SHARE

Less vapers, more smokers

“We expect to see a continued shift in consumption of e-cigs/vapor back to combustible cigs as e-cig choices become more limited — a net ‘win’ for big tobacco.” envisions Wells Fargo Security in a recent publication.

Since August 8, 2016, a new regulation is imposed by the FDA to the vaping industry, in the wake of administrative constraints on tobacco products. Stifled by new costs of pre-market authorizations (PMTAs), the independent US vaping market should be severely slowed down in its development. In a context where the offer is reducing and the innovation frozen, Wells Fargo’s analysis predicts a steep decrease in the tobacco/vaping consolidation curve among american users.

Tobacco companies are well prepared

Altria Group 3-yr price performance (Source Wells Fargo Securities)


Not all contributors will be losers in this game. Big tobacco companies, already well positioned on the vaping market, should consolidate their position and increase their presence on this sector. With a market power strongly established on a dense and widely distributed network of selling points, a company like Altria that distributes Marlboro as well as the Cigalike MarkTen and, in the future, the heated tobacco product IQOS (expected release in the USA by the end of 2017, beginning of 2018), should see its turnover increasing in a new landscape, purged from the smallest businesses.

MarkTen, a Cigalike distributed by Nu Mark, a subsidiary of Altria (Marlboro)

Altria and Reynolds confirm being well prepared and deeply involved in the regulatory process with the FDA. Among working perspectives with the American Agency, a clarification of procedures, an opening to innovate, a change in the predicate date and a coherence in the “continuum of risk” in tobacco control are under study. This last point is a reference to an article of Mitch Zeller, director of FDA’s Center for Tobacco Products where he wrote: “Anyone who would ponder the endgame must acknowledge that the continuum of risk exists and pursue strategies that are designed to drive consumers from the most deadly and dangerous to the least harmful forms of nicotine delivery”.

Nanny state paradox in public health

Vuse, a Cigalike cmanufactured by Reynolds American Incorporated

While eradicating most of the independent manufacturers and of their innovative capacity, the FDA has paradoxically created a regulatory framework from which public health will likely not benefit, and gives the keys of harm reduction to big tobacco companies that can evolve in a pristine environment.

A springboard for Altria (Marlboro)

4 week retail share performance (Source Nielsen)

As indicated by Nielsen Data, Reynolds American’s VUSE (referred to as RAI) maintains its leadership in e-cigarettes above 35% versus 19.3% for nearest competitor Blu (Fontem Ventures, a subsidiary of Imperial Brands). However, Altria’s MarkTen XL (referred to as MO) continues to gain market share above 15%. The enthusiasm of investors for the Virginian company should reinforce as its IQOS, developed by the Swiss homolog PMI, shows excellent commercial signals and occupy up to 30% of the market by 2025.

The gloomy US vaping schedule

Since August 8, 2016, the new regulations have been enforced, vaping industries are not allowed to market new products or to update their existing products.

As of August 8, 2017 (substantial equivalence exemption filling deadline), vaping industries may request for PMTA exemption, claiming for substantial equivalence if they distribute products that have been sold before February 15, 2007 (predicate date) – applies to a minority of companies.

As of February  8, 2017 (substantial equivalence application filling deadline), vaping industries claiming for substantial equivalence will have to file an application to show that their new products are similar to a predicate product on the market before February 15, 2007.

As of August 8, 2018, all companies will be subject to new product application (PMTA). Estimates indicate considerable costs.


Beyond the Cloud: Take a journey into vaping to discover what is going on behind the scenes. A documentary film to be released on Youtube on September 25, 2016.