The Week Ahead: E-cigarette makers hope to kindle smokers' interest

June 21, 2014 

The innovation economy is hot. From the city halls in Rust Belt states hoping to reinvent themselves in the 21st century, to boardrooms of multibillion-dollar application developers, innovation is a catch-all classification for economic progress. It implies efficiency, empowerment and disruption.

E-cigarettes arguably qualify as innovative.

Electronic cigarettes have been on the market for about a decade. Users don't smoke them like a traditional tobacco cigarette. Instead, these electronic versions heat a liquid that contains nicotine, producing a vapor. While the FDA regulates cigarette tobacco, the agency has no authority over electronic cigarettes. Historically, innovation has a way of moving faster than regulators.

The second-largest cigarette maker in the U.S. begins distributing its e-cigarettes nationwide in the new week. Reynolds American is better known for its brands such as Camel, Pall Mall and Natural American Spirit cigarettes. The company's Vuse Digital Vapor Cigarette aims to add to that portfolio -- and profits -- as it goes nationwide Monday.

It is a crowded market with dozens of brands and thousands of flavors, from standard American tobacco to mint chocolate truffle. Sales of e-cigarettes are forecast to reach $2 billion this year. That's only a third of the annual cigarette sales from R.J. Reynolds, but e-cigarettes are growing fast. Marlboro's parent company, Altria, is expanding its electronic brand nationwide this year, too.

While the stocks of American cigarette makers have risen, sales have been trending lower. Health problems, growing public disapproval and tighter rules are taking their toll. Business risks, regulations and consumer demand lead to innovation. The cigarette industry is no different.

Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter@HudsonsView.

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