Which Tobacco Companies Are Most Exposed To E-Cigarette Headwinds?

Author: Dave Royse | November 27, 2019 03:05pm

With the e-cigarette industry continuing to face fallout from illnesses and deaths linked to vaping, and the regulatory future of the business up in the air, here's a look at which public companies are most exposed to changes in the e-cigarette landscape.

More than 45 lung injury deaths have been linked to use of vapes, and more specifically THC vapes.

The spotlight fell on the companies in a potential $25-billion market again last week when industry officials went to the White House to meet with President Donald Trump, Sen. Mitt Romney and public health advocates in what press accounts said was a testy meeting.

Trump has made the product's regulatory future harder to discern by changing his stance — he earlier called for banning certain flavored e-cigarettes, but then backed off.

Friday's meeting left industry officials still unsure of the administration's intentions.

Here's a look at the stocks exposed to vaping.

Altria: Part Owner Of Juul

Altria Group Inc (NYSE:MO) became exposed to the vaping market last year when it took a stake in the biggest e-cigarette maker in the United States, Juul Labs. The exposure for the Marlboro maker may have looked limited, with only a 35% stake. But Juul is the largest player in the vaping market in the United States, rising last year to more than 70% market share.

Altria stock dropped as the vaping crisis gained attention, and some analysts said the stock was being dragged down by its vaping exposure, though the shares have recovered this month nearly to where they were at the start of the year.

Altria announced at the end of October that it was taking a $4.5-billion writedown on its Juul investment.

BTI, Makers Of Vuse

British American Tobacco PLC (NYSE:BTI) is best known for its Lucky Strike and Camel cigarettes, but got in on the vaping craze with its 2017 acquisition of Reynolds American Inc., including the Vuse vaping brand.

BTI said in its 2018 annual report that volume in its vapor business doubled last year, thanks to the Reynolds acquisition. Actual growth in vapor segment sales was much stronger than that of traditional cigarettes, which have been basically flat.

The company said it brings in about $2 billion a year from its "non-traditional" tobacco products, which lumps vaping with oral tobacco and so-called "heat-not-burn" products.

That makes vaping a small part of the company's overall business — BTI has about $30 billion a year in overall U.S. sales — but it's exposure nonetheless.

Philip Morris Makes A Different Kind Of Device

Another Big Tobacco player, Philip Morris International Inc. (NYSE:PM), is looking to go in a different direction, and it's one that could pay off as vaping faces negative publicity.

The company is pushing hard with its IQOS "heat-not-burn" tobacco device, also called a "heat-stick." It's different from other e-cigarettes because it doesn't use the vapor-producing liquids.

Health officials aren't sure yet what the effects of using the heat sticks might be, but Philip Morris is touting it as an alternative.. Philip Morris has been marketing the devices overseas and has an agreement with Altria for domestic marketing.

Other Companies With Vaping Exposure

Turning Point Brands Inc (NYSE:TPB) is a diversified tobacco and marijuana company, but its NewGen e-cigarette division makes up nearly half the company's sales. Quarterly sales in the NewGen business grew more than 65% in the first quarter and just over 50% in the second quarter.

Britain's Imperial Tobacco Group Plc (OTC:IMBBY) is similar to many other traditional tobacco companies entering the vaping space; its e-cigarette business makes up only about 3% of its sales. But with traditional tobacco product growth mostly flat, the vaping products have accounted for about 40% of Imperial's sales growth in recent years.

Trump Changes Course On Flavored Vape Ban

Photo courtesy of Juul Labs.

Posted In: BTI IMBBY MO PM TPB