NEW YORK -- The great promise of electronic cigarettes is not what it once was. In a recent CSP-RBC Capital Markets tobacco survey, only three cig-alike brands (Vuse, blu and Logic) were cited as coming close to meeting expectations and 90% of respondents described their vapor business as slowing down of never getting started in the first place.
Nik Modi, a tobacco analyst at RBC Capital Markets, heard similar things from retailers he spoke with at the NACS Show in October.
“There’s a lot of fear about taking on new products on the shelf given the history here and the fact that many companies aren’t taking back the product,” he said during last week’s CSP and Swedish Match sponsored Tobacco Update Webinar.
According the Modi, the problem isn’t just an absence of product returns but the products themselves.
“My whole issue has always been the category cannot provide the same efficacy,” he said. “In order to really get this category to where I think it can be, investments need to be made in research and development. You need to figure out a way, as a manufacturer, to get the nicotine to absorb into the bloodstream the same way as a cigarette.”
Although vape products have certainly come a long way from the clunky, expensive novelty items first sold in mall kiosks seven years ago, there’s still a long way to go in terms of truly replicating combustible cigarettes.
“I don’t know if it’s three years away or five years away—but I know it’s not one year away,” said Modi. “Nothing I have seen or heard at this point will get us to what I believe can be a complete substitute.”
Throwing a wrench in the innovation process are the impending deeming regulations, which will give the U.S. Food and Drug Administration (FDA) authority to regulate e-vapor products. While the regulations are not finalized, the version the White House Office of Management and Budget (OMB) is currently reviewing was leaked earlier this month.
“One way or another, these regulations are going to dictate the future of this category,” he said. “So far, based on what we’ve seen, it doesn’t look very good.”
Modi was specifically concerned about the premarket tobacco product application requirement, which stands to be “difficult and very costly.”
“I wonder how many companies will actually be able to complete it, let alone fund the process,” he continued. “It could stifle innovation. Unless we have clarity and unless [manufacturers] believe they can get a return on their investment, it’s hard for me to understand why they’d invest significant amounts of money back into the category to improve the product experience.”
Only time will tell: Modi predicted the deeming regulations will be finalized in the first quarter of 2016. For the time being, both manufacturers and retailers will have to continue to play the waiting game.
“My advice to retailers is to remain cautious,” Modi said. “Make sure you partner with the right companies and make sure there’s a clear understanding of the return policy.”
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