Vaping Startups take On Big Tobacco Industry

The rapid growth of the vaping industry is a phenomenon rarely seen in business and industry, and not since the invention of the personal computer and later, the dotcom boom, has something completely new grown so fast. As is often the case with new innovations, the smaller and more nimble innovators are the ones who get it started, and then larger and more established companies step in. The vaping industry is no exception. Once dominated by smaller startups and near-underground smoke shops, vaping has since captured the attention of Big Tobacco, and has become a force to be reckoned with. There will continue to be a place for those innovators, but as the industry matures and larger companies move in, those startup entrepreneurs will need to have a more focused strategy.

The popularity of vaping has not gone unnoticed by tobacco giants like Altria. Facing a decline in smoking traditional combustible cigarettes, Altria has been taking aggressive action with its recent investment in Cronos Group, a Canadian cannabis company, and its 35 percent stake in Juul Labs. Altria stocks initially declined dramatically since 2017, corresponding with the increasing popularity of vaping; Altria’s stock has rebounded after its $12.8 billion acquisition, delivering strong earnings this year, offering up a rebound from its previous decline and positioning tobacco stocks – as well as the vaping industry – as an attractive growth opportunity.

Altria is likely to emerge victorious in the e-cigarette revolution, and analysts are expecting the company to perform well this year, despite the fact that Altria missed its first quarter earnings slightly, coming in at 90 cents per share, two cents under expectations of 92 cents, a shortfall that can be attributed to its investments in Cronos and Juul. Those very investments though, will help ensure that Altria meets or exceeds its full-year targets.

Imperial Brands is also following Altria’s lead by selling its global premium cigar business and investing in vaping products as a key growth area. Imperial’s divestments generated £280 million at the end of September, with the sale of the premium cigar business expected to raise another £1 billion, giving them a strong position to take a page from Altria’s playbook and invest in the vaping business.

A major difference in the emerging vaping and e-cigarette industry though, is that the combustible cigarette market is dominated by a handful of very large companies with powerful lobbying capability. And although those companies are making inroads into the vaping industry, it is still powered mostly by smaller operators – a factor that not only offers consumers more meaningful variety, it also continues to create new opportunities for small businesspersons and entrepreneurs looking to make a difference in this industry.

It’s not just Big Tobacco

The big opportunity though, still lies with the smaller, privately-held innovative online startups like Vapor Authority, an early innovator in online sales which has led the way in variety, service, and proactively implementing safe and ethical age restrictions for online purchasing. The vaping industry is in a perfect position for growth. The industry was built by smaller and more innovative manufacturers, importers and vape shops, and they still are the face of the industry. Those innovators are seeing plenty of growth, making this an ideal opportunity for smaller entrepreneurs.

E-cigarettes and vaping are one of the fastest growing sectors, and according to an Ipsos survey of consumers concerned about wellness, 28 percent of adults and 45 percent of millennials have in the past, or plan to in the future, try e-cigarettes. The growing interest can be attributed to rising health awareness among consumers, a desire to seek out alternatives to traditional combustible cigarettes, and a need for more workable alternatives to smoking cessation strategies.

According to a recent Orbis Research report, “The market is expected to gain traction over the forecast period [2018-2025], owing to growing popularity of these products among millennials. Moreover, availability of a variety of e-cigarette options is another factor projected to provide a tremendous push to the market over the forecast period.” BIS Research has also weighed in with a prediction that the market, which was estimated at $11.43 billion in 2016, will grow to $86.43 billion by 2025, with a phenomenal CAGR of 23.25 percent between 2017 and 2025.

The vaping industry has changed rapidly to adapt to these desires. Many vaping companies are offering reduced-nicotine, or nicotine-free vape liquids, and people are becoming more aware of the abundant research that shows e-cigarettes are a healthier alternative to combustibles. As a result, investors and entrepreneurs are seeing the vaping industry as the next growth opportunity for investment.

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