E-cigarettes are now a billion-dollar industry. But, with the FDA considering fighting online sales, will it go up in smoke?
There’s a relatively new business that’s taking America by storm recently. And, though it’s caught the eye of regulators, is there a way for you to profit from it?
A recent report by Bonnie Herzog, Senior Analyst at Wells Fargo, estimates that electronic cigarettes (“e-cigarettes” or “e-cigs”) will have $1.8 billion in sales by the end of 2013. That’s 200% more than 2012. Herzog also expect sales growth to average 38.1% per year for the next ten years, bringing the anticipated yearly revenue in that market to $45.4 billion by 2023.
Herzog has modeled conventional cigarettes to lose revenues every year at an average rate of 5.1% for the next decade. At that rate, conventional tobacco will be $47.9 billion ten years from now, which is just $2.5 billion more than anticipated e-cig sales in 2023. Yet it’s the operating profits in the next decade that make this a particularly attractive industry. Should Herzog’s models be correct, e-cigs will have operating profits of $17.2 billion in 2023, more than twice that of conventional cigarettes in dollar terms.
And that’s drawing in old tobacco into this new frontier. The single biggest player in e-cigs right now is Lorillard, a company founded in 1760. It purchased the company blu cig in 2012 for $135 million. Lorillard’s blu has 37% of dollar sales. Not far behind is NJOY, with 32%. Altria (the parent company of Philip Morris) jumped in the act this past June by announcing its own e-cig brand, MarkTen.
Meanwhile, according to reports, the Food and Drug Administration is considering regulating online sales of e-cigs in an effort to prevent minors from purchasing them.
So, is there a way for you to play the e-cig market?
Answering that question on the fundamentals is CNBC contributor Gina Sanchez, founder of Chantico Global. And, looking at the charts of one tobacco company is fellow contributor Todd Gordon, founder of TradingAnalysis.com.
Will e-cigs light things up or will it just blow up in smoke? Watch the video above to hear where Sanchez and Gordon think tobacco and e-cigs are headed next.