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Two Conflicting E-Cig Predictions
Segment's future at center of CSP's latest "Tobacco Update"
By Melissa Vonder Haar
CSP Daily News | NEW YORK
For CSP's final "Tobacco Update"
CyberConference of 2013, UBS senior analyst Nik Modi and Swedish Match category director Joe Teller were both asked to make a "bold prediction" for 2013. Despite the fact that they could have made predictions on any issue facing the tobacco industry, both Modi and Teller's predictions focused on electronic cigarettes--although the two took different views on the nascent category.
While Teller expressed caution over the true potential of e-cigs, Modi's prediction was quite optimistic.
"The big prediction for me is the tax rate and the way that the government approaches this category is one modified risk," said Modi, a New York City-based analyst. "I just think it's the best thing for public health."
Nik Modi (left), Joe TellerWhile he was quick to admit he was not a public health expert, he said that he believes lawmakers will recognize that e-cigs clearly do not contain the same harmful chemicals found in cigarettes--and that the rate at which e-cigs are eventually taxed will reflect a modified risk product.
"You could start seeing a much lower tax basis for these products going forward," Modi said. "Which means the profitability will be much higher for all the players involved."
Which means e-cig companies could actually benefit from regulation, provided they are preparing for possible future regulations today.
"I think the big players that do things right are going to be in a good position because when all the [U.S. Food & Drug Administration] regulations come out, the standard is going to be very high," said Modi. "It's very important to understand who out there is already self-governing themselves, who out there has done the work on how to predict where they FDA may come out with some of these regulations and who is compliant already."
Such awareness is crucial for retailers to consider when selecting which e-cig brands to carry, as not every company will survive in a post-regulatory environment.
"The ones that aren't compliant could potentially see a much higher cost to do business, which could compromise their operations, their margins and their ability to actually supply retailers, Modi said.
Although Teller recognizes their potential, his bolder prediction focused on "some issues with e-cigs that maybe takes a little bit of luster off the category."
Portion control was a big concern of Teller's. With traditional cigarettes, a half-a-pack-a-day smoker can clearly recognize how much he or she has smoked, both by counting cigarettes and the weight and feel of the pack. As of yet, there is no such way to monitor e-cig consumption.
"It's hard to have portion control with these things," Teller said. "If you have an e-cig that's equal to about a pack, I don't know how you know when you've smoked enough. It should last you two days if you smoke half a pack a day, but you could sit there and smoke the whole thing without realizing it."
And while most smokers appreciate the fact that e-cigs so closely mirror the tobacco cigarette experience, complete with the visible vapor "smoke," Teller said that he believes such similarities could actually be a detriment to where and when people are allowed to use the product.
"One of the downsides to e-cigs--and almost all tobacco products have it--is the telltale signs of usage," he said. "The smoke, the smell, spitting in a cup in terms of smokeless tobacco: they all have that telltale sign. And if there's a telltale sign, there are people who will want to ban the use of it."
Teller cited North Dakota as the latest of many state and local governments to include e-cig use in their definition of smoking, meaning people are not allowed to consume e-cigs in areas where smoking has been banned.
"I don't know if that takes the shine off e-cigs--probably not," Teller said, ultimately expressing a cautiously optimistic view of the category. "I think it's going to be a nice compliment to the other tobacco categories. The new adult consumer likes to use multiple tobacco products. So I think there's a big place for e-cigs, snus and other products that haven't even come out yet. "
.Source: CSP Daily News
Are Electronic Cigarette Stocks a Healthy Investment?
LO, RAI, SFIO, VPCO & MFST A closer look as electronic cigarette (e-cigarette) stocks or players Lorillard Inc (LO), Reynolds American (RAI), Smokefree Innotec (SFIO), Vapor Corp (VPCO) and Medifirst Solutions (MFST).
By John Udovich SmallCap Network
So-called electronic cigarette or e-cigarettes offer the tobacco industry a potential source for growth with big tobacco stocks like Lorillard Inc (NYSE: LO) and Reynolds American (NYSE: RAI) already players in the industry while small cap electronic cigarette stocks like Smokefree Innotec (PINK: SFIO), Vapor Corp (PINK: VPCO) and Medifirst Solutions (OTC: MFST) are potential acquisition targets for tobacco stocks like Altria Group (NYSE: MO) (which is not yet active in the e-cig space) or as players in their own right. After all, electronic cigarettes, which are nicotine-infused, battery-heated tubes that create vapor rather than smoke, could go from being a $300 million industry right now to become a $1 billion industry in the next three years. Its also a highly fragmented market right now with a number of small (mostly privately held) players. More importantly, there are a few ways investors and small cap investors in particular can profit from the electronic cigarette revolution.
