Tobacco Companies Get a Piece of the E-Cig Pie

Fitch Ratings opines that including electronic cigarettes in their armoury of products can help cigarette majors arrest the continuous slide in revenues which they have been experiencing for some time now. The recent takeover of electronic cigarette manufacturer, Green Smoke, by Altria underlines the bullish view that cigarette companies have on this emerging industry.

The announcement made by Altria on Tuesday stated that it would buyout the e-cigarette business from Green Smoke Inc., through its subsidiary NuMark LLC, in a $110 million deal. The company plans to conclude the transaction by the second quarter of the current year. The deal will result in business synergies with NuMark, which has its own e-cigarette called MarkTen, getting Green Smoke’s product which is superior as far as vapour production is concerned. On the other hand, Green Smoke products which are presently marketed over the internet, will have access to Altria’s widespread retail marketing channels.

Large tobacco manufacturers have now joined the e-cigarette bandwagon after the initial hesitation. The first to enter this niche was Lorillard with its April 2012 acquisition of blu eCigs. Since then, it has established several blu brand retail outlets. Reynolds American and Altria were not far behind, developing their own products Vuse and MarkTen brands of e-cigarettes, respectively.

With industry revenues virtually doubling every year since the product was first marketed in 2006, tobacco companies could hardly choose to ignore e-cigarettes. Overall sales in the US have grown exponentially to touch $1.5 billion in 2013 from the under $10 million sales figure for the year 2007. Many e-cigarette users are smokers making the switch from tobacco cigarettes.

In absolute numbers, e-cigarettes still are a small percentage of the aggregate sales of tobacco cigarettes. However, analysts predict that e-cigarette sales will exceed the sales of traditional cigarettes in approximately another ten years.

The dream run enjoyed by e-cigarettes could be brought to a halt by the tough legislation that the governments of several countries are planning to put into effect. The Food and Drugs Administration (FDA) in the US want to regulate e-cigarettes as medical devices for smoking cessation or alternatively as a tobacco product. Through legislation the government seeks to maintain minimum quality and safety standards and restrict access to the product only to those above the legal age.