavor and after taste returned he likes the strawberry
> flavors, like sucking on a pixy stick. When he craves a cigarette
> he uses the cig flavor and wants to puke. Cigs actually taste that
> bad for real.
> Enough of my experience and observations.
> Next?

Apr 13 09:59 AM

[ECONOMICS 101:]

There will be more interest in people actually interested in quitting than making money on the stocks. The stocks will be a by-product of the interest..By Johnathan Vrozos


On Apr 13 01:19 AM Bullish 2 U 22 wrote:

> I believe this, that someone is beating the 'greed drum' again.<br/>I
> am reading-currently-"A Random Walk Down Wall Street" by
> Burton G. Malkiel &amp; i URGE any one who is buying into this E-
>
> Cigarette garbo as a potential $$ maker 2 read this book so
> that u dont lose ALL of your $$.History teaches that a sucker
> is born everyday.Read about The Tulip Bulb Craze, The South
> Sea Bubble, The Florida RE Craze &amp; The Conglomerate Boom. Fellow
> investors dont speculate-invest. Peace.

Apr 13 10:01 AM

[ECONOMICS 101:]

It is good to see some relevant news of the world besides making money (albeit money is very important). Ladies and gentlemen please understand smoking is a terrible addiction and all the Big Pharmas and Tobacco Kings don't want to lose their grip on humanity. They will try very hard to quash the E-Cigarette. I hope they fail.

As a smoker, and a speaker for all of us smokers, I hope this works.

Will advise all here at a later date.

Johnathan Vrozos
johnathanvrozos.ca

Apr 13 10:08 AM

[devassocx:]

Alcohol is a poison, used to kill all sorts of things. Why
anyone would want to drink this stuff and stress their liver
is beyond me.


On Apr 12 08:40 PM David Allen wrote:

> Nicotine is a poison, used to control big huge tomato worms. Why
> anyone would want to inhale this stuff in their lungs is beyond me.

Apr 13 12:49 PM

[jackooo:]

I tried this device. It does not work. It is a joke.

Apr 13 01:35 PM

[Bill Godshall:]

This article is basically correct, although twice it incorrectly referred to Frank Lautenberg as Jim Lauterman.

In criticizing e-cigarettes, the American Cancer Society has a blatent conflict of interest that it fails to acknowledge: a secretive multimillion dollar exclusive endorsement contract with GlaxoSmithKline to promote Nicoderm, Nicorette and Commit (which is why the ACS name and logo appear on all of these GSK products sold in the US), which almost certainly contains a non compete clause prohibiting the ACS from endorsing any competitor nicotine or tobacco product.

Bill Godshall

Apr 13 03:43 PM

[socphd71:]

I neglected to disclose my positions:

Long MO;

For my various health problems, I take 14 prescription drugs and four over-the-counter drugs daily. That is all the support, from me, that Pharma will ever get.

Apr 13 05:35 PM

[Bullish 2 U 22:]

Hey, i'm all 4 cures don't get me wrong, but E-Cigs is a 'fad'-a New
Hot Stock. It will go the way of all fads-Boom/Bust! Big Tobacco is a
dash cow to many & this golden goose's egg wont be killed. I supp-
ort the war on drugs-there is mucho demand-the war is a failure.
Nicotine is a very powerful drug-as you all know-coke, crack, meth,
booze, x, y, z, whatever back-up Nic is king. I've resolved any soc-
ial issues that i had with tobacco, etc. I'm L-O-N-G on sin stock$!

Apr 13 11:51 PM

[rhonda:]

I've been using the e-cig since August and have not had a "real" cigarette since before Christmas. This has been the first time in 40 years I've gone longer than a week without a cigarette. I have no cravings for a cigarette - I get all I need from the e-cig. Pills, patches, gums, hypnosis - nothing worked before. I'll continue to use the e-cig and find a way to keep getting my supplies no matter what the government decides!

Apr 15 03:10 AM

[SammyUK:]

You can buy a complete reputable e-cig kit for £14.99 and a bottle of juice that would last an average smoker over a week for £11.99, with regular Cigs in the UK heading for £6 a packet - and on the face of it the E cigs will be safer, by what degree is yet to be decided, is there really a decision process for a smoker ?