Traditional Big Tobacco Stocks That Make Electronic Cigarettes
Lorillard Inc, the third-biggest US tobacco company, was founded in 1760 – making it the oldest US tobacco company. Newport, Lorillard Inc’s flagship premium cigarette brand, is the top selling menthol and second largest selling cigarette in the US. In fact, Newport accounted for approximately 88% of Lorillard Inc’s sales revenue for 2011. However and in April 2012, Lorillard Inc acquired blu eCigs, a leading electronic cigarette company in the US, for $135 million and the move marked big tobacco’s first foray into the industry. blu eCigs had about $30 million in revenue last year and its products are sold in more than 13,000 retail outlets.
Reynolds American Inc., the second-biggest US tobacco maker, has also developed a “digital cigarette” using computer chips to replicate smoking a cigarette. Specifically, Reynolds American Inc.’s subsidiary R.J. Reynolds Vapor Co. is preparing to make a "big splash" after having a limited launch of its Vuse product earlier this year. However and in recent investor presentations, Reynolds American Inc.’s CEO emphasized that cigarettes are still the core focus and business for the company and he stated the company’s internal mantra of "80/90/90": 80% of RAI’s resources are still in the combustible tobacco space, 90% of its organizational resources focus on combustibles and 90% of the R&D budget is still centered on combustibles.
Small Cap Electronic Cigarette Stocks
Small cap investors might want to check out the following electronic cigarette stocks that could also be acquisition targets:
Smokefree Innotec (PINK: SFIO). A designer, developer, manufacturer and marketer of hi-tech, nicotine and non-nicotine cigarette-like delivery devices that are completely smoke and vapor-free and tobacco-free, Smokefree Innotec has not issued any press releases that I can find nor are there any financials available – just a basic website. Nevertheless and On Friday, Smokefree Innotec surged 60% to $0.0008 for a market cap of $316,700. However, Smokefree Innotec is down 27.3% since the start of the year and down 98.9% over the past five years.
Vapor Corp. (PINK: VPCO). A leading distributor and marketer of electronic cigarettes, Vapor Corp.’s brands include Smoke Fifty-One®, Krave®, Green Puffer®, Americig®, VAPOR-X® and EZ Smoker®. More specifically, Vapor Corp’s Personal VaporX XL vaporizer uses cutting-edge technology to discharge a smooth Liquid Herbal Formula into vapor so that you can “enjoy your favorite herb anywhere.” On Friday, Vapor Corp. rose 13.64% to $0.25 (VPCO has a 52 week trading range of $0.05 to $0.30 a share) for a market cap of $15.05 million, but the stock is down 7.4% since the start of the year and down 52.8% since early 2010. Vapor Corp says its business strategy is to leverage its unique ability to design market and develop multiple e-cigarette brands and then bring those brands to market through multiple distribution channels. In addition, Vapor Corp has recently reported that net sales for the nine months ended September 30 rose 33.3% to $16,844,097, but net income of $504,333 turned into a net loss of $634,285 namely due to tax issues.
Medifirst Solutions (OTC: MFST). A diverse holding company, Medifirst Solutions has three divisions: 1) The FHC advertising agency division; 2) The Florida Health Community website which is designed to be a medical directory with a social media component for users, and 3) The Miracle-cig which is a brand of disposable electronic cigarette. On Friday, Medifirst Solutions closed at $0.500 for a market cap of $3.26 million and its daily trading volume averages around 682 shares plus shares are down 98.3% since early 2009. Medifirst Solutions also has a going concern provision attached to its latest financials. As for its Miracle-cig, units sell for $9.95 with unit cost being about $2.50 per unit and the company has no manufacturing contracts as “dozens of manufacturers in China offer these products and there is little difficulty to purchase them.” Medifirst Solutions plans to increase sales using SEO and affiliate partners online with its target sales being 300 to 500 units per month online with the affiliate program that will increase to 500 to 1000 units per month when the company fully integrates with the Google search engine. In other words, there really aren’t any barriers to entry for what Medifirst Solutions is doing with the Miracle-cig.
