The electronic cigarette market — more commonly known today as “vaporizers” — has come a long way. In 2008, when vaporizers were just making their presence known, total sales in the industry were only $20 million. By the end of 2015, revenue jumped to nearly $2.9 billion, or an increase of approximately 14,300% over a seven-year period. With great revenue comes great attention.
Once considered fringe, vaporizer stocks were thrusted into legitimacy. Although the vast majority of e-cigarette investments are speculative, a few have found respectable followings. Naturally, not all of the attention has been helpful. Big Tobacco companies once viewed vaporizers as a niche movement, but now see it as a threat.
Playing both sides of the legislative table, major cigarette firms are using whatever means necessary to stop vaporizers. That also means siding with the Food and Drug Administration, so long as it will hurt vaporizer stocks. As a prime example, Reynolds American, Inc (NYSE:RAI) pressed for the ban of “open-system” vaporizers, which allow for modularity, while leaving “closed-system” vaporizers alone (PDF). Guess which of the two Big Tobacco companies sell.
The key for vaporizer stocks is that manufacturers have shifted production to accommodate the blossoming trend of marijuana legalization, which saw nine states vote on various degrees of legalization and Maine join the growing list of states (and districts) allowing for recreational use. Eventually, what attracted smokers to vaporizers — the consistent functionality of a digital platform — will likely do the same for “botanical clients.” Thus, Big Tobacco can take a hike … vaporizers are in it to win it.
Here are three vaporizer stocks that will benefit from favorable legislation.
Vaporizer Stocks: Vector Group (VGR)
Click to Enlarge Depending upon how the political and competitive dynamics materialize, Vector Group Ltd (NYSE:VGR) would be considered the “in-betweener” of vaporizer stocks. The primary business for VGR centers around its traditional cigarettes, of which it is the fourth-biggest manufacturer in the U.S. However, VGR also has an indirect subsidiary called Zoom E-Cigs LLC. Zoom produces “closed system” e-cigarettes, and that’s significant for a few reasons.
First and foremost, the closed-system vaporizers are what Big Tobacco firms produce, so they won’t attack VGR. Companies like Reynolds will claim publicly that this platform is the safest because it prevents experimentation. The “read between the lines” answer is that closed-system vaporizers contain the addictive nicotine substance. Essentially, this produces a captive audience. Nicotine flavors also appeals to traditional smokers. Thus, VGR is a play on both the technology of vaporizers and the bigger market of “analog” smokers.
Because it’s traded on the New York Stock Exchange, VGR has more credibility than pure vaporizer stocks. But that credibility doesn’t mean boring. In fact, VGR has been one of the most responsive investments in terms of riding momentum. Since the beginning of last December, VGR stock has jumped 11% in the markets. On a longer-term scale, Vector has just kept rising over the past five years, and it’s a trend I’m not interested in fighting.
Keep an eye on VGR stock — no matter which way the legislative winds blow, it should come out on top.
Vaporizer Stocks: mCig Inc (MCIG)
Click to Enlarge If you really want to amp up the speculation factor in vaporizer stocks, look no further than mCig Inc (OTCMKTS:MCIG). Its claim to fame is the “Vapolution” — a series of vaporizers that exclusively feature glass-on-glass air paths. The glass composition is a significant advantage for MCIG, as most competitors use cheaper materials like plastic. According to Vapor Authority, one of the industry’s leading retailers, the Pyrex glass used in premium vaporizers resist erosion and promote a cleaner taste.
With an increasing number of states accepting legalization for either medicinal or recreational use, the Vapolution should find solid demand. “Herbal solutions” can be enjoyed through this vaporizer, which cooks the herbs into a vaporized format, and is drawn through a hose-like device. However, for the ardent traditionalists, MCIG offers the “Rollie’s.” These are cannabis cigarettes that come in elegant packaging and provide convenient hits on the go.
From an investment point of view, MCIG is quite the monster. Year-to-date, shares are already up 85%, and we haven’t even hit the two-month mark! Over the past 90 days, MCIG has gained nearly 160%, while in the trailing six months, it’s skyrocketed 960%. Naturally, the question becomes, have I missed the boat?
I’m not going to lie — MCIG is a gamble. However, if the legalization trend continues, I’d expect even bigger gains.
Vaporizer Stocks: Electronic Cigarettes Intl Group (ECIG)
Click to Enlarge One of the common misconceptions about vaporizer stocks is that future growth is largely dependent upon marijuana legalization. It’s true that “botanical tolerance” is a major growth area. Vaporizers, however, started as an alternative to smoking traditional cigarettes. That’s still the core business for several vape stocks, and it’s no different at Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG).
Analog cigarettes get a bad rap because of Big Tobacco firms and their incorporation of nicotine. Logically, people assume that the vaporizers sold by companies like ECIG also use nicotine. But that’s another misconception. Nicotine can be present in vaporizers, but in reality, many smokers prefer nicotine-free flavors. The addictive substance actually interferes with vaporizer taste. Also, heavy smokers use the nicotine-free platform to help them wean off of regular cigarettes.
I’m also not too concerned about ECIG when it comes to Big Tobacco’s attacks. The present administration is all about fewer regulations. It would be somewhat quixotic to assume that something big like Dodd-Frank will fall, yet regulations would increase for vaporizers. Instead, I see ECIG benefitting from two sources of demand — progressive attitudes toward marijuana and smokers switching to a cleaner alternative.
That said, ECIG is an over-the-counter offering, so be aware of the volatility. As a risk-managed play, however, ECIG has huge upside potential.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.