Johnson Creek Enterprises, the leading manufacturer of e-liquid in the U.S., has teamed up with Republic Tobacco, the nation’s largest distributor of roll-your-own and make-your-own tobacco products and accessories, to distribute Johnson Creek’s e-cigarette hardware and e-liquids nationally in the U.S.
“This is a perfect fit for both of our companies,” says Christian Berkey, Johnson Creek’s founder and CEO. Steve Sandman, president of Republic Tobacco agrees. “Both retailers and wholesalers have been waiting for a reputable company to supply this growing category,” he says. “Our customers should be very pleased that Republic is stepping into the forefront of the ‘e’ category with such an outstanding producer as Johnson Creek.”
Johnson Creek was first company in the U.S. vapor industry to produce and manufacture e-liquid for e-cigarettes. It was also the first company to use child resistant caps, plastic shrink-wrapped banding, and to list ingredients on all bottles.
Altria Group’s NuMark subsidiary has acquired the e-vapor business Green Smoke for $110 million in cash plus up to $20 million in incentive payments, reports Wells Fargo Securities.
Posting $40 million revenue in 2013, the majority of Green Smoke’s sales are online in the U.S. The company’s retail sales in convenience stores were $3.9 million last year, according to Nielsen, representing a 0.8 percent market share.
According to Wells Fargo, Green Smoke presents an opportunity for Altria to develop a portfolio of e-vapor brands to complement its existing MarkTen e-vapor product. Green Smokes products are bigger and have stronger batteries than MarkTens, and they don’t look like traditional cigarettes.
Wells Fargo believes Altria can leverage its sales force, retailer relationships and marketing expertise to quickly bring broader distribution to Green Smoke.
Philip Morris International and Altria Group have established a strategic framework to commercialize reduced-risk products and e-cigarettes. Under the terms of a set of licensing, supply and cooperation agreements, Altria will make available its e-cigarette products exclusively to PMI for commercialization outside the United States and PMI will make available two of its candidate reduced-risk tobacco products exclusively to Altria for commercialization in the United States.
The companies expect PMI’s products in the U.S. to be regulated as Modified Risk Tobacco Products. Any commercialization would be subject to Food and Drug Administration (FDA) authorization.
The agreements also provide for cooperation on the scientific assessment and regulatory engagement and authorization related to these products with the FDA, and for a similar framework for e-cigarettes with the relevant regulatory authorities in international markets. In addition, the agreements provide for the sharing of improvements to the existing generation of products.
“PMI firmly believes that reduced-risk tobacco products, as well as e-cigarettes, represent an important step toward achieving the public health goal of harm reduction, a potential paradigm shift for the industry and a significant growth opportunity for the company,” said PMI CEO André Calantzopoulos.
“Further to our plans for international test market introduction of our candidate reduced-risk products as of the second-half of 2014, this agreement establishes a roadmap for commercialization in the U.S., subject to FDA authorization. At the same time, it provides us with a platform to accelerate our entry into international e-cigarette markets while we continue to develop future versions,”
Imperial Tobacco Group (ITG) will buy Dragonite International’s e-cigarette business for $75 million, reports Bloomberg Businessweek. The acquisition depends on the approval of Dragonite shareholders.
Simon Evans, spokesman for Imperial, said the acquisition is not related to ITG’s August announcement that it was on track to introduce its own alternative nicotine products in 2014 through its Fontem Ventures subsidiary.
Dragonite founder and Executive Director Hon Lik is credited with inventing the technology behind the e-cigarette. Dragonite says it owns an “extensive portfolio” of global patents and pending patents on e-cigarette technologies.
In a report summarizing “key thoughts” on e-cigarettes, financial services provider Morgan Stanley acknowledges it has been surprised by the success of e-cigarettes, given the commercial failures of other innovative products such as Accord and Eclipse and the slower-than-envisioned development of tobacco segments such as snus and dissolvables.
E-cigarettes have already achieved volume equivalent to about 1 percent of the U.S. market. Morgan Stanley attributes the sector’s success to effective nicotine delivery, broader consumer acceptance of technology, widespread consumer perception of less health risk versus conventional combustible products, growing societal pressure against cigarette smoking and the current regulatory vacuum, which allows for aggressive marketing.
