Investment Analysts Predict Negative Impact Of Regulation, Says Former ASH Director

December 12, 2013 Industry News

he growth of the electronic cigarette industry, not just in the UK but worldwide, is something that is incredibly exciting, and really representative of the popularity, effectiveness and potential that these products have. The US e-cig industry has hit $1.5billion in sales, tripling sales of the previous year, and UK users have already broken the 1.5 million mark, with global sales up 30% from last year.

Year on year the industry continues to expand, and it’s beginning to become a financially viable investment for big firms and investors – but what if, under the ironic guise of public health, the MHRA’s recommendations were to come into force, and other countries (such as the FDA in the US) followed suit?

Well, according to seven of the world’s biggest investment firms and analyst groups, the financial future of the electronic cigarette industry would be fairly bleak – certainly not as healthy as it is as the moment. Former ASH director, Clive Bates, has compiled an aggregation of reports from these big firms which relate specifically to the predictions on the industry’s financial health under the strict rule of medical regulation.

Regulation Financial Damaging; Creatively Suppressive

There are a number of really key takeaways from Clive Bates’ post and analysis with great comments from industry analysts and investors, many of whom see medical regulation (or tobacco-style restrictions) as a negative and very real threat to an incredibly promising industry.

Tobacco industry analyst Shame MacGuill said in an article on Euromonitor International:

“Medicalisation risks dampening or reversing e-cigarette growth and therefore becoming a costly exercise in the art of pleasing no one.”

In reaction to the votes on the Tobacco Products Directive (TPD), Goldman Sachs praised the vote saying that it was ‘a win for the burgeoning e-cigarette market’ and that any kind of classification as medicines ‘would have restricted sales’.

Citi, one of the world’s leading and investment banks, also looked at the impact that overly-strict regulation could have on the attractiveness and appeal of electronic cigarettes – while many health experts and e-cig companies, including us here at VIP, have talked about the detrimental effect it could have on health, but the effects could be financial too.

The bank said that, from a financial point of view, ‘indoor smoking restrictions on e-cigs could prove to be disruptive to consumer trial / retention’. It also stated that such bans (ie. submitting e-cigs to the same legally-enforcable usage restrictions as tobacco cigarettes) would present ‘several confounding obstacles for switchers’ and that forcing vapers into ‘smoking areas’ with smokers would find it much harder to switch from standard cigarettes.

It said in its summary on the industry:

“There is nothing harder for a quitter (especially early days) than to be around smokers!”

This compilation of the views of investment banks, firms and analysts which Clive Bates has painstakingly put together really gives some weight behind the industry’s arguments from a completely different perspective – while a huge amount of emphasis has focussed on health, these comments and reports help add some credence from a financial perspective.

This is exactly the kind of thing the industry needs – while the vote against medical classification in the TPD was a massive victory, there’s still some way to go before the threat of the MHRA’s recommendations being adopted in the UK is over.

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