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Has Big Tobacco Captured The Vape Market?

Last month, the FDA announced a set of long-awaited electronic cigarette regulations, hoping to rein in product inconsistencies and investigate pressing safety concerns. In part, the new federal rules require that every company manufacturing an "electronic nicotine delivery system" apply for FDA approval. Learn more about Vape Explosion Statistics.

Members of the vape industry, which reached an estimated $3.5 billion in sales in 2015, have argued for years that requiring stringent product applications, testing and labeling changes will cripple the growing industry, hitting small manufacturers hardest.

Small E-Cig Companies Predict Their Own Extinction

The FDA has admitted that much, according to the Fiscal Times. In an economic impact forecast released two years ago, the agency estimated that upwards of 99% of the e-cig industry would not be able to comply with the new approval requirements.

Thus far, the vaping industry has remained a patchwork of small companies, including mom-and-pop operations mixing eLiquids for mainly local consumers. Compliance, however, will cost at least $1 million per product, and about 1,700 hours of labor, according to FDA estimates. That's a burden no mom-and-pop vape company can bare, e-cig proponents argue. Big Tobacco, on the other hand, may have just been delivered a huge victory.

Of course, the world's largest tobacco manufacturers have already captured the vaping market, at least when it comes to the kind of e-cigarettes sold in convenience stores.

Big Tobacco Already Owns The E-Cig Market

Altria, the parent company of Philip Morris, and R.J. Reynolds are now the two largest cigarette manufacturers headquartered in the US. Both multinationals have staked billions of dollars on the success of e-cigarettes. Within the vape space, Altria currently owns NuMark, manufacturer of MarkTen e-cigarettes, along with Green Smoke. R.J. Reynolds produces and markets the Vuse line of e-cigs.

International power players have also jumped into the US vape market. Britain's Imperial Brands, now the fourth-largest tobacco manufacturer in the world, owns Blu, along with several other less-popular e-cig brands. The world's third largest tobacco company, Japan Tobacco, owns and manufactures the Logic line.

79% Of E-Cigs Made By World's Biggest Tobacco Companies

If you've paid attention to e-cigarettes at all, you'll recognize these names. They are America's most popular e-cigs and, as we've just seen, each one is owned by a company that should be included on Big Tobacco's roster. Here's how their sales played out in 2015, according to a report from The Motley Fool:

  1. R.J. Reynolds' Vuse brand captured 36% of the US market
  2. Imperial Tobacco's Blu took 23% market share
  3. Japan Tobacco's Logic has 14% of the market
  4. Altria's MarkTen controls around 6% of the market

All told, that's 79% of the e-cigarette market locked down for Big Tobacco. Of course, the e-cig market itself is still relatively small, worth only around $1.4 billion in 2014, according to data from Nielsen. Big Tobacco, though, is still big business. In the same year, Altria, Reynolds and Lorillard generated a combined $40 billion in sales. Since then, the industry has become even more consolidated. Reynolds purchased Lorillard on July 15, 2014, but didn't get Lorillard's big e-cig brand. Instead, Blu went to UK manufacturer Imperial Brands.

New Life For A Dying Industry

Consolidation at this point is probably a matter of survival for tobacco manufacturers. Thankfully, cigarettes are dying in this country. In the 80s, America was home to almost 180,000 tobacco farms. In 2012, the US Census of Agriculture suggested that only 10,000 had been able to stay in business. Cigarette sales saw a commensurate drop, from around 135 packs sold per capita in 1980 to 46 sold per capita in 2012. With sales dwindling, tobacco companies have been forced to band together.

Somewhat paradoxically, the growing popularity of e-cigs has given these companies a new chance at revival. Obviously, $1 million per product, and 1,700 hours of labor, are a drop in the bucket to major corporations like Altria or R.J. Reynolds. Thus it's unlikely that the FDA's new regulations will hurt any of the country's most popular "cig-a-like" brands. But if current market shares are any indication, it would have been very difficult for smaller manufacturers to break in anyway.

Problems On Both Sides For Small Vape Makers

More sophisticated products, like mechanical mods, on the other hand, are set to drop like flies. But if a wave of devastating e-cigarette explosions are any indication, the companies that manufacture more complex vapes are the very ones who could most benefit from a little regulation, at least where batteries are concerned.

Prominent members of the medical community have come down on both sides of the e-cigarette debate. In England, the Royal College of Physicians has become a vocal advocate of the new technology, concluding that, "for all the potential risks involved, harm reduction has huge potential to prevent death and disability from tobacco use, and to hasten our progress to a tobacco-free society."

While the FDA hasn't explicitly denounced such support for vaping, the agency isn't willing to take a strong stand on the issue yet. That's entirely reasonable. E-cigarettes are new, first introduced to the US market in 2007. We just don't have the scientific evidence to say whether or not e-cigs, all else being equal, are safe or a viable smoking cessation aid. But increased use among young people, who have taken to vaping by storm, has many observers worried. Are we just getting kids hooked on nicotine through another method?

E-cig companies don't necessarily disagree with regulation. Speaking to MarketWatch in May, Arnaud Dumas de Rauly, president of the eLiquid company Gaiatrend USA, said, "we want regulation. We just want it to be sensible and not put everyone out of business."

Continue Reading: Everything We Know About E-Cig Explosions [Infographic]

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Laurence Banville
Date Published: September 14, 2018
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