Until recently, e-cigs have been sold through traditional tobacco stores that normally expect a keystone or 100% markup on items other than cigarettes. Though it is hard to determine the number of e-cig users in the U.S., the National Vapers Club estimated that about a million people used e-cigs last year, so it certainly is a growing segment, and the product offers c-stores an excellent alternative to cigarettes with lower taxes and much higher margins.
“In 2010 there were 750,000 units sold and that jumped to 2.5 million sold in 2011, and the market is expected to quadruple by end of 2013 to early to mid of 2014,” said Thomas Kiklas, co-founder of the Tobacco Vapor Electronic Cigarette Association.
Close to 20 million cartridges are sold in the U.S. on a weekly basis and about 10 million disposables weekly, Kiklas said.
Both disposable and rechargeable packages have distinct markets. Disposables tend to sell best in gas stations and convenience stores where people come in and out quickly, while rechargeables are selling strongly in tobacco stores where customers have time to learn about the technology.
“There is still some skepticism on the part of the consumer and the retailer based on whether or not the FDA will get involved to a greater degree,” said Stephen Monaco, director of purchasing for Tedeschi Food Shops in Rockland, Mass.
Regulation Issues
Last April, the FDA announced its plans to regulate e-cigarettes as tobacco products and will work with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to tax and regulate distribution, which means e-cigarette importers must have tobacco importing licenses, and sellers must have tobacco licenses in all 50 states.
States are still figuring out how to deal with e-cigarettes. In Hawaii, for example, the product was up against a proposal that aimed to tax e-cigarettes at 70% of the wholesale price. Luckily for Hawaiian retailers, the bill was not passed.
“We have no problem with the taxing of the product, but you have to tax it at the level of harm that it does, and it’s a less harmful product than a traditional tobacco cigarette,” Kiklas said. “So if you’re going to tax it, tax it at that level, and that level would be not very high.”
Just last month, e-cigarettes made the national news when a device blew up in a Florida man’s mouth, leading some to question the safety of the devices.
“We are waiting for the Florida authorities to come to a determination on what brand and what product the gentleman was using because it’s our understanding that he was using something called a MOD—that’s a modified product where they take batteries and they really juice up a unit to really where it’s no longer an e-cig,” Kiklas said. “We do not recognize MODs as electronic cigarettes.”
Kiklas compared turning an e-cig into a MOD with taking a normal gas lawnmower and adding a turbo charger and nitrous oxide, in other words, an improper, unsafe way to modify a product.
“What some people are doing in the market is they’re modifying e-cigarettes to generate a lot more vapor than they were initially intended for, and we think that’s what the gentleman in Florida was using when he had the anomaly,” Kiklas said.
To keep things in perspective, Kiklas added, out of the more than 2.5 million units sold last year and the billions of e-cigarettes used in the last two years, “there has never been an anomaly like what happened in Florida ever, so let’s wait until authorities learn what actually happened,” he said.
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