For those who were not able to attend. It was a very good event! Lou Equity Research
Vaping State Of Mind-Quick Takes From Our Inaugural E-Cig Forum
- E-Cigs Revolutionizing Tobacco – Excitement was in the air today (11/21) at Wells Fargo Securities’ Inaugural E-Cig Forum in NYC. We gathered e-cig industry leaders as well as public health and regulatory experts to discuss trends/opportunities in this rapidly growing category. We came away with even greater conviction that e-cigs will be a game changer and eventually be margin enhancing to the tobacco industry. We reiterate our Overweight rating on the tobacco sector as we are increasingly optimistic on e-cigs.
- Continued Disruptive Innovation Needed to Propel the Category Forward – We hosted “fireside chats” with 10 e-cig companies; key takeaways include: (1) There is a vast opportunity for the category and it is only just getting started–we think there’s room for both responsible independents and Big Tobacco; (2) Companies are exploring international expansion–possible combinations or partnerships could be on the horizon; (3) E-cigs/vapor products are in the early stages of innovation–we expect meaningful and positive changes to come over next several months; (4) E-cigs margins said to be very attractive– rivaling those of combustible cigs with many companies moving towards the rechargeable/razor-blade model; (5) E-cig companies are differentiating themselves on both technology and branding; (6) Retailers and wholesalers continue to embrace the category given its attractive margins (~3x those of cigs).
- Public Health Panel Suggests a Huge Global Health Opportunity for E-Cigs Despite the Challenges of “Threading a Moving Needle”-David Sweanor, adjunct professor of law at the University of Ottawa, moderated a panel of industry experts including David B. Abrams, PhD, Clive Bates, and Jean-Francois Etter, PhD, to discuss current perceptions on public health risks and trends for the e-cig category. Key takeaways include: (1) E-cigs likely significantly less harmful than traditional cigs and offer a compelling alternative to smokers, which isn’t universally known among smokers since relative risk claims are not allowed; (2) Current studies on e-cigs are both insufficient and often misinterpreted, leading to a misunderstanding about the risks/benefits of e-cigs by both the public and legislators; (3) Ongoing innovation is needed to improve “experiential” aspects of e-cigs and convert more existing smokers; (4) Regulation must be thoughtful and allow for (rather than stifle) innovation and education of the public. Bottom Line – There appears to be a broad belief in the benefits of e-cigs and the vast public health opportunity.
- Regulators Must “Mind the Gap” of Differences Between Cigs and E-Cigs – Clive Bates, former head of ASH (Action on Smoking and Health) hosted a panel incl. Neil Wilcox (blu/LO), David Graham (NJOY), and Scott Ballin, JD. The panelists agreed regulation is good and necessary, but the regulation of e-cigs must be different than cigs. The panelists generally believe that Mitch Zeller understands this and were encouraged by his recent comments that regulation of all nicotine products should be comprehensive and based on a continuum of risk. Mr. Wilcox succinctly summarized the principals that he believed regulators should follow as: (1) Encourage robust research; (2) Employ rigorous quality standards; (3) Allow innovation to continue; (4) Ensure e-cigs are promoted to adult smokers only. Bottom Line – We believe there is an active, ongoing dialogue with relevant decision makers and believe forthcoming regulation could be an opportunity for e-cig manufacturers to better educate consumers and convert smokers.
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Beverage, Tobacco & Convenience Store Research
Wells Fargo Securities, LLC
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Phone: (212) 214-5051