Back in April, I asked if E-Cigarettes would relight Big Tobacco’s prospects.   I had my doubts.

bogart_casablancaE-cigs seemed to be a more pleasurable version of a nicotine patch: something that an existing smoker might switch to for health reasons but not exactly an attractive or glamorous product for someone who doesn’t already smoke.  (Humphrey Bogart would not have been as cool in Casablanca with an e-cig dangling between his lips.  This is an indisputable fact, not an opinion.)

It certainly made sense for Altria ($MO), Reynolds American ($RAI) and the rest of Big Tobacco to get in on the action; it’s better to extract a little more revenue from defecting cigarette smokers than to lose them altogether.

But investors should be realistic about the potential for e-cigs to make Big Tobacco a growth industry again.  It’s not going to happen.  Though there are hundreds of millions of tobacco users worldwide (the World Health Organization puts the number of tobacco users at over 1 billion), public health campaigns, legal restrictions, and changing consumer tastes have put cigarette smoking in terminal decline in the developed world.  As a sobering (no pun intended) case in point, American teenagers are more likely to use illegal drugs than to light up a cigarette.

Perhaps most damaging, new “plain packaging” rules are directly assaulting the single most valuable assets of Big Tobacco companies: their brands.

In Australia, all cigarette boxes look identical, regardless of brand: plain white boxes with the brand name written in a uniform font, size, and placement.  Oh, and the same graphic photos of people dying of lung cancer on the back.

Similar rules are being considered in Canada, India, the UK and the European Union.  Big Tobacco is fighting it tooth and nail on trademark and intellectual property grounds, and I consider their objections valid.  But the assault on branding seems to be the next front in the ongoing war of attrition between public health advocates and Big Tobacco, and if history is any guide, the public health advocates will win.

This brings me back to e-cigarettes.  Altria is jumping into the e-cig market with a new product under the brand name Mark Ten.  Nowhere on the packaging will there be any prominent mention of Altria or its best-known brand, Marlboro.

I’m left scratching my head here.  There are over 250 e-cigarette brands currently on the market.  While I don’t see a smoker paying a large premium for a Marlboro-branded e-cig, I would certainly expect them to gravitate to a brand they already know.  In failing to use the Marlboro name, Altria seems to be neutralizing its single biggest strength: a consumer brand that is behind only Coca-Cola ($KO) and Anheuser-Busch InBev’s ($BUD) Budweiser in name recognition.

This would be tantamount to calling Diet Coke “Healthy Pop” and leaving all mention of the Coke brand off the can.  It’s madness.

If Big Tobacco is wanting to start fresh with new branding because of the toxic association between the existing brands and those filthy, old traditional cigarettes, they are wide off the mark.  Their market is existing smokers, not nonsmokers.  Unless they brand e-cigs as “portable flavored hookahs” or something with novelty appeal, it’s hard to imagine this product appealing to a young, unbiased consumer.

And this actually brings me to a related topic.  I noted last month that marijuana stocks were a terrible investment.  The companies engaged in legal production and marketing are small, poorly capitalized, and not likely to still be in business five years from now.

But as the legal regime surrounding their product continues to be relaxed, there may be room for a large, well-capitalized company to sweep in and take over the market.  Big Tobacco’s massive production and distribution machine could be easily tweaked to sell packaged marijuana cigarettes—which could be branded under familiar brand names such as Marlboro or Camel.

A lot of Americans would be put off by this, of course.  Fully 49% of Americans are against marijuana legalization for very valid reasons.  But the question Big Tobacco needs to ask is this: can their reputation get any worse than it already is?

Big Tobacco is already a pariah industry under constant attack.  What would they have to lose by marketing marijuana cigarettes in Colorado and Washington?  It’s hard to see a loyal cigarette smoker kicking the habit because “their” brand has now been tarnished by tie-dye wearing hippies.

At any rate, if Big Tobacco is going to continue to be a good investment for its shareholders, management needs to focus on leveraging their core brands.  The alternative is to slowly fade away.

