E-Cigarettes: A $1.5 Billion Industry Braces for FDA Regulation

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from Bloomberg Businessweek,

In its simplest form, an e-cigarette is a cartridge filled with a nicotine solution and a battery powering a coil that heats the solution into vapor, which one sucks in and exhales like smoke. Typically, it looks like a regular cigarette, except the tip, embedded with an LED, often glows blue instead of red. The active ingredient in e-cigarettes is the same nicotine found in cigarettes and nicotine patches.

The effects of inhaling nicotine vapor are not totally understood, but there is no evidence to date that it causes cancer. Experts and logic seem to agree that it’s a lot better than setting chopped-up tobacco leaves on fire and inhaling the nicotine along with thousands of combustion byproducts, some of which are definitely carcinogenic. Because cancer is the main drawback of smoking for a lot of people, the delivery of nicotine without lighting a cigarette is very attractive. And because it produces a wispy vapor instead of acrid smoke, an e-cigarette lets you bring your smoking back indoors, where lighting up in an enclosed space is no longer socially, or legally, acceptable.

Bloomberg Industries projects total e-cigarette sales could reach $1.5 billion this year. … competitors now include V2Cigs, NJoy, Vapor (VPCO), and Victory Electronic Cigarettes (ECIG), as well as the major tobacco manufacturers and hundreds of others.

Cigarettes are a global business that generates more than half a trillion dollars every year, according to data from Euromonitor International.

It all still represents a tiny fraction of what Americans spend on tobacco, but it’s pretty solid for an industry that barely existed five years ago.

A primitive, battery-operated “smokeless non-tobacco cigarette” was patented as early as 1963 and described in Popular Mechanics in 1965. In a way, electronic cigarettes were made possible by cell phones. The drive to make phones smaller and lengthen their battery life led to the development of batteries and equipment small enough to fit in a container the size and shape of a cigarette.

Since the Office of the Surgeon General warned of its dangers in the 1960s, smoking has declined dramatically and is quite rare among the U.S. middle class. That’s because of its health risks, but also because of the social stigma and inconvenience associated with smoking. With the exception of some hipsters, smoking is largely a lower-income phenomenon. “You may be establishing something you want to establish in your group, but it’s a pretty downscale group,” says Mark Kleiman, a professor of public policy at the University of California at Los Angeles.

A 2011 study published in the Journal of Public Health Policy concluded that “a preponderance of the available evidence shows [e-cigarettes] to be much safer than tobacco cigarettes and comparable in toxicity to conventional nicotine replacement products.” It also said there’s “reason to believe that they offer an advantage over traditional nicotine delivery devices.” The other main ingredients in e-cigarettes are what the FDA calls “generally recognized as safe”: glycerine, found in many foods, and propylene glycol, the main ingredient in theatrical fog.

Among the FDA’s most difficult decisions will be determining whether e-cigarettes will be a gateway product, encouraging young smokers to develop a nicotine habit that might lead to tobacco use. After all, many of the things that make e-cigarettes attractive to smokers make them even more attractive to minors. It’s actually pretty unpleasant to start smoking—it causes dizziness, it causes coughing, and it usually takes kids a while to learn to inhale—but anyone can inhale e-cigarette vapor on the first puff. And since e-cigarettes don’t have much odor, they’re harder for parents to detect.

The tobacco companies are also entering the market without any of their iconic brands, which tend to lose customers only when smokers quit or die. There’s no Camel or Marlboro e-cigarette. The Tobacco Master Settlement Agreement reached with state attorneys general in 1998 makes it tricky to use cigarette brands on other merchandise. Although some company will probably test that in the future, clearly no one’s feeling so bold yet. Doing without a major brand is a big handicap, particularly because the small companies have already spent years establishing a brand.

The more lightly the area is regulated, the better chance the upstarts will have of taking on Big Tobacco and winning.

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