July 29, 2013 Update

DJIA:15,559 S&P 500:1,692 NASDAQ:3,613 Gold:$1,332 Oil:$104.50 EURO:$1.33 YEN:97.77

The Fate of the Electronic Cigarette

Around six million people die annually as a result of smoking tobacco. This means that roughly 10% of the entire global smoking population dies from the deadly toxin combination that comes with the nicotine addiction. In fact, smoking a cigarette is the single most dangerous legal activity there is because of the harmful effects it has on the smoker, the smoker’s company, and on the environment. In an attempt to counteract the dangers of smoking tobacco, Herbert A. Gilbert invented the electric cigarette in 1963. Although it had not caught on at this time, and was later adopted by a Chinese pharmacist in 2000. The e-cigarette first hit the market in May 2004 and received an international patent in 2007. E-cigarettes are battery-run vaporizers that remove the tar, carbon monoxide, and smelly tobacco smoke from the experience; and leaves users to inhale the nicotine solution that millions of people find themselves so severely addicted to. Unlike the traditional cigarette, the progressive alternative does not result in lung cancer or gum disease and helps curb addiction. A recent study from the University of Catania in Italy showed that e-cigarettes helped 10% of smokers permanently kick the habit. E-cigarettes have the potential to save lives in every community around the world, yet they are having a hard time finding political support internationally. Many lobbyists within the US have noted concerns regarding the allure colorful and favored tobacco may have to children, while others label the nicotine vaporizers as an incentive to start to smoking the real thing. It seems to me that these tobacco lobbyists are truly concerned about the effect the nicotine alternative will have on the $80B US tobacco cigarette industry. As of June 2013, the FDA regulates only cigarettes, roll-your-own tobacco, smokeless tobacco, and cigarette tobacco; they do not oversee e-cigarettes, yet. Politicians are signing bills that ban their use in public places and ban sales of e-cigarettes to children, and rightfully so. Nicotine is a poison, it should be regulated by the FDA. But despite the legal opposition, the demand is growing fast. In fact, the market for the electric cigarette doubled in the US in 2012 with sales of about $500mm. Industry watchers are expecting retail sales to double again and reach $1B in 2013, which may still be small when compared to the monstrous US multi-billion dollar tobacco industry but analysts expect the electronic nicotine alternative to dominate the cigarette market within this decade. There are dozens of e-cigarette brands to select from. Stores have popped up across the country, including VapeNY which just opened in Manhattan’s Lower East Side. Even tobacco companies are embracing the change, positioning themselves for the inevitable boom. In 2012, Lorillard purchased Blu for $135mm and Marlboro is rumored to buy NJOY. Playboy has announced a line of their own to be released soon. About one billion people are addicted to nicotine internationally. Investing in a market that could provide addicts the neurological pleasure of substance dependency without the harmful  health effects to the users and to its’ company will lead to an ROI reflective of the exponential growth of the demand. Why not invest in an equally addictive product that could curb the dangers of smoking? Almost seems selfish not to switch over...

Domestic News

• Market Update Futures are trading down as the market prepares for a week of vital economic data, earnings, and a Fed meeting.  
• Pending-home sales data will be released at 10:00, and are expected to decline by roughly 1.4% in June compared to May’s growth of 6.7%.
• The Dallas Fed general business activity index in its Texas manufacturing survey will be released at 10:30, and is expected to have fallen to 6.4 for July down from June’s 6.5; which was the highest level in sixteen months. 

International Updates

Asia

• Market Update Markets are trading lower from investor concerns about China’s economic situation. Japanese stocks have reached their lowest level in more than a month, as the yen strengthens and weighs on exports.  

Europe

• Market Update Markets are on the rise tracking a two-day losing streak, driven by the Elan acquisition and Danone’s better-than-expected earnings release. 

Corporate

• Hertz Global Holdings Inc. (HTZ) is expected to reports earnings of $0.45 per share for Q2.
• Elan Corp. (ELN, IE:DRX) soared 11% in Ireland, and its ADR is trading higher in the premarket after drug marker Perrigo (PRGO) announced that is used a combination of cash and stock to acquire ELN for $16.50 per share (a 10.5% premium from Friday’s close).