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Yesterday a Senate Commerce, Science and Transportation Committee met to discuss e-cigarettes and lobbed harsh criticism on marketing and promotional practices. Craig Weiss (NJOY President and CEO) and Jason Healy (blu President) were the two witnesses representing e-cigarette manufacturers, and more specifically their respective companies. (A video of the hearing can be found here)

We had the opportunity to speak with Craig Weiss about NJOY and the industry on 10/31/13 (see his presentation to Hedgeye)

Key Take-Aways From the Hearing:

  • The Committee included Senators Jay Rockefeller (D-W.VA), Barbara Boxer (D-CA), Richard Blumenthal (D-CT), Amy Klobuchar (D-MN), Bill Nelson (D-FL), Dick Durbin (D-IL), and Ed Markey (D-MA)
  • The Committee is tasked with consumer protection and issued numerous examples of how e-cigarette manufacturers are marketing to youth (under 18 years of age)
  • The Committee cited using celebrity spokespersons for marketing such as Jenny McCarthy and Stephen Dorff for blu e-cigs to cartoon caricatures of bazooka bubble gum for flavors and e-juice as evidence of manufacturers creating a lure for youth to participate in the category
  • The Committee cited a recent CDC report showing that the use of electronic cigarettes by middle school and high school students doubled from 2011 to 2012 and a study from RTI International and the Florida Department of Public Health published in the Journal of Pediatrics that showed exposure to electronic cigarette advertising jumped 256% from 2011 to 2013 among adolescents aged 12 to 17
  • Both Healy and Weiss were firm that no minor should be using any nicotine containing products, but they did not agree with the Committee to stop marketing on TV, Film, Print, Online, but did agree to stop the use of caricatures and cartoons in their advertising. They both also stressed that they market only to adults (a position the Committee found highly dubious) and Healy supported the claim against marketing to minors in stating that blu’s average age of consumer is 51 years old
  • It’s no coincidence that the timing of the hearing falls shortly before the conclusion of the FDA’s comment period on its proposed regulations for e-cigarettes (July 9th)
  • The FDA’s proposed regulations of e-cigarettes (on 4/24/14) were met by the industry with excitement as they were deemed “light”: no ban on marketing, flavors, or online sales
  • We suspect that if the these proposals are passed the rule stands to benefit Big Tobacco’s deep marketing pockets (LO - blu; MO - MarkTen; RAI - Vuse) and companies with significant private investment like NJOY
  • While we would not be surprised to see the FDA curb marketing, flavors, and online sales in the future, we expect the FDA to remain grounded in a science based approach in evaluating the e-cig category
  • We see evidence of FDA’s flexibility in Mitch Zeller, the head of the FDA’s Center for Tobacco Control, who continues to say: “We have to have an open mind on the potential for these emerging technologies to benefit public health.”
  • To date we expect the FDA to conclude that the science is inconclusive, given both the newness and ever-changing aspect of the technology. This should equated to limited restrictions and therefore be supportive of the industry

Statements from the Committee were highly impassioned, with perhaps the harshest words coming from Senator Rockefeller in addressing Weiss and Healy: “I’m ashamed of you. I don’t know how you go to sleep at night. I don’t know what gets you to work in the morning except the color green of dollars. You are what is wrong with this country.”

Our preferred tobacco name remains Lorillard (LO), owner of blu e-cigarettes, which has the leading market share in the U.S.  Email or call me if you’d like to discuss our investment thesis on LO. 

Howard Penney

Managing Director

Matt Hedrick


Fred Masotta