Reynolds American Inc., the second-biggest U.S. cigarette maker, has begun limited distribution of its first electronic cigarette under the Vuse brand as part of the industrywide push to diversify beyond the traditional cigarette business. Rival Lorillard Inc., the nation's third-biggest tobacco company, acquired e-cigarette maker Blu Ecigs in April.
Electronic cigarettes are battery-powered devices that heat a liquid nicotine solution, creating vapor that users inhale. Some e-cigarettes are made to look like a real cigarette with a tiny light on the tip that glows like the real thing.
First marketed overseas in 2002, e-cigarettes didn't become easily available in the U.S. until late 2006. Now, the industry has grown from the thousands of users in 2006 to several million worldwide, with tens of thousands new e-smokers every week. Analysts estimate sales could double to $1 billion in 2013.
Devotees tout them as a way to break addiction to real cigarettes. They insist the devices address both the nicotine addiction and the behavioral aspects of smoking — the holding of the cigarette, the puffing, exhaling something that looks like smoke and the hand motion — without the more than 4,000 chemicals found in cigarettes.
But the Food and Drug Administration says the safety and efficacy of e-cigarettes have not been fully studied. The federal agency has said it plans to regulate e-cigarettes but that timeline has been a moving target.
In a conference call with analysts on Tuesday regarding the company's fourth-quarter and full-year earnings, CEO Daniel Delen discussed the e-cigarette market.
QUESTION: "Setting aside the regulatory issues, how do you see the category developing and is there any sign of the category at this point eroding or encroaching on the traditional cigarette volume, or is it just too small to matter?"
RESPONSE: "I think we're quite bullish about the category in terms of obviously its growth rate, but also what can be achieved in the future. ... We believe we have a product that offers a consumer experience that's closer to the smoking experience than anything out there. ... In terms of the impact on the traditional smoking category, the category's probably a bit too small to have a definitive view on that. But I think I'd be remiss to say that if that category continues to grow in line with expectations in the future, of course it will at that stage have a substitution effect with regular cigarettes."