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Hyper-activity in E- Cigarettes But Are We Heading East...Or West?

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In addition to the E-lites acquisition by Japan Tobacco, much is happening elsewhere in the hyperactive vapour sector including the acquisition by a US e-cigarette company VEC of UK e-cigarette company Ten Motives which, interestingly, measures its growth in terms of the number of regular cigarettes it has replaced. The scramble to get a piece of the action in a new global FMCG continues. The number of e-cigarette users in the UK has soared, from 700,000 in 2012, to 2.1m in 2014 according to Action for Smoking on Health (ASH). The US investment bank Wells Fargo has predicted that e-cigarettes could be outselling conventional cigarettes within a decade. Another finding going the rounds is that half of former smokers have tried e-cigarettes. Meanwhile industry research continues in terms of product improvement (recently the Paris-based company Smokio launched the world's first smart e-cigarette which connects to a smartphone app tracking the owner's usage) with the industry well aware that low perceptions of product quality could have severe regulatory consequences. However the next big game changer for the global vapour industry could be China.

Cigarette Replacement

ten motives 1.jpgInterest in the e-cigarette sector is demonstrated in the level of corporate activity. US Victory Electronic Cigarettes (VEC) recently acquired Ten Motives, its third UK e-cigarette company in six months for US$104m (£62m). Ten Motives sells in a number of major UK retailers including Sainsbury's, Tesco and Bargain Booze. Since its founding, Ten Motives claims to have ‘replaced’ up to 400m regular cigarettes. This statement clearly attempts to position the company in an NRT context, probably with an eye on potential legislation. Victory's previous UK acquisitions include Vapestick for US$70m and VIP for US$50m.

Growth Market

The intensifying activity in the relatively new industry is being driven by research showing a growth market. According to a recent US University of California study, 466 brands of e-cigarettes and 7,764 flavoured liquids are being sold online while between August, 2012, and January 2014, an average 10.5 e-cig brands and 242 flavours per month were introduced.

Meanwhile, RAI is planning a national roll-out of its Vuse e-cigarette from 23rd June 2014. Previously the product was only available in the test markets of Colorado and Utah. Stephanie Cordisco, president of RJR Vapor, spoke of positioning Vuse as ‘the vapor authority’ and of 'transforming' the tobacco industry.

In the United States, e-cigarette sales have grown at an annual rate of 115 % in the 2009-12 period while various forecasts predict that the global e-cigarette market could increase to US$10 billion by 2017. Such forecasts probably do not take account of what might happen should China, the behemoth of the global tobacco industry, become a major vaper.

The China Connection

China already has a major connection with the industry: the device was invented there, while over 95% of e-cigarettes worldwide are produced in Shenzhen, China. But, as far as usership is concerned, China is very much a sleeping giant…so far. But, if only 1% of China’s smoking population turned to e-cigarettes, it would mean a market of about 3.5 million e-cigarette users. In August 2014, about 500 representatives of the global e-cigarette industry will meet in Shenzhen to unveil new technologies and discuss how to improve safety and health standards industry-wide and to address the safety risk and health problems associated (by some) with e-cigarettes. Growing consciousness of the impact of smoking on public health in China could thrust e-cigarettes to the fore as a means of lowering health costs. With the Chinese Government on board and CNTC making e-cigarette versions of some of its massive cigarette brands the vapour market would never be the same again.

High Anxiety

However amid all the growth and the possibilities which have made all the major international tobacco companies, and the US tobacco companies, major players in the e-cigarette industry, the industry remains in a state of high anxiety as to how it is going to be treated by the legislators – particularly in the US which (accounting for probably just under half of world e-cigarette sales, could set the tone for the global industry.

The FDA is responsible for implementing the Family Smoking Prevention and Tobacco Control Act 2009 which gave the FDA authority to regulate the manufacture, marketing and retail sale of cigarettes, roll-your-own tobacco and smokeless tobacco products. However, the FDA wants to extend its regulatory authority to cover additional products such as e-cigarettes, cigars and hookah tobacco.

According to reports, Mitch Zeller, head of the US Food and Drug Administration’s Center for Tobacco Products (CTP), the agency is exploring the concept of expedited reviews for tobacco products based on risk and toxicity levels as it prepares  a regulatory framework for the e-cigarette. Mr Zeller apparently wishes advocates and foes to view nicotine-containing products as a 'continuum' —from cigarettes to their electronic counterparts to cessation gums and patches.

The Real Global Game Changer

The general view is that the FDA is working to develop product standards for e-cigarettes and other nicotine delivery devices that would protect public health and enable the agency to withstand legal challenges, with the CTP looking at product standards in the areas of addiction, toxicity and product appeal as it prepared to gain regulatory authority over e-cigarettes and other nicotine-delivery devices. The establishment of product standards was one of five priorities for the division over the next few years according to Zeller. The priorities included putting in place regulations for approving new products and monitoring them after they reach the market, ensuring that the agency has in place a strong compliance and law enforcement presence in every state, and what could be the real global game changer - the formulation of an FDA-wide nicotine policy that recognizes some products are less risky than others.

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