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White Paper: What is big tobacco doing in the electronic-cigarette market?

Tuesday, 1 October, 2013

This is the result of an afternoon’s clicking around and should not be relied upon to make future decisions particularly regarding investments or lifestyle choices.

What follows is a summation of activities by the largest tobacco companies in the world, with a focus on the American market, and their presence or absence in the growing electronic-cigarette or personal-vaporizer marketplace.

Lorillard purchased the plurality of Blu in April and is promoting the system aggressively. Each Blu cart is said to be analogous to two packs of cigarettes and features 18mg/ml of nicotine in the juice or fluid. The carts are sold five at a time. The juice for Blu is manufactured by Johnson Creek, the retail-distribution leader in the juice industry. Johnson Creek has their own upscaled system, Vea, competing in the hobbyist/cartomizer market.

Reynolds-American offers Vuse which appears to be internally developed. It is a standard “cig-alike” system not compellingly different from Blu which is presently available in Colorado and North Carolina. The national roll out should be within weeks. Vuse “systems” and “solos” are the only product of its kind manufactured in the United States. A novel feature of the Vuse is an additional indicator for when the device is low on fluid. Vuse has a physically larger battery. The carts are sold in pairs. Each cart is analogous to one pack of cigarettes. The Vuse juice may be stronger, but the packaging is not so labeled. Vuse marketing and packaging compulsively and strangely use the words “tobacco” and “digital”. The indicator light changes from white to red as the battery depletes. This is not a functional improvement over other systems, but will add a feature for promotional purposes. The flavor is universally panned, but may be fixed before national distribution.

Swisher Int’l has a line of disposables and kits, e-Swisher. They are not distinctive in any way. Since Swisher is primarily a cigar company, they may have the flavor issue worked out. The fluid is 18mg/ml.

Each of the above is based on the 808 electrical connection, rather than the 510 (aka eGo of the hobbyist vapers), and come with 1 or 2 180-200 mAh batteries. That is about 12% of what gets a hardened user through the day. The carts for each of these have an MSRP of about $3/ea. Therefore Vuse is twice as expensive over time than Blu. Comparisons between e-Swisher and cigarettes is not available. Cartomizer or loose juice runs about $1.20 for the equivilent of a cart, or under forty cents for value-priced juice.

Altria (aka Philip Morris USA) is developing a technology based on dissolving tobacco somehow with enzymes intended to compete with the personal vaporizers branded Mark Ten. Attempts to study the process in question were unsuccessful due to your compiler’s relative ignorance of biochemistry. Expect this in 2015, with a trial in the state of Indiana next year. Philip Morris International is a seperate, but US-based, company which does not distribute products in North America.

British American Tobacco is financing the development of a variation on the asthma inhaler to deliver nicotine in a potentially different type of solution than common e-juice. This product will not be electric, inhalation activated, and is cigarette sized and shaped. It is unclear whether this will deliver warm product or be flavored. No pricing or strength information is known. Not much in the way of press about its development. Kind Consumer, the actual developer of this device, claims they have been working on it since 2004.

Liggett and Xcaliber [sic] have no plans to enter the market. Both are value-brand tobacco marketers.

Imperial Tobacco is purchasing outright the e-cigarette portfolio of Hong Kong-based Dragonite Int’l, the present name of Ruyan Group creators of the personal vaporizer and manufacturers of Dekang e-juices. The price according to the article is $75 million, presumably denominated in euros, RMB or pounds. That seems low, especially if the deal includes the patents, which is not addressed. No product announcements are readily available. This may be the business deal of the century.

The CEO of Dragonite is the former pharmacist who invented the PV in 2003. However PVs and juices are only one aspect of the company. He may be washing his hands of the e-cig business.

http://www.bloomberg.com/news/2013-09-02/imperial-tobacco-agrees-to-acquire-dragonite-s-e-cigarette-unit.html

Japan Tobacco signed a deal in June to distribute, outside NA, the products of San Francisco-based Ploom, makers of the most prominent brand of another kind of vaporizer, the dry herb vaporizer. JTI does not have a formal presence in the US and minimal presence in the EU. Speculation: This deal will focus on Ploom’s Model Two and Ploom Pods system for vaporizing actual tobacco.

Ploom is marketing their Model Two in the US now, including their own-brand pods of tobacco. The source for this tobacco is unclear. Ploom is marketing the product to gadget enthusiasts and through its existing system of retail outlets. Retail pod availability is unclear. The Ploom Model Two has an MSRP of $40 with a starter kit including four tobacco pods and a carrying case for $65. The battery may not be user-replaceable. Pods cost $9/12 and come in six varieties. A pod contains less tobacco than 5 cigarettes but is alleged to last as long. Therefore the pods are slightly more expensive than Blu, but cheaper than Vuze on a dose-for-dose basis.

Considering the corporate and licensing tie-up between BAT, RAI and JTI it is possible that their seperate systems may appear in markets beyond those of their introduction. Would Ploom, the smart pothead’s choice, market a device or pods with Natural American Spirit, Winston, Salem, Kool, Dunhill, 555, Lucky Strike or Vuze branding in the US? I suspect so. The markets are distinct.

Will Ploom’s pods be licenseable so that products other than tobacco may be distributed in Colorado, California, Washington state and similar places? Are the aluminum pods simple enough the users may fill their own with empties or refills which are not yet known to be available.

In 2010, in the US, the personal-vaporizer market was too small to measure. As of June ’13 it represented 5-6% of adult nicotine users. The market is still smaller than those who chew or use snus and do not smoke, 11-12%. The vaping market is larger than those who assemble their own cigarettes which is under, possibly well under, 2%.

The following is a list of electronic-cigarette-system brands distributed in the US with no known connection to tobacco companies. These names are provided in the interest of displaying the breadth of this industry. Research on these companies is beyond the scope of this paper. This list is not comprehensive.

South Beach Smoke, Eversmoke, Green Smoke, SmokeTip, Prosmoke, V2, Vapor4Life, Apollo Cig, Cirrus, Ozone Smoke, Njoy, Eversmoke, Premium, White Cloud, Pure, Eluna, Bull Smoke, Volcano, Smokeless Image, Bedford Slims, Vapor King, EonSmoke, Zero Cig, Cloud 9, eSmoke, Firebrand, SafeCig, SmokeStik, Victory, Smoke 51, Nutricigs, ProSmoke, NikStick, Revolver, Crown Seven, M9, Noble, Vapor Couture, Frii, Square, NeverLightAgain, Metro, Krave, EZ Smoker

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