E-Cigarettes!

Have you noticed how e-cigarette shops are springing up all over your local high street and shopping arcade like mushrooms on a damp wet day as everybody’s answer to getting of the tar-laden fags that have been dogging us for decades? We were told that smoking kills you, that it’s bad for your health. Then 2006 saw the puff on the first e-cigarette and people started to get one on more and more. Smoking didn’t kill any more, not when it was electric, we were told. Governments reacted just about as slow as snails as decision-makers got clogged down in the gooey sludge that trailed behind them called the machinery of politics. Cigarettes got puffed on, and the smoke came billowing out but this time it was just water vapor. People don’t smoke now they just vaporize and a cool misty cloud hovers for a second above their heads as they reach dizzy heights on the nicotine release.

The Food and Drug Administration in the US decided in 2009 to discourage the use of electronic cigarettes, stating that studies had proved that they might be cancer-causing. Although, since the FDA has had smoke blown in its face as they have been accused of being too stringent in their analysis. Apparently, harmful chemicals are one million times less than might actually cause adverse health effects for anyone smoking the e-cigarette.

Despite FDA advice, it has just been announced that Sean Parker, Silicon Valley entrepreneur and co-founder of Napster, the file-sharing service (amongst dabbling in many other things), has decided to invest $75 million along with others in a collective program to finance electronic cigarettes.

There may be concerns from the World Health Organization and government departments of health around the world, but the investors think that it’s the place to be at the moment. Altria Group Inc. will announce tomorrow (Tuesday) their plans for their own e-cigarette.

Altria makes Marlboro cigarettes and the group has control of roughly 50% of the US cigarette market at the present time. The US’s second largest manufacturer of cigarettes, Reynolds American Inc. announced last week it will be going into e-cigarettes too. Altria was up yet again today at $36.22 (+0.07), which is an increase of +0.19%. Reynolds American stands at $47.96 (+0.14), which is an increase of +0.29%.

Some have described the e-cigarette market as the Wild West since nobody has enough knowledge of the liquid that is used nor regarding the effects of nicotine intake into the lungs at the moment.

But, that hasn’t stopped some states in the US already banning the use of electronic cigarettes (Arkansas, Colorado, and Maryland, to name but three of the dozen that have done so). Airlines in the US don’t allow e-cigarettes either now and Starbucks have also banned their use. Everybody thought that the good old days of puffing on a cigarette over a coffee and a slice of cheesecake had returned, didn’t they?

The EU is also considering doing the same. France announced only a few weeks ago that the ban would become effective to prevent children from seeing people smoking inside so that they wouldn’t think that it was a harmless act.

But, the sales of e-cigarettes are forecast to be big business still. They will bring in some $1 billion in 2013 and it’s probably that which is behind the $10 million investment by Sean Parker and others (Homewood Capital is investing $40 million, Fidelity Investments $25 million, and Peter Thiel (Paypal) $5 million). E-cigarettes only account for 1% of the market today, but that’s already double what its cut was in 2012.  The potential, therefore, is enormous.

Even if there are concerns over the health consequences, that’s not stopping research being carried out. Smoking E-cigarettes may look like a viable alternative to the tobacco industry today.

Statistics show that the tobacco industry had a combined revenue of $664 billion (which is greater than the GDP of 18 countries!). There are more than 1.2 billion people that use tobacco in the world today and it will go up according to forecasts by 1.6 billion in the next twenty years. That’s looking good for the revenue of companies in that sector.

There are about 250 million women in the world that smoke today: http://www.who.int/tobacco/en/atlas6.pdf  and just under one billion men: http://www.who.int/tobacco/en/atlas5.pdf.

The question is: will the investments that are taking place at the moment by Sean Parker and others go up in a puff of smoke or are they strong investments to be making at the moment? Whatever happens, they certainly look like having an effect on the tabacco industry and the already increasing share prices.

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tothetick

Professional team of writers/analysts analyzing the financial markets.

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