Any week now, the U.S. Food and Drug Administration is expected to propose rules that could govern how and where electronic cigarettes can be sold. Hanging in the balance is a fast-growing and strategic market for this booming industry: the school yards of America.
E-cigarette use among middle and high school students doubled to 1.78 million of them in 2012, compared with the year before, according to a recently published report from the U.S. Centers for Disease Control and Prevention. Of that total, about 160,000 minors had never smoked traditional cigarettes. The CDC sees this as worrisome because health advocates fear e-cigarettes can be a gateway to traditional tobacco products. About 90 percent of adult smokers in the U.S. began puffing by the age of 18, according to the CDC, which relied on self-reported data from the 2012 National Youth Tobacco Survey for its findings.
E-cigarettes heat liquid nicotine to create an inhalable water vapor without the tar of normal cigarettes. For the moment, marketers operate with few of the regulatory limits that apply to tobacco companies such as Reynolds American (RAI) and Philip Morris (PM).
Although e-cigs now account for only 1 percent of U.S. cigarette sales, the market will approach $2 billion in sales by the end of 2013 and may exceed $10 billion by 2017, Bonnie Herzog, an analyst at Wells Fargo & Co. in New York told Bloomberg News. Demand for the smokeless devices could surpass that for traditional cigarettes over the next decade, according to Herzog.
Big tobacco player Lorillard (LO), which sells Newport and Kent brand cigarettes, now gets almost 4 percent of its revenue from its Blu e-cigarette line. The company’s stock has outperformed the broader S&P 500-stock index this year.
As things stand, nothing prevents e-cigarette makers from advertising the devices, unlike restrictions faced by traditional tobacco-product purveyors. Lorillard hired comedic actress and former Playboy model Jenny McCarthy to promote its Blu product.
While there are no conclusive medical studies as to the safety of e-cigarettes, the American Lung Association has expressed concern about potential health hazards, given the wide variation of chemicals in the 250 different brands for sale in the U.S.. The health advocacy group says that “in initial lab tests conducted by the FDA in 2009, detectable levels of toxic cancer-causing chemicals were found, including an ingredient used in anti-freeze, in two leading brands of e-cigarettes and 18 various cartridges.”
Aside from the upcoming FDA rules, a dozen states are also weighing whether to regulate and tax e-cigarettes—something the e-cigarette industry is lobbying against. “Our goal as an industry is to distinguish ourselves from cigarettes, and there’s a very important reason that we want to be defined, at the state level, not as a tobacco product,” Eric Criss, president and chief executive of the Electronic Cigarette Industry Group, told the Washington Post. “We believe the product is a good alternative, and the goal should be to move people down the risk ladder from cigarettes.”
Regardless of the future of e-cigs in middle schools, the devices are proving a big hit in the workplace.