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Money Talks: Let’s Listen In

Investors have pumped $70M into Njoy e-cigarettes, raising it's total assets to $1B. What do they know?

The action was announced on 28 February, just 2 days after the European Parliament determined that in just 2 years, e-cigs with standard nicotine concentrations will become unavailable in the EU. Why would a group of savvy financial professionals (Morgan-Stanley, in conjunction with Brookside Capital, with strong encouragement from Wells Fargo) bet so much money on a product that may soon lose its pizzazz in a large market segment? What are they assuming about the likely final outcome of these changing European directives?

The investment decision also came at a moment when everyone is still waiting for US regulators to weigh in with their long-awaited directives. Some fear that they may imitate the EU action, with regulation that would deflate the industry in the US as well, although the scientific voices most in the know (Benowitz, Goniewicz, Siegel) are urging a more sophisticated approach. Then again, the EU regulators ignored the good scientific information available to them (Farsalinos, et alia), even telling the scientists in so many words that they were going to ignore their research. In any case, the US Office of Management and Budget is now considering what the Food and Drug Administration has reportedly sent them. The OMB is an arm of the White House, so the decision will thankfully not be decided by congressional vote. (That body can barely manage to keep the government running; just imagine the horror of entrusting to them a decision requiring refined scientific judgment!)

Ultimately, then, the decision will be the US President's, and he is a former smoker, not a rabid non-smokers' rights activist. In any case, the Morgan-Stanley and Brookfield investors are not waiting for that shoe to drop. They are clearly assuming that the industry will remain in good health, and indeed will continue to grow. It is not inconceivable that some good news might have leaked out of the OMB. But an equally good guess is that these money people simply know that money talks, and in the long run it will be listened to, even when common sense and good science are ignored.

One particularly heartening aspect of this story is the fact that the investment will equip Njoy well for the coming market battle with Big Tobacco. Of all the "dedicated e-cigarette companies", that is, e-cig manufacturers that do not make, and never have made, combustible cigarettes, that are not part of Big Tobacco (what we've called "clean-hands" companies), Njoy is the one with the largest stock portfolio. What with the recent entry of all the Big Tobacco companies into the e-cigarette market, and their well-funded attempt to dominate it, everyone is gearing up for a huge market battle.

Some anti-vaping activists are talking in their blogs about e-cigs as an extension of Big Tobacco (ignoring the 5 years before Lorillard bought Blu), and some legislators and regulators seem inclined to lump healthy e-cigs and toxic cigarettes into one big "tobacco products" category. As this showdown heats up, it will be super to have on the good-guys' side one e-cig company that combines a clean conscience with a big pocketbook. "We believe that only an independent company can have as its corporate mission the extraordinary technological and important objective to make cigarettes obsolete," says Craig Weiss, co-founder of the Phoenix, Arizona company with his brother Mark. He is making the obvious point that is senseless to turn to cigarette sellers for leadership if your aim is to phase out cigarette smoking.

The board and investor list of the company include a former US Surgeon General, an Internet mogul, a rock star, and a major figure at the popular site PayPal. (If you want to help in the battle against Big Tobacco, using PayPal would be another smart move.) So last week's bad news out of Strasbourg may be countered with the good news out of Phoenix. Let's keep our fingers crossed.

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