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.
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).
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