4 Responses
  1. Intelligent Investor

    I think you are wrong with the e cigarette side of your argument. E cigarettes have already and are poised to grow 25%+ plus over the next 5 years annualized. As traditional cigarette users are ostracized because of their habit why wouldnt they turn to a cheaper, safer, healthier alternative?

    I think as you mention coolness plays a role to a certain degree but being able to actually enjoy your cool habit, in public, in a cheaper manner without getting lung cancer is much more desirable.

    Why would the 3 big tobacco companies waste time advertising, manufacturing, and selling a product they think will not sell? Makes no sense. These are share holder friendly companies with smart management. Why take a flyer now?

    The advantages of e cigs are many.

    1. TV advertising is allowed as they are not traditional tobacco products

    2. The FDA has yet to regulate them, they will I’m sure but how will negatively regulate something that cannot give you lung cancer and has no odor? How bad can you make water vapor out to be? People aren’t stupid.

    3. Now that the Big 3 are in how hard will the FDA come down on e cigs? What angle will they take? Medicines? Maybe but don’t expect that anytime soon. UK said they will regulate in 2016. That’s 3 years from now. Secondly why regulate something that isn’t popular or gaining popularity….or is it?

    4. E cigs are not included in the Tobacco Master Settlement thus advertising will not be restricted and to this point non existent. Don’t think playing e cig commercials at the Superbowl half time show…”Mark ten…by the makers of Marlboro” isn’t valuable airtime/market. Probably has the big Tobacco companies salivating.

    5. Why wouldn’t doctors endorse e cigarettes? If you patient already smokes cigarettes and wont quit, why not have them smoke a healthier alternative? Im a physician myself. Id love to see the angle someone takes on this not being healthy.

    Again I agree with the name change but what if the Big 3 do not want their name associated directly with the e cigarette? Brand loyalty plays a role but research has shown so far that the authentic taste of each cigarette brand cannot be replicated at this point anyway. What use is there to sell a “Marlboro” e cigarette when it doesn’t taste like Marlboro? Secondly for advertising purposes I believe we may come to find that e cigarettes are able to be actively marketed with little restriction. With big tobacco knowing this why jeopardized the opportunity associating it with a product that cannot?

    I would encourage you to rethink your position on the subject and also look at VPCO as an investment option. It is currently the only public pure e cigarette company and currently holds a 16% market share position.

  2. Hello friends… I was also a smoker but now a days I am using E cigarette for smoking and believe me there is no difference between them like both looks the name. Main difference is that it do not produce smoke and it is safe. So I suggest all my smoker friends to quit normal cigarette and start smoking with E cigarette.

  3. I have smoked for 25 years, I have tried to give up smoking for nearly as long. I have tried everything from hypnotherapy, patches, tablets, lozenges, inhalators basically everything and anything that was available but none of them worked to ease the craving enough for me to stop smoking. In desperation I started researching e-cigs, I bought my first ecig and 24mg liquid on the 24th of August 2012 and that was the very last time I smoked a cigarette. My 30 to 40 a day habit was stopped dead right there and then. My partner continues to smoke around me but I have not the slightest urge to have a cigarette. My health is better, I no longer cough up my lungs in the morning, I have put on a little bit of weight but nothing to panic about, my skin is better, I am no longer breathless, I could go on and on about the benefits ecigs have had for me. I am addicted to nicotine and if ecigs are regulated out of existence I will have no other choice but to start smoking again. For more ego c electronic cigarette

    This move to make proven killers more avaible to people like me than a vastly safer alternative is highly immoral. It is being carried out in the name of big tobacco and big pharma who stand to loose money because people like me are no longer buying their products or being treated by them due to the side effects of smoking…the whole thing stinks!

  4. john toney

    I would say pure Information. I am smoking form 35 years but, I want to leave smoking. I started searching how to quit my habit which I am resonant from many years. Than Thanks God I found ego ecig that benefit me a lot to shrink down my smoking consumption. for more info: ego c electronic cigarette

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