L.A. Council Approves Restriction of E-Cigarette Industry

The Los Angeles City Council voted to join New York and Chicago in banning the use of electronic cigarettes in workplaces, restaurants and many public areas, threatening the growth of an industry segment that reached $1.5 billion in sales last year.

By a vote of 14-0, the council of the second-most-populous U.S. city approved the measure to treat so-called e-cigarettes the same as conventional tobacco products, which California has restricted since 1995. If Mayor Eric Garcetti signs the legislation, the ban would take effect a month later. Garcetti spokesman Jeff Millman said the mayor will sign the measure.

Sales of e-cigarettes reached $1.5 billion in 2013, according to Bloomberg Industries analyst Kenneth Shea, as established industry players including Altria Group Inc., Lorillard Inc. and Reynolds American Inc. marketed the products as safer, tastier alternatives to smoking. Local and state limits on e-cigarettes, which are shaped like conventional cigarettes and vaporize a liquid containing nicotine and flavorings, may curb the growth of the segment, said Cynthia Cabrera, executive director of the Smoke Free Alternatives Trade Association, an electronic cigarettes industry group.

‘Very Rapidly’

“We’re opposed to such restrictions, primarily because e-cigarettes don’t contain tobacco and they don’t emit smoke,” she said by e-mail. “These bans have the potential to stifle the growth of the category. It’s an industry that’s expanding very rapidly, offering smokers an alternative to combustible cigarettes, and by our estimation, creating close to 100,000 jobs in the process.”

City Council President Herb Wesson, a smoker himself, said he opposes any product that may induce people to use tobacco. E-cigarettes may be a gateway to smoking, Wesson said.

“I will not support anything that might attract one new smoker,” Wesson said during debate on the measure. “I can’t sit silent on this. This kills. It probably will kill me, ultimately.”

The restrictions in Los Angeles, New York and Chicago are score political points without benefiting public health, said Miguel Martin, president of Logic Technology Development LLC, the second-largest independent e-cigarette company in the U.S. Localities should wait for the U.S. Food and Drug Administration to weigh in on electronic cigarettes, Martin said in an interview before the council vote.

“I find it odd that everybody looks to the FDA for guidance on everything else, but because it’s politically expedient, they don’t on this,” Martin said.

Quitting Smoking

The drive against e-cigarettes is motivated by hostility toward the tobacco industry and encouraged by pharmaceutical companies that sell nicotine-delivery systems to people trying to quit smoking, said Jason Healy, president of Lorillard’s Blu eCigs unit. Lorillard, the third-largest seller of cigarettes in the U.S., based in Greensboro, North Carolina, bought Blu in 2012 for $135 million in the first foray by a major cigarette maker into the electronic market.

“There is an inherent hatred of tobacco cigarettes, which has been earned -- fair enough,” Healy said by telephone. “People are trying to make us out as a wolf in sheep’s clothing. We’re a sheep in wolf’s clothing. Ninety-nine percent of our customers are existing smokers.”

E-cigarettes are projected to represent about $1.8 billion of the $80 billion U.S. tobacco market this year, according to research by Bonnie Herzog, a Wells Fargo Securities analyst. Last year’s $1.7 billion in sales were about double the 2012 total, she said.

Regulatory Limbo

Despite the segment’s growth, it remains in a state of regulatory limbo, with no oversight from the FDA or the Bureau of Alcohol, Tobacco, Firearms and Explosives, said Kathleen Hoke, director of the Legal Resource Center for Tobacco Regulation, Litigation and Advocacy at the University of Maryland.

North Dakota, New Jersey and Utah already include e-cigarettes in their bans in indoor smoking in public places, she said, while other states have passed laws against the devices on public-school property. New York City added e-cigarettes to its public smoking restrictions in December, while Chicago took the same step in January.

“This is a precursor to changing state laws,” Hoke said in a telephone interview. “A lot of businesses are doing this on their own. People are accustomed to clean air in public places or workplaces, so this is kind of an extension of that, even though people don’t know what’s inside these electronic cigarettes.”

Before it's here, it's on the Bloomberg Terminal.