Is Vaping About to Go up in Steam?

Is Vaping About to Go up in Steam?

Mankind has found various ways to smoke nicotine for thousands of years…

But widespread concern about the health hazards of smoking didn’t proliferate until the late 20th century when the clear link between serious health problems and smoking modern cigarettes (with their added chemicals and toxins) finally became accepted.

In response to these health concerns, Chinese pharmacist and smoker Hon Lik went straight back to the drawing board. He devised a way to get his nicotine fix sans cigarette while still experiencing the feel of smoking.

Thus, the modern electronic vapor cigarette was born.1

That was back in 2003. And it wasn’t long before these vapor cigarettes, or vapes, started showing up everywhere… so much so that in 2014, the term “vape” was chosen as the Oxford English Dictionary’s word of the year.2

Many of the early adopters were smokers hoping to mitigate the dangers of actual smoking and perhaps even wean themselves off of nicotine altogether.

A study commissioned in the U.K. showed that 33% of people taking up vaping were hoping to quit smoking, and 11.5% were ex-smokers using vapes to help them stay on the wagon. Initially, 10% of people who admitted to vaping were curious minors who wanted to give the new trend a go.3

Big Business

Vaping quickly became a big business with the addition of a limitless choice of teen-pleasing flavors and ever-evolving hardware to vape with. Of note is the diminutive Juul product that looks almost like a flash drive — a favorite among minors who want to keep their vapes under the radar. Seeing an opportunity, vaping hitched its wagon to the piercing and tattoo industry and quickly exploited a ready-made retail distribution market and customer base.

The BBC reports that there were an estimated 7 million people vaping in 2011 and that the number grew to an astounding 41 million in 2018. And with an estimated upward growth in the trend expected to continue to 55 million by 2021, there’s no slowdown in sight. The global market for vaping products has grown to over $19 billion annually, and savvy investors have been taking notice.3

Investors began to inquire as to how they could invest in vape stocks and get in on a trend that was once projected to expand to $50 billion per year by 2025.4 The promise was so great, in fact, that Big Tobacco companies such as Philip Morris and R.J. Reynolds started buying out e-cigarette companies or offering their own vaping products to offset any market losses from smokers trading in the cigarette habit for vaping.

Nicholas Rossolillo of The Motley Fool cautioned investors against getting too excited about vape stocks in 2017.4 In part, he cautioned, investing in the vape business was essentially investing in big tobacco, which itself was temporarily inflated because of their own positioning in the e-cigarette market. Further, he advised that there were health concerns on the horizon that could impact the industry.

Serious Health Concerns

As if on cue, social media became flooded with stories of people — largely healthy young adults — falling suddenly ill with a mysterious lung disease. It hit quickly, and victims went from being healthy to hospitalized in a matter of days, many of them spending weeks on life support. Multiple cases ended in death or long-term lung damage, and images of teens and young adults tethered to oxygen tanks flooded the news.

This divided concerned parties into two camps: Some feel that anything that helps people give up cigarette smoking is, on the whole, a good thing. Others question whether this relatively new practice holds hidden and unanticipated dangers. After all, the trend is very new and there’s no way to know what long-term effects vaping may have…

Considering the serious (though rare) nature of the recent rash of illnesses, the concern seems valid.

By November 2019, 2,290 cases of lung disease and 47 deaths were reported to be linked to vaping in the U.S.5 Investigations continue as to what exactly is causing these frightening outcomes — some posit that the vitamin E acetate oil used in some vaping formulas is to blame.

Another possible cause and concern that may be at the root of bad outcomes is the use of THC products, whether in prepared cartridges or in open-tank e-cigarettes that allow users to fill their own tanks with whatever they’d like to vape. In fact, many THC cartridges contain the suspect E acetate, and most people who have become ill admit to having used some form of THC in their vape.

“The consequence of this panic [about vaping] is that people will go back to smoking and die as a result,” says Martin Dockrell, the tobacco control program director at Public Health England. He adds that smoking kills 220 per day in the U.K. alone, supporting the argument that despite any health panic surrounding vapes, they are still a better option than traditional cigarettes.6

The Lesser of Two Evils?

According to the CDC, there are 480,000 deaths per year in the U.S. due to cigarette smoking, and an additional 41,000 linked to secondhand smoke… arguably making current vaping concerns small potatoes.7

Regulation of e-cigarettes fell under FDA authority in 2009, but it wasn’t until 2016 that sales to minors were outlawed. In November 2018, the FDA announced regulations that limited vaping flavors to tobacco, menthol and mint, in a further bid to discourage minors.7

Up in Smoke or Full Steam Ahead?

Investors remained bullish on vapes despite these regulations, as evidenced by Big Tobacco player Altria’s purchase of 35% of Juul’s shares after it had voluntarily pulled its flavored products from the market. Investors saw this as a move of confidence on the part of Big Tobacco and an expectation that the industry will ride out regulatory limitations and health scares.8

In addition, President Trump appears to be softening in his view of regulations regarding vaping. He fears a Prohibition-era scenario in which “If you don’t give it to them, it is going to come here illegally… They could be selling something on a street corner that could be horrible… They are going to have a flavor that is poison.”8 President Trump believes that the best step is to target enforcement efforts to preclude minors from buying vapes and suggests the minimum age for purchasing e-cigarettes and related products be bumped from 18 to 21.

In general, investors, aficionados of vaping and industry giants alike are optimistic about Trump’s new softened stance. They predict that the industry won’t be going up in smoke anytime soon. Still, the health concerns over vaping are valid, and no one knows the long-term outcome of either the physical health of those who vape or the financial health of those who invest in vaping stocks.

As is always the case, investors must weigh their beliefs about both a company’s moral and financial worth before they choose to buy their stock.

With purpose,

Patrick Gentempo

Patrick Gentempo