Big E-Cig Move

Analyst breaks news, breaks down Lorillard's blu ecigs buy

Published in CSP Daily News

By  Melissa Vonder Haar, Tobacco Editor

Bonnie Herzog

LAS VEGAS -- Bonnie Herzog, senior analyst and managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, had more than just industry insight to share with those in attendance of her "U.S. Tobacco Trends & Insights" talk Wednesday at the NATO Show in Las Vegas--for many in the audience, she had breaking news. "There was an announcement this morning: Lorillard has bought blu ecigs for $135 million," Herzog said, who had only just heard the news herself (see full story in this issue of CSP Daily News).

While it is a "nominal amount for them," she said, it's a big move, as Lorillard is the first of the big-three tobacco companies to officially enter the electronic cigarette business, a move that took even a seasoned analyst like Herzog by surprise.

"I wouldn't have guessed it would be Lorillard," she said. "I would have guessed R.J. Reynolds--they seem to be, to me, the ones that are more of a risk-taker. I wouldn't be surprised if they're next."

Certainly, Herzog is not alone in her surprise. While Winston-Salem, N.C.-based R.J. Reynolds and Richmond, Va.-based Altria have both started to distribute smokeless, snus and other alternative products, Greensboro, N.C.-based Lorillard has faithfully stuck to traditional cigarettes. Until now.
"Murray Kessler, who is now running Lorillard, he chose e-cigarettes to enter another category," said Herzog. "He didn't choose to go smokeless or snus."

So what was it about e-cigarettes that drew Kessler and Lorillard to choose that avenue as their entrance into alternative tobacco?

"I think they see this as an opportunity to get a seat at the table with opportunities to talk to the FDA about regulation over this growing category," Herzog speculated.

While Lorillard is the first of the big tobacco companies to venture into the e-cigarette business, the presence of electronic products is hard to deny--especially while walking the floors of this year's NATO show, which features more than 20 booths highlighting different e-cigarette products. Lorillard's acquisition of the leading e-cigarette company is the first step towards consolidation--which Herzog sees as a good move.

"It's very fragmented right now," she said. "Certainly, because of this, there's going to be more tension with government and regulations. Lorillard wants to help steer that conversation in the right direction."

NATO's 11th Anniversary & Trade Show was held this week, running through Thursday, at the Paris, Las Vegas Hotel in Las Vegas.

NATO, the National Association of Tobacco Outlets, is a national retail trade association that focuses exclusively on local, state and federal tobacco legislative issues and leads the fight for all tobacco interests in the United States.