So-called electronic cigarette or e-cigarettes offer the tobacco industry a potential source for growth with big tobacco stocks like Lorillard Inc (NYSE: LO) and Reynolds American (NYSE: RAI) already players in the industry while small cap electronic cigarette stocks like Smokefree Innotec (PINK: SFIO), Vapor Corp (PINK: VPCO) and Medifirst Solutions (OTC: MFST) are potential acquisition targets for tobacco stocks like Altria Group (NYSE: MO) (which is not yet active in the e-cig space) or as players in their own right. After all, electronic cigarettes, which are nicotine-infused, battery-heated tubes that create vapor rather than smoke, could go from being a $300 million industry right now to become a $1 billion industry in the next three years. Its also a highly fragmented market right now with a number of small (mostly privately held) players. More importantly, there are a few ways investors and small cap investors in particular can profit from the electronic cigarette revolution.
Traditional Big Tobacco Stocks That Make Electronic Cigarettes
Lorillard Inc, the third-biggest US tobacco company, was founded in 1760 – making it the oldest US tobacco company. Newport, Lorillard Inc’s flagship premium cigarette brand, is the top selling menthol and second largest selling cigarette in the US. In fact, Newport accounted for approximately 88% of Lorillard Inc’s sales revenue for 2011. However and in April 2012, Lorillard Inc acquired blu eCigs, a leading electronic cigarette company in the US, for $135 million and the move marked big tobacco’s first foray into the industry. blu eCigs had about $30 million in revenue last year and its products are sold in more than 13,000 retail outlets.
Reynolds American Inc., the second-biggest US tobacco maker, has also developed a “digital cigarette” using computer chips to replicate smoking a cigarette. Specifically, Reynolds American Inc.’s subsidiary R.J. Reynolds Vapor Co. is preparing to make a "big splash" after having a limited launch of its Vuse product earlier this year. However and in recent investor presentations, Reynolds American Inc.’s CEO emphasized that cigarettes are still the core focus and business for the company and he stated the company’s internal mantra of "80/90/90": 80% of RAI’s resources are still in the combustible tobacco space, 90% of its organizational resources focus on combustibles and 90% of the R&D budget is still centered on combustibles.
Small Cap Electronic Cigarette Stocks
Small cap investors might want to check out the following electronic cigarette stocks that could also be acquisition targets:
Smokefree Innotec (PINK: SFIO). A designer, developer, manufacturer and marketer of hi-tech, nicotine and non-nicotine cigarette-like delivery devices that are completely smoke and vapor-free and tobacco-free, Smokefree Innotec has not issued any press releases that I can find nor are there any financials available – just a basic website. Nevertheless and On Friday, Smokefree Innotec surged 60% to $0.0008 for a market cap of $316,700. However, Smokefree Innotec is down 27.3% since the start of the year and down 98.9% over the past five years.
Vapor Corp. (PINK: VPCO). A leading distributor and marketer of electronic cigarettes, Vapor Corp.’s brands include Smoke Fifty-One®, Krave®, Green Puffer®, Americig®, VAPOR-X® and EZ Smoker®. More specifically, Vapor Corp’s Personal VaporX XL vaporizer uses cutting-edge technology to discharge a smooth Liquid Herbal Formula into vapor so that you can “enjoy your favorite herb anywhere.” On Friday, Vapor Corp. rose 13.64% to $0.25 (VPCO has a 52 week trading range of $0.05 to $0.30 a share) for a market cap of $15.05 million, but the stock is down 7.4% since the start of the year and down 52.8% since early 2010. Vapor Corp says its business strategy is to leverage its unique ability to design market and develop multiple e-cigarette brands and then bring those brands to market through multiple distribution channels. In addition, Vapor Corp has recently reported that net sales for the nine months ended September 30 rose 33.3% to $16,844,097, but net income of $504,333 turned into a net loss of $634,285 namely due to tax issues.
Medifirst Solutions (OTC: MFST). A diverse holding company, Medifirst Solutions has three divisions: 1) The FHC advertising agency division; 2) The Florida Health Community website which is designed to be a medical directory with a social media component for users, and 3) The Miracle-cig which is a brand of disposable electronic cigarette. On Friday, Medifirst Solutions closed at $0.500 for a market cap of $3.26 million and its daily trading volume averages around 682 shares plus shares are down 98.3% since early 2009. Medifirst Solutions also has a going concern provision attached to its latest financials. As for its Miracle-cig, units sell for $9.95 with unit cost being about $2.50 per unit and the company has no manufacturing contracts as “dozens of manufacturers in China offer these products and there is little difficulty to purchase them.” Medifirst Solutions plans to increase sales using SEO and affiliate partners online with its target sales being 300 to 500 units per month online with the affiliate program that will increase to 500 to 1000 units per month when the company fully integrates with the Google search engine. In other words, there really aren’t any barriers to entry for what Medifirst Solutions is doing with the Miracle-cig.
The Bottom Line. For investors who are risk adverse but want exposure to electronic cigarettes as well as traditional cigarettes, big tobacco stocks Lorillard Inc or Reynolds American could be the way to go while more adventurous investors might want to skip over small cap electronic cigarette stocks like Smokefree Innotec and Medifirst Solutions and instead consider taking a closer look at Vapor Corp.