At the same time, the bank notes that e-cigarettes won’t necessarily benefit established tobacco companies. The potential business risks to the traditional industry include cannibalization of tobacco cigarette sales volumes, FDA regulations preventing the marketing of e-cigarettes under tobacco cigarette name brands and uncertainty about the capacity of e-cigarettes to develop the brand equity and consumer loyalty that is typical for traditional cigarettes.
According to Morgan Stanley, Lorillard is best positioned to take advantage of the new segment because it owns the current e-cig market leader Blu Ecigs, while Reynolds American “probably has the most to gain from cigarette industry discontinuity.” Altria, as the dominant cigarette incumbent, has the most to lose.
Future success for e-cigarettes, according to the investment bank, depends on the scale and pacing of technological and product performance improvements, along with ultimate FDA regulation and federal/state excise tax structure, the analyst said.
Goldman Sachs analysts said Aug. 7 that they remain bullish on category growth prospects for e-cigarettes, which “have the potential to transform the tobacco industry.” However, they noted that not all tobacco companies would benefit equally, as e-cigarette growth could simultaneously accelerate the decline in conventional cigarettes.
E-cigarettes currently account for less than 1 percent of total U.S. industry sales. Goldman Sachs believes they could reach 19 percent of sales and 10 percent of total industry volume by 2020 at the expense of conventional cigarettes, whose share of total tobacco industry profit pool is estimated to shrink to 63 percent by 2020 from 82 percent today.
E-cigarette sales have doubled in each of the past two years, with continued building of awareness, trial and repeat usage, the analysts said, adding that they appear “positioned to extend the duration of the tobacco industry’s profit generation and even accelerate industrywide profit growth.”
E-cigarettes also have the potential to generate higher profit per cigarette-equivalent pack as they are not subject to Master Settlement Agreement payments and will likely have lower taxes, the analysts noted.
The analysts said they see Lorillard as best-positioned in e-cigarettes because of its “first-mover advantage” and limited cannibalization on its cigarettes, while Altria has the most at risk given its 55 percent share of cigarette industry profit.
A study funded by The Consumer Advocates for Smokefree Alternatives suggests that e-cigarettes are no more risky than other smoke-free tobacco and nicotine products.
After reviewing more than 9,000 “observations” about the chemistry of e-cigarette vapor and e-liquids, Igor Burstyn of the Drexel University School of Public Health found “no evidence that vaping produces inhalable exposures to contaminants of the aerosol that would warrant health concerns by the standards that are used to ensure safety of workplaces.” Exposure for bystanders, he said, is likely to be orders of magnitude less, and thus poses no apparent concern.
The study cautioned that e-cigarette users are inhaling substantial quantities of propylene glycol and glycerin, the main chemicals in e-cigarette liquid. The chemicals are not considered dangerous, and the levels are below occupational exposure limits, but Burstyn suggested ongoing monitoring to confirm that there is no risk.
CASAA Scientific Director Carl Phillips said the study “assures us that e-cigarettes are as low risk as other smoke-free tobacco and nicotine products, like smokeless tobacco and NRT.”
Coresta’s new e-cigarette task force will present its first report during the organization’s Smoke Science and Product Technology meeting in Seville, Spain, Sept. 29-Oct. 3, 2013.
Although e-cigarettes do not contain tobacco, Coresta members in November agreed to establish a task force dedicated to this new product category. The interest in e-cigarettes has been growing significantly in recent years, but substantial gaps remain in the science relating to these products, their components and the product-use patterns. Capitalizing on its global scientific skills and expertise, and in cooperation with e-cigarette stakeholders, Coresta hopes to fill these gaps.
The task force’s short term objectives are to:
create a document on worldwide product definition and definitions of terms for e-cigarettes to support harmonization of nomenclature;
gather and share preliminary data on analysis relevant to e-cigarettes worldwide with a view to making recommendations for product testing;
define the relevant categories of products for potential further Coresta studies.