For investors who are risk adverse but want exposure to electronic cigarettes as well as traditional cigarettes, big tobacco stocks Lorillard Inc or Reynolds American could be the way to go while more adventurous investors might want to skip over small cap electronic cigarette stocks like Smokefree Innotec and Medifirst Solutions and instead consider taking a closer look at Vapor Corp.
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John Udovich is a paid contributor of the SmallCap Network.
Recent news
Campaigns for E-Cigarettes Borrow From Tobacco’s Heyday
By STUART ELLIOTT
IT has been decades since American consumers could watch cigarette commercials, which once filled the airwaves with pitches for brands like Camel, Chesterfield, Kool, Lucky Strike, Pall Mall, Viceroy and Winston. Now, they can watch cigarette spots again, to an extent: the smokes being advertised are electronic rather than made from tobacco.
Marketers of e-cigarettes are introducing campaigns that echo the traditional appeals for tobacco cigarettes in both content and media placements.
For instance, the ads have catchy themes that could be deemed on a par with “I’d walk a mile for a Camel” or “Only Viceroy has a thinking man’s filter ... a smoking man’s taste.” Ads for Njoy King carry the theme “Cigarettes, you’ve met your match” and ads for Blu eCigs carry the theme “Rise from the ashes.”
Some e-cigarette ads feature celebrity endorsers, in the way that ads for conventional cigarettes once featured actors, athletes, doctors and even cartoon characters. The actor Stephen Dorff began appearing in October in a campaign for Blu eCigs, which was acquired this year by Lorillard, the maker of mainstay cigarette brands like Kent, Old Gold and Newport.
Commercials for Blu eCigs, as well as brands like Njoy King, are running on cable networks, in the same way that spots for tobacco cigarettes were once shown on the ABC, CBS and NBC broadcast networks. (Because e-cigarettes are not tobacco products, they are not covered by the longtime restrictions on using commercials to sell tobacco cigarettes.)
And while no e-cigarette has a jingle in its commercials in the way that consumers were once serenaded with tunes like “Winston Tastes Good Like a Cigarette Should” and “Be Happy — Go Lucky,” Njoy King is using the hit song by Foreigner, “Feels Like the First Time,” in its commercials.
Njoy Inc., which also sells e-cigarette brands like OneJoy, is introducing this week the campaign for Njoy King, with a budget estimated at $12 million to $14 million through the next six months. The campaign, being handled by several agencies, includes the commercials; ads in print, in stores and online; sampling; the Njoy Web site, njoy.com; social media; and events in clubs and restaurants.
The campaigns for the various e-cigarette brands are “going to increase awareness and trial” and “bring some excitement to the category,” said Bonnie Herzog, an analyst at Wells Fargo Securities in New York who follows the tobacco industry — and also, increasingly, the e-cigarette industry.
“Let’s just say, my phone is ringing,” Ms. Herzog said. “It is not a fad.”
“E-cigarettes are to tobacco what energy drinks were or are to beverages,” she added. “It is a small category that is growing very fast, embraced by retailers and consumers.”
Annual sales for e-cigarettes in the United States are at $500 million, compared with $100 billion for tobacco cigarettes, Ms. Herzog estimated. But as “e-cigarettes continue to evolve in technology,” she said, and as additional large tobacco marketers “jump in” the category, it can become a “game-changer.”
In addition to Blu eCigs and Njoy Inc., Ms. Herzog also follows e-cigarette makers that include Vapor Corporation, which sells brands like Fifty-One and Krave, and the Fin Branding Group, which sells Fin. Blu eCigs and Njoy Inc. are considered to be the sales leaders.
“Our No. 1 objective is getting this product into people’s hands,” Andrew Beaver, chief marketing officer at Njoy Inc. in Scottsdale, Ariz., said of Njoy King. \
“The more like the real thing” it is perceived to be, he added, “the more smokers get into the category.”
So the commercials describe Njoy King as “the first electronic cigarette with the look, feel and flavor of the real thing.” And print ads carry headlines like “The most amazing thing about this cigarette? It isn’t one.”
