Investment Dollars and the Electronic Cigarette

woman smoking electronic cigaretteIf high sale figures are any indication that electronic cigarettes are going to stick around for the long-term, the current boon of dollars glutting the electronic cigarette industry suggests that they might exist forever. From the time the first Surgeon General’s warning regarding tobacco use and health problems hit the airwaves in 1964, to the recent announcement by CVS that it will no longer sell tobacco products in its stores the tobacco industry has seen an ongoing and general decline in sales and use of tobacco in the United States.

Enter the electronic nicotine delivery system or electronic cigarette.

While it’s still new, electronic cigarettes command attention — in large part because tobacco use in the United States has stalled and decreased. Based on the piles of venture capital it’s collecting — including investments by Big Tobacco — it looks as though electronic cigarettes may be poised to become the way nicotine lovers get their tobacco-less fix in the future. Here is a closer look at some of the money flooding the electronic cigarette industry and what it might mean.

Sean Parker

The co-founder of Napster and first president of Facebook has thrown his hat into the electronic cigarette investors’ ring. A member of a group of investors who have given $75 million to a leading electronic cigarette company, this money is increasing regulatory interest in e-cigarettes, while simultaneously increasing interest on the part of other venture capitalists. While Sean Parker isn’t a guarantee regarding investments, he has been at the cutting edge of a number of important technology driven enterprises, so his involvement in e-cigarettes has not gone unnoticed.

Big Tobacco

woman chooses an electronic cigaretteMaybe it’s because they want to cover all their bases; maybe it’s because they want to ensure that they have some control over  the domain in the coming years; maybe Big Tobacco doesn’t think the future looks as bright as it once did for tobacco sales; or maybe it’s because U.S. sales of electronic cigarettes and cartridges are projected to rocket past $1 billion in 2014. Regardless of their motivation for doing so, one big player in the e-cigarette investment scene is Big Tobacco, and while electronic cigarettes only generate about one percent the revenue enjoyed by Big Tobacco, the fact that they’ve tossed a few dollars that direction is a sure sign they’re paying attention.

Regulatory Concerns and Scrutiny

As e-cigarette makers continue to grow their market, investors — whether they’ve invested capital or not — are still heavily scrutinizing the electronic cigarette market, especially regarding regulatory concerns. The Food and Drug Administration has not played a very active role in the regulation of electronic cigarettes, and with over 250 different e-cigarette brands available to consumers in the United States, it’s clear that regulation needs to enter the picture, and soon. The question is simply what that regulation is going to do — a question that concerns users, companies, investors, researchers and more.

Predictions About Future Sales

It’s hard to know the exact future of anything, let alone a new product and industry like the electronic cigarette. That being said, the market share has grown since first introduced in the United States market back in 2007. While there has been some backlash regarding the electronic cigarette (for instance, Chicago recently passed an indoor vaping ban), this year’s earnings in the United States alone are expected to exceed $1 billion. While regulatory changes, taxes and the like could certainly cut into the viability of the electronic cigarette market, until that happens it’s impossible to predict what will come. For investors, risk is still a major factor, but income is, too. Only time will tell which will win out.

 

For investors seeking an emerging, but lucrative market, the electronic cigarette may prove to be something of a godsend. While regulation has yet to catch up to the market share, the market share is large, and it certainly looks like it is increasing. If venture capital is any predictor of future success, e-cigarettes have a long life ahead of them.

 

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