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Wall Street Journal touts Vaporizers over Cigalikes May 29 2014

'Vaporizers' Are the New Draw in E-Cigarettes

Refillable Contraptions Are Cheaper, More Potent Than 'Cigalikes'

  •  , wallstreetjournal.com
  • The fastest growth in e-cigarettes comes from devices called 'vaporizers' sold in specialty shops like Popie's Vapor Lounge, in Marlton, N.J. Will Figg for The Wall Street Journal

    ATLANTA—VapeRite, a specialty store in a strip mall here, represents the latest rage in electronic cigarettes and the newest headache for Big Tobacco: Do-It-Yourself.

    Shelves are crammed with more than 100 flavored liquids with names like Purple Haze, Red Riding Hood and Cherry Cola, alongside gadgets like refillable cartridges, heating coils and liquid drippers that customers can use to build their own e-cigarettes.

    What the "vape shop'' doesn't stock are mainstream e-cigarette brands like Blu, Logic and Njoy. While those cigarette-sized devices still make up the largest part of the e-cigarette market—which could top $2 billion this year—the fastest growth is now coming from larger, customizable contraptions called "vaporizers,'' like those sold at VapeRite.

    All e-cigarettes are metal and plastic heating devices, using batteries to turn nicotine-laced liquid into vapor. But vaporizers resemble large fountain pens, with bigger batteries and cartridges, so they hold more liquid, produce larger vapor clouds and last longer. They also allow users, who often call themselves "vapers,'' to mix and match hardware and refill cartridges with liquid bought in bulk.

    Sales of standard e-cigarettes at convenience stores rose 71% to $562 million in the 52 weeks through May 10, but rose only 3.6% over the most recent 12 weeks, according to Wells Fargo. Although there are no reliable data for overall sales, Wells Fargo estimates vaporizers are growing twice as fast, approaching 50% of total e-cigarette sales.

    Tobacco-industry leader Altria Inc., maker of Marlboro cigarettes, and No. 2 tobacco player Reynolds American Inc., which sells Camel smokes, both are launching their own brands of e-cigarettes nationally next month as they try to offset falling sales for traditional cigarettes. Altria, which is readying a national launch of MarkTen said it is "monitoring'' vaporizers but declined to say if it would launch a competing product. Reynolds said it remains focused on rolling out its Vuse brand and has no plans to launch a vaporizer.

    E-cigarettes are a factor in a potential merger of Reynolds and No. 3 tobacco player Lorillard Inc., which are in advanced talks, according to a person familiar with the matter. One of Lorillard's great strengths is its e-cigarette Blu, which has nearly a 50% market share at traditional retailers. But vaporizers are cutting into Blu's business.

    Converts include Eugene Jiang, a 21-year-old Atlanta waiter who said his first e-cigarette a couple of years ago was Blu. He has since switched to a vaporizer he bought at VapeRite to help him kick a two-pack-a-day smoking habit. "It's better and cheaper,'' said Mr. Jiang, sitting atop one of VapeRite's eight bar stools on a recent afternoon and puffing on an e-liquid with peach, watermelon and Earl Grey tea flavors an employee mixed for him while a large TV played music videos.

    Vaporizers can pack more than five times the liquid and battery power of smaller e-cigarettes, often called "cigalikes." They also deliver a deeper "throat hit'' more akin to smoking, which many vapers still crave. Refillable cartridges are cheaper to use, too: An 18-milliliter bottle of liquid from VapeRite sells for $9.99, compared with $12 for a five-pack of 1-milliliter Blu cartridges. (1 ml of e-liquid is roughly equivalent to 2 cigarette packs.) Traditional e-cigarettes contain disposable cartridges that require replacements from the same manufacturer.

    Vaporizers currently "deliver a superior consumer experience at a better value,'' conceded Lorillard Chief Executive Murray Kessler last month, discussing with analysts why the company's e-cigarette revenue slipped to $51 million in the first quarter from $54 million in the fourth quarter. Lorillard is upgrading Blu's technology this year but hasn't ruled out launching a vaporizer.

    Some early players in e-cigarettes are getting into vaporizers. Ballantyne Brands LLC, the maker of Mistic e-cigarettes, has rolled out its Haus vaporizer in 18,000 stores since March, including 4,000 Wal-Marts. Njoy Inc., which makes Njoy, and VMR Products LLC, which makes V2 e-cigarettes, plan to launch vaporizers this summer.

    E-cigarettes now fall under the regulation of the FDA. What will the agency allow, and what will it not? And why not? How do e-cigarettes work? WSJ's Jason Bellini has #TheShortAnswer.

    Vaporizers are bought online and at vape shops like VapeRite, not the gas stations, convenience stores and supermarkets where Altria, Reynolds and Lorillard have huge distribution networks. There are about 16,000 vape shops in the U.S., up from 10,000 last autumn, according to the Smoke-Free Alternatives Trade Association, an e-cigarette industry group.

    While a smaller device is easier to carry, many vapers prefer something that doesn't look like a cigarette. "Smoking has become very stigmatized," said Oliver Kershaw, chief executive of E-Cigarette Forum, an online discussion group that draws about 3 million monthly visits. Among vapers, "There's quite a strong culture they're doing something other than smoking."

    Companies, meanwhile, are anxious about regulatory uncertainty. E-cigarettes—which as yet aren't federally regulated—are generally considered safer than smoked tobacco, but calls to poison centers involving e-cigarette liquids jumped to 215 this past February from just one in September 2010. Many cases involved young children; vaporizers are considered more hazardous to children because they don't have sealed cartridges. Two recent studies also found higher-voltage e-cigarettes release more formaldehyde, a carcinogen, than lower-voltage e-cigarettes.

    The Food and Drug Administration wants companies to submit their e-cigarettes for review, potentially giving the agency tremendous clout over what can be sold. But product rulings are likely years away and the agency says it doesn't have a position yet on vaporizers.

    "It's all the same questions we have about the entire [e-cigarette] category that require research: product safety, what's in the vapor, who is using it, how it's being used,'' said Mitch Zeller, the FDA's tobacco czar.

    Todd Gano, VapeRite's owner, said he began making e-liquids in his garage in 2010 after his deck-building business dried up. The company shifted production to an 8,000 square-foot facility last year and said revenue is growing 15% every month.

    "This industry is changing so friggin' fast,'' said Mr. Gano, 49, who has two stores and plans to open a third this summer.

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