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Wells Fargo Determines Electronic Cigarettes a Promising Industry

Date Posted: May 29, 2012

According to a survey by the Wells Fargo Securities Tobacco Talk, electronic cigarettes just might stand a fighting chance in the tobacco industry. Retailers and wholesalers alike are thoroughly impressed with the e-cig product and even more with their revenues.

While the business waits for regulation from the Food and Drug Administration, sales have skyrocketed up to $350 million, so far. Murray Kessler, CEO of Lorillard, Inc., says that, with very little effort, the industry is predicted to earn over $1 billion in just a few short years. Since the United States government has yet to establish a tax on electronic cigarettes, these electrical devices are currently the cheapest option, when compared to buying a pack of cigarettes.

Recently, Lorillard Inc. became the first of the three largest companies in tobacco to acquire an electronic cigarette manufacturer, with the purchase of Blu e-cigs for $135 million.

“We continue to believe [Lorillard's] e-cig acquisition is very positive and expect [Reynolds American] to be the next mover into this growing category, most likely organically, but we wouldn’t rule out a potential acquisition,” says Bonnie Herzog.

Herzog believes the massive growth experienced by the e cig industry is remarkably similar to the boom of another profitable consumable—energy drinks. “We think e-cigs are to tobacco what energy drinks are to beverages. In other words, similar to energy drinks, e-cigs are profitable, growing quickly, gaining shelf space and consumer acceptance; therefore e-cigarettes are an important new niche category for retailers.”

Herzog predicts that, as expansion continues and the FDA finalizes ground rules for electronic cigarette manufacturing, some consolidation is expected to occur among the myriad of brands currently on the market.

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