Business

E-cigs’ startups on fire as tobacco companies prepare to buy

E-cigarette startups are on fire this year.

Big tobacco companies are ready to inhale these innovative private companies — and venture capitalists are coughing up big money of their own to get in on the industry themselves.

Last week, Altria — formerly Philip Morris and the owner of the Marlboro brand — threw down about $110 million in cash to take over Green Smoke, an Israel-based e-cigarette company. That’s nearly three times the $40 million that the private company, which launched in 2008, earned in sales last year.

Altria’s acquisition is the first major deal since Lorillard’s acquisition of Blu e-cigarettes for $135 million in 2012. But analysts say others will likely follow suit this year.

Wells Fargo projects that in the next decade, e-cigarette consumption will “eclipse” that of traditional cigarettes. That’s why investors and big tobacco companies alike are zeroing in on e-cigarette companies as the key to bringing the lucrative, yet antiquated, tobacco industry into the digital age.

“What was years ago a cult fad is now more than doubling in sales annually the last three years,” noted Sam Hamadeh, CEO of research company PrivCo.

E-cigarettes are revolutionizing the centuries-old tobacco trade, which has largely depended on continuity. “God forbid you would ever change the recipe to the Marlboros, so there’s no innovation whatsoever,” Hamadeh explains.

According to Andries Verleur, a former venture capitalist who now is the CEO and co-founder of VMR, the parent company of V2 e-cigarettes, “Innovation has driven so many industries. We’ve taken a product and continue to innovate and make it better and better from a risk-profile perspective.”

NJoy, the leading startup, caught national attention last week with its “Friends Don’t Let Friends Smoke” commercial that aired during the Super Bowl.

“When the first e-cigarette TV ad ran on the Super Bowl last Sunday, that was the day e-cigarettes officially went mainstream,” said Hamadeh.

CVS’ announcement last week that it will stop selling tobacco products will likely result in a domino effect, predicts NJoy CEO Craig Weiss. Other drug chains may soon follow suit, but Weiss believes these companies, which distribute e-cigarettes in-store, will continue to do so, even if they halt the selling of tobacco products.

Walgreens released a carefully worded statement on the subject: “We have been evaluating this product category for some time. … We will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking-cessation products and alternatives that help to reduce the demand for tobacco products.”