Big Tobacco - If You Can’t Beat Them Buy Them

We recently reported here on the efforts of Big Tobacco (BT), under the guise of consumer protectionism, to have open tank electronic cigarettes (Mods) banned in the United States. As pointed out in that article, this should not come as a great surprise.

With the sale of traditional cigarettes on a slow but steady decline (4%/yr for the last 10 years), traditional tobacco companies had at first thought of their e-cigs as a replacement product. They were wrong.

Unfortunately for them, their limited product varieties and poor taste quality, spelled their products failure even before they were introduced. Thus, the effort to have their competition regulated out of existence makes perfect business sense.

What may not have been noted by many who were having a chuckle at BT’s efforts to appear health conscious, was that there is an even bigger story growing in the battle between the electronic cigarette industry and BT.

BT Spending Spree

What isn’t making the news outside of investor circles, is that Big Tobacco is not only trying to have open chamber electronic cigarettes regulated out of the market, they are slowly but surely acquiring majority interest in many of the young industry's major players.

We did report in our August 27th news update about Japan Tobacco Inc, taking over the British firm Zandera. At the time we saw it as an isolated incident. We were wrong.

It seems that almost all of the major players in the tobacco industry, are in the process of acquiring electronic cigarette manufacturing companies. In the last few weeks;

• U.S. Marlboro maker Altria Group bought Miami-based Green Smoke for $110 million
• Gauloises maker Imperial Tobacco purchased Skycig and Blu
• British American, the world's No. 2 tobacco firm acquired UK based CN Creative
• Egypt's Mansour Group invested $20 million for a stake in Michigan-based ECIG
• Japan Tobacco Inc. purchased control of UK based Zandera, US based Ploom and several smaller firms

Unanswered Questions

The question that we must ask at now is what BT plans for their recently obtained assets?

What we do know is that Mitsuomi Koizumi, President and Chief Executive Officer of Japan Tobacco, recently told a Reuters reporter 

“Legal considerations have kept Japan Tobacco from entering the cigarette market in the United States, and it has no plans to introduce traditional or electronic cigarette products there now.” 

He also stated that they were "happy with their present position in the electronic cigarette market", and "did not plan on introducing electronic cigarette products in Japan, or delving into any areas that were not based on their (Japan Tobacco Inc.) tobacco expertise".

Old Dogs and Older Tricks

There is an saying that “Old dogs don’t get old by being stupid”, and BT has been around the block a few times. With over a hundred years of experience they have survived many challenges, just the latest of which is the electronic cigarette movement.

What appears to be happening is a two pronged attack by BT. On the one hand, they are lobbying against open system electronic cigarettes. If they succeed on this political front, they will once again be the only game in town.

Whilst at the same time, they are tapping the deep coffers they have built up over time, using them to buy up young companies at what they perceive to be discounted prices, and thus, gaining a second level of insurance should their political efforts fail.

Regulations Come Into Play

This is where recent regulatory decisions may come into play. There is no doubt that meeting the upcoming regulatory testing and submission standards is going to be a costly affair. These costs may be prohibitive for many of the smaller electronic cigarette and e-liquid companies, resulting in their wholesale selloffs and closures.

If this should happen, companies who have the big bankrolls that BT can bring to bear, will see their value skyrocket; once again becoming a win for Big Tobacco and leaving them with a dominant market position.

Until next time, here’s wishing you a smooth draw.

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