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Big tobacco eyes new profits in e-cigarettes

Big tobacco eyes new profits in e-cigarettes

Cigarette makers are investing in these anti-smoking products

January 10th, 2013 by Mark Huffman of ConsumerAffairs in News

Every year people stop smoking. This months millions of consumers will resolve to kick the habit and many will succeed. Bad news for tobacco companies, right?

Not necessarily. Big tobacco can see which way the wind is blowing and has found a way to cash in on the anti-smoking campaign. Increasingly, tobacco companies are taking interest in the e-cigarette phenomenon.

E-cigarettes are electronic devices that look just like a tobacco cigarette. Instead of burning tobacco, however, they vaporize a substance containing nicotine. The smoker inhales the vapor, just as he would smoke. It reportedly provides the same satisfaction as smoking and allows smokers to give up cigarettes.

Tobacco companies offering e-cigarettes

In 2012 Lorillard Tobacco purchased the Blu brand of e-cigarettes and RJ Reynolds is said to be producing its own brand of e-cigarette. The strategy is simple; as tobacco companies lose cigarette smokers they gain new e-cigarette customers.

In an interview with CNBC, Wells Fargo analyst Bonnie Herzog said e-cigarettes produced as much as a half-billion dollars last year and will likely double this year.

Ironically, government could end up the big losers as smokers abandon cigarettes and move to e-cigarettes. Cigarettes are heavily taxed, to discourage people from smoking. Much of the cost of a pack of cigarettes goes to state and federal governments.

Untaxed and unregulated

But e-cigarettes are currently untaxed and unregulated. As more consumers stop buying cigarettes and start smoking e-cigarettes, tax revenue will fall. Minnesota is currently the only state to have taken action to tax e-cigarettes but other states are likely eying a similar move.

Meanwhile, anti-smoking groups and health advocates have turned their attention to e-cigarettes, warning they are not without harm. In 2010 researchers at the University of California, Riverside evaluated five e-cigarette brands and found design flaws, lack of adequate labeling and several concerns about quality control and health issues.

They conclude that e-cigarettes are potentially harmful and urge regulators to consider removing e-cigarettes from the market until their safety is adequately evaluated. Last year Greek researchers at the University of Athens said consumers switching to e-cigarettes may still be harming their lungs.

Marketing claims

Meanwhile, marketers of e-cigarettes have also drawn the attention of officials in California and Oregon. In 2010, California sued the Florida-based electronic-cigarette retailer Smoking Everywhere for making what officials said were "misleading and irresponsible" claims that electronic cigarettes are a safe alternative to smoking. The state also claimed the company has targeted minors with its marketing.

A year earlier the state of Oregon filed two settlements that prevented two national travel store chains from selling "electronic cigarettes" in Oregon.

But for now e-cigarettes remain unregulated, thanks to a federal appeals court ruling that said the U.S. government may not block the sale or import of electronic cigarettes, which the Food and Drug Administration (FDA) calls dangerous, unregulated products.

The U.S. Court of Appeals for the District of Columbia ruled the FDA doesn't have the authority to outlaw the product if it is not being sold for therapeutic purposes.