"Why would anyone buy an automobile - when we already have horses" A horsetrader commenting on Henry Ford's little venture

Apr 17 08:48 AM

[Dunebuggy:]

I was a smoker for almost 20 years. Then I read a article on E cigarettes (vaporizers) and bought one.
Its a amazing product and I feel great!
In my opinion,what the smoking ban Nazi's fear most about it is it adresses every excuse why smoking should be banned.
Theres no second hand smoke,no tar,no ashes,nothing flamable,
and early studies have shown minimal risk to users compared to tabaco products.
Someone built a better mouse trap and they cant stand it.

Apr 22 03:35 PM

[fxmaven:]

Moderate drinkers live long than non drinkers, and wine drinkers live longer than beer drinkers. Moderate alcohol consumption is actually healthy, one cigarette is toxic. In fact 3 cigarettes per day is all you need to be in the 5th percentile for lung cancer and emphysema. Documented and proved by leading medical journals all over the world.


On Apr 13 12:49 PM devassocx wrote:

> Alcohol is a poison, used to kill all sorts of things. Why
> anyone would want to drink this stuff and stress their liver
> is beyond me.

May 09 12:52 PM

[matviy:]

With the new Electronic Cigarette craze sweeping the world, more and more distributors are appearing. We are the lead distributor of Electronic Cigarettes and our products have even been on the Howard Stern show of Sirius Radio. The full show can be found at the link. We are running out of stock extremely fast as we have orders allover the world!

electronicsmoker.net

Jun 12 09:38 PM

[matviy:]

Electronic Cigarettes

Jun 15 07:24 PM

[SmokeFree:]

Electronic cigarettes are quickly becoming the hottest trend for 2009. Traditional cigarette smoking has too many hazardous chemicals and are sixty-nine of them are proven to cause cancer. the SMOKeFREE electronic cigarette is the first all-natural electronic cigarette produced with a proprietary non-nicotine based solution. The solution, named Gykuro Mist, is a green tea derived solution that immitates smoking nicotine only without the harmful side-effects.

Aug 02 01:43 PM

[jimmycaps:]

Are there publically traded companies to buy stock in?

Aug 12 09:58 AM

[quit smoking:]

I find it a little hard to understand the advantage of e-cigs. Surely you want to give up smoking because of the health issues, but if your still taking in nicotine, you still have the health hazard...

Aug 13 09:06 AM

[kcbulmer:]

I have been 'vaping' for about 2 weeks, the cigarette pull is strong and I have 3 or 4 a day still, but I think when I find the right smoke juice that too will stop. Even if I never totally quit, I have to be improving my health. I have stopped smoking several times, once for 2 years! But I started again - mores the pity. I still feel better smoking an e-cig than a regular cigarette and I can 'vap' inside my house. I have not smoked inside my house for more than 10 years. No more stepping outside in 15 degree nor 95 degree weather. Has to be better for me than traditional cigarettes.

Aug 14 11:15 PM

[Freya:]

I've actually seen one. The nonsmokers get bent out of shape when they find out that there is nothing they can do to prevent someone from using it in their presence.

Many former smokers feel distressed. Its the shape itself.

Apr 13 08:35 AM

[E-Cigarette...:]

Unfortunately, the FDA is starting to interfere with the rights of Americans by abusing their power. There becomes a point where the FDA stops advising Americans (As is its role) and starts withholding their rights. A perfect example of this is their attempt to ban electronic cigarettes, even though they have the potential to save millions of lives. The FDA feels its within their power to take a product off the market that has thousands less chemicals than traditional cigarettes. Is this not an abuse of power? Informing people of the health ramifications of products is well within reason, removing a product that could save their life is not.

Johnny Blaze
CEO, Halo Electronic Cigarettes

Sep 28 12:06 PM

[E Cigarettes:]

E Cigarettes are probably safer then normal cigarettes anyways. They don't contain tar which is really the most harmful substance in ordinary cigarettes. So in essence e-cigarettes are less heavy on your lungs.

You can check out full reviews of the 3 best electronic cigarettes at: www.E-Cigarettespick.com

Oct 25 02:27 PM

[Electronic-...:]

Oh i save so much money now that i use electronic cigarettes, i save atleast 250$ a month

Nov 14 06:25 PM