More than 30 Coresta member organizations from all over the world, including contract laboratories, scientific consultants, tobacco and e-cigarette manufacturers, liquid and equipment suppliers, have started work in two teams, dealing with the two first objectives. They are collecting published and unpublished data and literature worldwide on history, principles of operation, product types, regulatory status and analytical testing issues and results. Based on this preliminary and necessary review, the task force will then work on the third objective.
A group including Silicon Valley entrepreneur Sean Parker is investing $75 million is NJOY, a leading manufacturer of e-cigarettes, reports The Wall Street Journal. Parker co-founded the music-sharing site Napster, was the first president of Facebook and has been a big donor to cancer research.
NJOY accounted for 35.6 percent of the U.S. cigarette market in U.S. convenience stores in the four weeks ended May 11, according to Wells Fargo Securities. NJOY Kings’ brand more closely resembles regular cigarettes than do some competing products. The company has been advertising on TV and attracted celebrity endorsers such as musicians Courtney Love and Bruno Mars.
In March, former U.S. Surgeon General Richard Carmona joined NJOY’s board, saying it is important to explore alternatives to traditional cigarettes because the adult smoking rate has remained stuck at around 20 percent of the population.
E-cigarettes are believed to be less harmful than traditional cigarettes because they don’t rely on combustion However, the Food and Drug Administration warned consumers in 2009 the new technology could pose its own health risks and required further study. The long-term impact of inhaling e-cigarette vapor, which contains substances such as propylene glycol, has yet to be determined. The agency is planning regulation that would treat e-cigarettes as tobacco products.
Industry experts says U.S. retail sales of e-cigarettes could reach $1 billion this year—just 1 percent of the country’s cigarette market but twice that of 2012.
R.J. Reynolds Vapor Co., a subsidiary of Reynolds American, is bringing its Vuse Digital Vapor Cigarette to retail outlets throughout Colorado, USA.
“This is a game-changing product in the e-cigarette category,” says Stephanie Cordisco, president of RJRV.
“There is strong awareness of the category among adult smokers and many are trying e-cigarettes, but few adult smokers are switching to them entirely. That’s because the products currently on the market aren’t providing everything adult smokers are looking for. We believe Vuse will change that.”
Developed in-house by R.J. Reynolds R&D experts, Vuse uses innovative digital technology, ensuring it delivers consistent flavor and a satisfying vapor experience.
“Vuse is powered by smart technology designed to monitor and regulate the power, heat and cartridge performance to ensure a perfect puff first time, every time,” Cordisco says. “To date, adult smokers who have tried e-cigarettes haven’t found a product that performs consistently. With its digital technology, Vuse gives adult smokers considering e-cigarettes an innovative, high-quality product from a leading tobacco company.”
Unlike other e-cigarettes currently on the market, Vuse is completely designed and assembled in the United States, and, as an additional quality step, Vuse incorporates automated manufacturing to ensure a consistently reliable cartridge every time. Vuse will be sold in a rechargeable format.
“Vuse has been designed to offer the affordability and convenience of a disposable e-cigarette, while providing on-going cost savings and reduced environmental impact by being rechargeable,” Cordisco says.
The Vuse Solo and Vuse System will be sold in retail outlets in Colorado beginning in July. Vuse Solo includes a flavor cartridge, original or menthol, a rechargeable Vuse power unit and a USB charger. The Vuse System includes three flavor cartridges—two original and one menthol—a rechargeable Vuse power unit, both a USB charger and an AC wall adapter, and a carrying case.
Vuse cartridges will also be sold separately at retail outlets. Depending on use, a cartridge lasts about as long as one pack of traditional cigarettes. Every Vuse vapor cigarette comes pre-charged and ready to use right out of the pack. The price for a Vuse Solo will be around $10, the Vuse System will likely cost around $30 and cartridges will be sold in two-packs for around $6.
“As the preferences of adult tobacco consumers change, we are leading the transformation of the tobacco industry, providing high-quality products for them to consider,” Cordisco says. “Some Wall Street analysts have predicted significant growth for the e-cigarette category during the next few years. With our Vuse Digital Vapor Cigarette, we intend to be a market leader in the category.”
