Philip Morris' Profit Decline Signals Good News For Electronic Cigarette Market

by: Dathan Pyle


Philip Morris' second quarter profit fell by 13 percent. This weakness could indicate strength for electronic cigarettes.

Only 21 percent of smokers have tried electronic cigarettes. This leaves plenty of room for growth in the electronic cigarettes industry.

I have highlighted three investment opportunities for investing in electronic cigarettes.

Philip Morris International's (NYSE:PM) second quarter profit fell by 13 percent, earning only $1.85 billion compared to $2.12 billion in the same period of last year.

According to Philip Morris, their lackluster results were due to tougher restrictions on tobacco sales and packaging. Although there are plenty of potential reasons for this decline beyond restrictions, it may be worth considering that the electronic cigarette industry is beginning to dip into the pockets of "Big Tobacco" companies as well. Philip Morris confirmed that the electronic cigarette market is worthy of concern when they announced that they are creating their own "Marlboro E-Cigarette" that is expected to be released by the end of 2014.

Electronic Cigarettes are battery powered devices that are used to heat and inhale vapors that contain a mixture of water, nicotine, flavoring, vegetable glycerin, and propylene glycol. All of which are considered to be a safer alternative than inhaling the contents of conventional cigarettes.

Sales of electronic cigarettes are continuing to rise, and according to USA Today, they have quickly boomed into a $1 Billion industry. Although these are impressive results for electronic cigarettes, the United States Centers for Disease Control and Prevention has reported that only 21 percent of smokers have tried an electronic cigarette. This leaves a great amount of potential growth for the electronic cigarette market in their effort to take on the $94 Billion U.S. tobacco industry.

Investing in Electronic Cigarettes

Besides the announcement by Philip Morris on their upcoming Marlboro E-Cigarette, other tobacco companies are beginning to transition into the electronic cigarette market as well. In 2012, Lorillard Inc. (NYSE:LO) acquired Blu Ecigs for $135 million. Altria Group Inc. (NYSE:MO) and Reynolds American Inc. (NYSE:RAI) have also announced plans to move into the electronic cigarette marketplace.

Another worthy candidate is Victory Electronic Cigarettes (OTCQB:ECIG), who markets and distributes electronic cigarettes. Victory Electronic Cigarettes recently announced that they have filed with the SEC to raise up to $150 million to uplist on NASDAQ. Their products are currently being sold in over 272 outlets, including ASDA Stores Ltd., a subsidiary of Wal-Mart Stores (NYSE:WMT).

It may also spark interest for some people to invest in the actual electronic cigarette patent. The electronic cigarette was originally designed by Chinese inventor and pharmacist Hon Lik, who patented the technology in 2007. Hon Lik became the chief executive officer of Dragonite International Limited.

Dragonite International was acquired by Imperial Tobacco (OTCQX:ITYBY) in 2013 for $75 Million. With the acquisition, Imperial Tobacco gained the intellectual property rights for electronic cigarettes owned by Hon Lik.

It is worth noting that although Imperial Tobacco owns the rights to electronic cigarettes, it may be difficult to pursue legal action against other electronic cigarette manufacturers. Almost all newer electronic cigarettes use a simpler battery heating element than the original design that was invented by Hon Lik.

Disclosure: The author is long ECIG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.