Vaping: Big Tobacco's Big Gamble on the Future

This article, by Senior Editor James Ellis, and other articles about America's newest vice, are featured in Newsweek's new special edition, Vape Nation.

In 1888, George Eastman introduced the Kodak to the world, the first camera utilizing photographic film. The invention empowered anyone able to put down $25 to capture the world around them one picture at a time. A revolutionary innovation, Eastman's camera became the foundation from which the Kodak empire rose, a massive organization at one point commanding more than $10 billion in sales and tens of thousands of employees around the world. One of those employees, engineer Steven Sasson, came up with a breathtaking invention of his own in 1975: the first digital camera. In doing so, he helped seal his company's doom. As the decades marched on and the world grew accustomed to measuring the number of memories they could capture in terms of gigabytes instead of rolls of film, the corporate behemoth's grip on the industry slackened and by 2012 fell away altogether. Kodak, a name once as synonymous with its product as Kleenex is with tissues, found itself a historic curiosity beloved mostly by octogenarians and hipsters.

The tobacco and photography industries are as different as, well, cigarettes and cameras. But a fundamental truth cuts across all markets—those who fail to anticipate the future will find themselves stuck in the past. The invention and rise of e-cigarettes and vaporizers hasn't passed unnoticed by the industry responsible for humanity's nicotine consumption—Big Tobacco. Class-action lawsuits and changing cultural norms have torn the aura of respectability from the tobacco titans and quarantined their once ever-present advertisements to the pages of lifestyle magazines, cutting off the supply of fresh customers every business depends on to survive. But the rapid acceptance of e-cigarette and vaporizer use provides Big Tobacco the opportunity to rekindle the old fires once more—or snuff them out forever. Either way, tobacco companies have taken measures in recent years to both capitalize on e-cigarettes' popularity, and to mitigate whatever damage vaporizers might eventually bring on their traditional business.

One example of how tobacco companies have attempted to ride a vapor cloud to the future is the acquisition of popular e-cigarette companies. In 2012, Lorillard Tobacco Company acquired blu eCigs, one of the more popular e-cigarette companies in the industry, for $135 million (blu eCigs has since become the property of Imperial Brands, a British-based tobacco conglomerate, as a result of various mergers). Two years later, the e-cigarette world
was rocked by another purchase when Nu Mark, part of Altria Group Inc., (the parent company of Philip Morris International) swallowed up Green Smoke, Inc. to the tune of $110 million. The logic behind these boardroom deals isn't difficult to grasp: By purchasing existing e-cigarette brands, Big Tobacco removes potential competitors while gaining a foothold in what looks like the market of the future.

"Adding Green Smoke's significant e-vapor expertise and experience, along with its supply chain, product lines and customer service, will complement Nu Mark's capabilities and enhance its competitive position," said Marty Barrington, Altria's chairman and CEO, in a news release.

Of course, companies that spent decades trying to develop new twists on their product to capture a larger share of the market aren't content to let others innovate for them. Many tobacco companies have developed their own e-cigarettes in-house, such as Altria Group's MarkTen. The MarkTen's design unabashedly apes the look of a traditional cigarette, a reassuring comfort to the potential customer who used to blaze through two packs of Marlboro Reds a day. The MarkTen joined RJ Reynolds's (the company behind Camel and Pall Mall) own Vuse brand e-cigarettes as part of Big Tobacco's arsenals to win the hearts and minds of customers shopping with brand loyalty.

But according to some analysts, despite the effort and cost poured into developing new e-cigarettes, it's a war the multimillion-dollar tobacco conglomerates are losing. Reporting from Vice revealed a Wells Fargo analysis in 2014 stating the firm believes "the sales decline [in e-cigarettes] is more reflexive of volume moving to vapors-tanks-mods, which tend to be sold in non-tracked channels (especially vape shops)." Vaporizers, which are more customizable and open-ended than your typical e-cig, remain a potential thorn in the side of tobacco companies because the community that embraces them eschews mass-produced e-cigarettes, which obviously is the preference for tobacco companies experienced in churning out carton after carton of product.

One way tobacco companies can attempt to give the invisible hand of the market a little help is to push for more regulations on vaporizer and e-cigarette products. According to a special report by Reuters in 2015, tobacco giants such as RJ Reynolds and Altria have petitioned the FDA to treat small vape shops—which offer a plethora of different flavors and mods to customers—as manufacturers, teeing the independent outfits up for a storm of inspections and regulations they would find difficult to weather at their comparatively small size.

"I think one of the things the industry would like to see... is a world in which the tobacco industry is much more like the pharmaceutical industry in terms of how it operates," retired Altria executive Steven Parrish says in the special report. "Very heavily regulated and maybe not loved and admired, but at least acknowledged as a legitimate business." Whether it's through their legions of lobbyists arguing for new rules and regulations or via a crack team of engineers working on a new, innovative e-cigarette product the world can't do without, Big Tobacco knows nicotine consumption stands on the precipice of change. The question is, will they hinder it or usher it in?

This article was excerpted from Newsweek's Special Edition—Vape Nation, by Issue Editor Tim Baker. For more about the America's newest vice, pick up a copy today.