How Will E-Cigarette Regulation Impact The Tobacco Industry?

The market for smokable tobacco in the U.S. has been shrinking, as The Altria Group (NYSE:MO) has forecast that the number of smokers in the U.S. will decline at a rate of 2-3% per year. The short-term solution to maintaining revenues in the face of the declining market size has been price hikes. ^[1] In the long term, tobacco companies are banking on e-cigarettes to provide a boost. However, recent proposed regulations, as well as reports on the health impacts of of e-cigarettes and their use by teenagers, could foil those plans.

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Statistics On Teenage Smoking

When it comes to reducing teenagers’ use of tobacco, the results have been promising. Last year, only 8% of secondary school student respondents to a survey said they had smoked a tobacco cigarette in the prior month. This is an all-time low in the history of the survey, which has been happening since 1975. ^[2] This reduction has, however, coincided with a huge increase in the number of middle and high school students using e-cigarettes. Their numbers increased from 79,000 in 2011 to 250,000 in 2013. In all, over 263,000 teenagers who have never used a tobacco cigarette are reported to be using e-cigarettes. ^[3]

Health Concerns

The high levels of acceptance of e-cigarettes among teens is raising alarms for two reasons. Firstly, the health consequences of e-cigarette usage are not particularly well-understood at this point. While some reports suggest that the health concerns are not as severe as those of regular cigarettes, one report suggested that e-cigarettes may actually contain ten times the level of cancer-causing agents present in regular cigarettes. ^[4] Further, other studies show that they may act as a gateway to traditional cigarette usage.

New Regulation Could Impact Growth

Regulation of e-cigarettes on par with that of traditional cigarettes has been implemented in four states currently. Fourteen other states have prohibited them in specific venues, such as state agency buildings and public educational facilities. ^[5] Several other states are mulling such regulations. For example, New York Governor Andrew Cuomo has submitted a proposal to ban e-cigarettes everywhere traditional cigarettes are banned.

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1. Altria Q3 Earnings Analyst Conference Call [↩]
2. Why Do Teens Still Smoke [↩]
3. E-Cigarettes May Be A Gateway Drug [↩]
4. E-Cigarettes Ten Times Worse [↩]
5. U.S. State And Local Laws Regulating The Use Of E-Cigarettes [↩]