Why E-Cig Makers Put Up Large Warnings On Their Packs

Big tobacco companies are usually not fans of heath warnings on cigarette packs. We have written earlier on how Philip Morris (NYSE: PM) is dragging the Uruguayan Government to court after they passed legislation mandating the display of large warnings on cigarette packs. (See Philip Morris’ Uruguayan Lawsuit) It turns out that in the U.S., tobacco companies that have diversified into e-cigarettes are voluntarily putting up large warnings on e-cig packs. ^[1]

In this article we examine the causes and consequences of such behavior. Our argument will be that there are two reasons for it. The first one is the desire to prevent attrition of tobacco smokers to e-cigs by portraying e-cigs as harmful. Secondly, such voluntary efforts at social responsibility increase the pressure on smaller manufacturers to follow suit as the government amps up regulation. This can help consolidate the e-cigarettes industry faster as smaller players either shut down or get bought out.

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The Warnings

Altria Group (NYSE: MO) competes in the e-cigarettes market with its MarkTen brand, manufactured by its subsidiary Nu Mark. Warnings on packs of MarkTen inform consumers that nicotine is addictive and habit forming. They also comment on the toxic nature of nicotine which necessitates its isolation from the human body, whether against inhalation or swallowing. Altria rival, Reynolds American has also put up similar warnings on its packs. Consumers are warned against using e-cigs if he/she is suffering from one or more of several diseases such as heart disorders, blood pressure, diabetes, asthma and depression. ^[1]

Preserving The Tobacco Market And Moving The Next Generation To E-Cigs.

The diseases listed earlier affect older people disproportionately. The interesting thing is that traditional tobacco based cigarettes have no such warnings on their packs. They contain only a warning to avoid the use of cigarettes during pregnancy. ^[1] Hence, the incentive for regular tobacco smokers to move away from tobacco is reduced. This is due to lack of sufficient health warnings on tobacco products and the presence of big health warnings on e-cig packets. On the other hand, the health warnings on e-cigs cater mostly to older people, and do not deter young people smoking them.  Moreover, research shows that young people who use e-cigs are more likely to shift to tobacco based cigarettes. ^[2] So this becomes a win-win situation for big tobacco firms, as they get to keep their tobacco consumers while recruiting new users through e-cigarettes.

Threat Of Substitute Products Haunts Big Tobacco

A type of refillable cartridge based e-cigarettes, whose use goes by the name vaping, has found greater popularity among those trying stop smoking tobacco. As of March 2013, there were 2.5 million people in the U.S. using such products. ^[3] The market size for such products has been estimated at $2.2 billion. ^[4] The product has experienced significant increase in sales at small stores, some of which are start-ups and others mom and pop stores. ^[1]

Tobacco companies have been accused of getting the smaller players and other technologies to close down by characterizing e-cigarettes as harmful. Voluntarily displaying large health warnings may induce the government to strengthen regulation, making the costs of compliance of smaller manufacturers increase. This will reduce their profitability and make them an easier buyout target. Some tobacco companies have also lobbied the FDA to make vaping illegal, claiming the components for vaping products were made without the necessary quality checks in offshore locations such as China. ^[1]

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1. E-Cigarettes Warning Creates Controversy [↩] [↩] [↩] [↩] [↩]
2. E-Cigarettes A Gateway Drug For Children [↩]
3. By The Numbers [↩]
4. New Estimate Doubles The Size Of U.S. E-Cigarettes Markets [↩]