Oct 6, 2019

The future of vaping seems uncertain, the future for smokers is a dead end

written by Lisa Eason

I had a lucky escape this summer. I spent some months investigating the vaping market with a view to investing in it, but eventually I decided not to proceed. Now, in America, the industry is in crisis, and it may yet spread to Britain.

I felt vaping had many attractions: a large and growing market, high margins, fragmentation, lots of innovation — and the UK is a world leader in liberal legislation. Because 82% of the price of cigarettes is tax, according to the Tobacco Manufacturers’ Association, vaping can undercut the cost of cigarettes by 50% but remain a lucrative business. Moreover, I felt that one could finance an e-cigarette business with a clear conscience, knowing that vaping appears to be the most effective device yet invented for weaning smokers off tobacco. And since smoking is the single most preventable cause of cancer (and other diseases), it seemed to me that promoting vaping was a public good.

Vaping was invented in China in 2006 by the pharmacist Hon Lik, and in the past 10 years, millions of people worldwide have taken it up. It contains nicotine — highly addictive but relatively harmless — but not the many chemicals created when tobacco is burnt; and it is these that are the carcinogens.

Vaping was a private sector initiative, and some in the academic and anti-smoking communities resent its success and are suspicious of its origins. Ultimately, though, vaping is seen by many unbiased experts as a practical way to reduce harm.

There are now about 3.6m British vapers (almost all ex-smokers) and more than 3,000 vaping stores here. The global market is estimated to be worth $19.3bn (£15.7bn). Public Health England and the Royal College of Physicians have stated that vaping is 95% safer than cigarettes, and thanks to the government resisting calls to unduly restrict vaping, Britain now has the second-lowest cigarette consumption in Europe.

The US vaping market has evolved in a different way to Britain’s. There, a company called Juul has a commanding market share, partly because its product is much stronger than most of its rivals (here, nicotine strength is restricted). Last December, Altria, the giant US-based maker of Marlboro cigarettes, invested $12.8bn for a 35% stake in Juul. More recently, Capital Re bought a stake in Juul in a deal that valued it at more than $50bn — yet Juul is a company with reputed sales of less than $1.8bn. These enormous valuations encouraged me to explore opportunities in the sector.

However, amid talk of a teen vaping epidemic in America, politicians, lobbyists and regulators have been emboldened to attack the industry. In recent months, moreover, a series of hospitalisations and the death of 18 vapers through lung problems have led to partial or complete bans.

A high proportion of these victims appear to have vaped black-market THC oil, which is derived from cannabis, rather than authorised liquids sold legitimately. Nevertheless, the industry is in turmoil in America: the chief executive of Juul has resigned and the company has stopped advertising. The share price of Turning Point Brands, a publicly traded group with interests in electronic cigarettes, has more than halved since July. Meanwhile, vaping is illegal in India, Brazil, Singapore and Thailand.

It is ironic that in adventurous places, such as San Francisco, vaping is banned, but cigarettes and even marijuana are not. The current vaping hysteria in America will mean more deaths through smoking, because fewer of the estimated 34m adults who smoke in America will switch to e-cigarettes.

Since vaping was introduced in Britain, the percentage of people who smoke has fallen by a third — faster than almost anywhere else in the world — and almost certainly thanks to vaping.

I hope regulators here are not cowed into copying the knee-jerk bans that are crippling the vaping sector in America. It is bizarre that the US, which according to the Rand Corporation think tank has an illegal drug market worth $150bn (cocaine, heroin, marijuana and meth), should target vaping so aggressively. Deaths from illicit drug overdoses there exceeded 68,000 last year. Yet known deaths from legitimate vaping are negligible.

I shall not invest in vaping because the risk of ill-judged regulation is too great, but I hope the industry in this country continues to thrive, helping smokers to quit and offering the public freedom to choose. Regulators should not let the perfect be the enemy of the good.