The commercials have been accepted by cable channels owned by Discovery Communications and Viacom, Mr. Beaver said, as well as local broadcast stations in markets like Chicago, Dallas, Los Angeles, New York, San Francisco and Seattle.
So far, no broadcast networks have agreed to carry the spots, he said, adding: “We applaud those cable networks and spot stations working with us to provide adult smokers an alternative to cigarettes, and our loyalty to them will be self-evident. Other networks have yet to see the light and until they do, they won’t see our money either.”
The Arcade Creative Group in New York, which is the creative agency for Njoy King, was asked to “let the product be the hero,” Mr. Beaver said, and “appeal to a broad audience of adult cigarette smokers, ages 21 to 45.”
Arcade, part of Sony Music Entertainment, was hired in June. “It was the first time in a pitch probably in my life that I ever favorably referred to my cigarette experience as a young guy” in the business, said Adam Owett, president of Arcade, who worked on Lucky Strike Lights and Carlton at the Daniel & Charles agency in the 1980s and gave up smoking around 1988.
“The way I’ve been thinking of it is as ‘The shock of the old,’ ” Mr. Owett said, in that “the classic cigarette ad cues and images have basically disappeared from the advertising and media landscape.”
“This is a modern take on how you’d introduce a cigarette,” he added, that ought to “grab the attention of the committed smoker.”
The other agencies working on the campaign include Horizon Media, for media services; Factory 360, for sampling; Sloane & Company, for public relations; and Forum Strategies and Communications, for public affairs and policy.
New synthetic nicotine could tumble big tobacco
When test group after test group of long term smokers found out that for the last 10 weeks they have been nicotine free…most could not believe it.
Nicotine is a highly addictive chemical substance that is derived from certain specific plants belonging to the flowering nightshade plant family named Solanaceae which acts as a stimulant in tobacco containing products such as cigarettes, chews, cigars and snuff. It may also be found in small quantities in eggplants, tomatoes, potatoes and green peppers but the tobacco plant is the nicotine king…until now.
Imaging being able to smoke any substance you want from flower petals to herbs and all you have to do to make it perform like a nicotine delivery device (cigarette) is spray a little totally synthetic nicotine (TSN) fluid on the rolling material and your nicotine addiction is satisfied, even with your homemade smoke. So say the folks at Natural Tobacco Additives, (NTAwebsite.com) who developed this pure organic nicotine confuser.
How it works
The metabolites of nicotine that accumulated in the body fluids are: nicotine isomethonium ion, nicotine glucuronide, nornicotine, nicotine N’-oxide, 2-hydroxynicotine and cotinine. Among these, cotinine is the major metabolite affecting the body by giving rise to unpleasant withdrawal symptoms which make it the hardest of addictions to get rid of. Usually a cigarette is found to contain around 1 mg of nicotine which means that just a pack of cigarette contains around 20 mg of nicotine, enough to cause great harm to the body of a chain smoker by its excess accumulation. The totally synthetic nicotine (TSN) replicates the effect of nicotine but with far less addictive properties. Quitting TSN smoking blends has also been tested and results demonstrate a significant lower stress level from test groups trying to stop tobacco smoking vs. TSN smoker trying to quit.
More about the tests and participants
Full flavor cigarette smokers for over 10 years
60% men with average age: 37
All test groups did have to follow a nicotine removal lifestyle which included:
•Drinking at least 4 glasses of water per day as it facilitates the process of detoxification including the flushing out of the nicotine substances by the pacing up of the metabolic activities in the body.
•Secondly, eating fruits containing Vitamin C, an efficient antioxidant which helps the body to get rid of toxins by metabolizing the drugs and flushing them out of the body.
•Thirdly, participate in regular physical activities and exercise which also helps the body to get rid of harmful products and helps to keep the body fit and healthy.
New Electronic cigarettes and smoke blends convert to TSN over Nicotine
Natural Tobacco Additives also manufactures e-juice for electronic cigarettes featuring TSN. With the growing popularity of electronic cigarettes, NTA will offer TSN non-nicotine replacement e-cigs in early February 2013, in advance of national distribution of the Hampton Smoking Blend, the first non-tobacco smoking blend featuring TSN.
(Hamptonsmokingblend.com).