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Tank Attack

Industry watchers in the smoking and vaping market are reporting changes that may impact the way vaping products will be regulated in the coming years.

The leader in market analysis for tobacco products is Bonnie Herzog of Wells Fargo Securities, and she has been talking for some time now about the exuberant growth in the segment comprising "tanks" or e-liquids, as opposed to "e-cigs" or "cigalikes". Herzog's most recent report includes cigalikes in the same category with combustible cigarettes for purposes of growth analysis, and they are contrasted with vapors, tanks, and mods. "E-Cig Growth Decelerating as Vapors/Tanks/Mods Gain Traction" reads the heading for one paragraph, and "Vapors/Tanks/Mods 'Greatest New Threat' to E-Cigs & Combustible Cigs" reads the heading of the next.

Says Herzog: Vapors, Tanks, and Mods (VTMs) "are growing 2x the rate of the overall category. Shelf space devoted to VTMs has increased 30% and 65% of respondents said vape shops are either currently or soon could be impacting [convenience]-store traffic." (Vape shops tend to specialize in mods, convenience stores in cigalikes.) "Will e-cigs [cigalikes] be able to hold their own," Herzog wonders, "or will they continue to lose share to VTMs?" The jury, she concludes, is still out.

Why is this significant to the vaping community?

Cigalikes, e-cigarettes that look very much like the combustible, poisonous kind (they may differ only in color) are preferred by newbie vapers, usually smokers just starting to quit and looking for a vaping experience that closely mimics the smoking experience. Cigalikes are the vaping products that irritate smoking-ban activists who have become public-vaping-ban activists in the US.

It is often mentioned in the rationale for extending a public-smoking-ban to a public-vaping-ban that restaurant and tavern personnel, as well as patrons, are confused by the appearance of a vaper in their establishments, because the practice looks so much like smoking, despite the occasional color difference.

Indeed, it seems clear that much of the opposition to vaping results from the demonization of the visual image of the smoker that has occurred in the last few decades with the growth of the non-smokers' rights movement. Cigalikes remain the primary product of the Big Tobacco intrusion into the vaping products market. Observers both inside (like Herzog) and outside (like opponent Stanton Glantz) tend to think of the Big Tobacco cigalikes (Lorillard's Blu and now RJR's Vuse and Altria's Mark Ten) when they think of e-cigs, although some independent companies (Njoy, V2, Victory, for example) also deal in cigalikes.

The growth of the vapors/tanks/mods segment of the market is primarily a growth of independent companies that have never sold toxic combustibles (and never will unless they are successfully targeted for hostile takeover by Big Tobacco). Although market watchers like Herzog (who expects Big Tobacco to move into vapors/tanks) are interested only in the profit and loss balance sheets, sales statistics, and stock performance, the vaping community makes value judgements and affectional choices when viewing the vaping products industry.

Ethics plays a role that is absent from a purely market-based analysis, and resentment over Big Tobacco's disregard for customers' health carries over into later buying choices. Pro-vaping crusaders (who are more likely to prefer mods to cigalikes) very often see Big Tobacco as the bad guy, and independent manufacturers of tank systems and mods as knights in shining armor, riding in on white horses to save lives. These ethical evaluations and affectional proclivities are eventually translated into economic choices.

The point is that the increasing segmentation of the market into three categories: combustibles – cigalikes – vapors/tanks/mods – takes on ethical, cultural, and political dimensions. As such, it is not inconceivable that the regulators might take notice of such distinctions as they design product categories, taxation schedules, public use restrictions, and so forth.

We could see mods taxed differently than cigalikes in the future. In order to achieve this, it will be essential to calm the public's fears of household poisonings of children with e-liquid. Child-proofing of e-liquid containers is vital to the continuing success of these products, along with instruction and encouragement of responsible behavior on the part of vapers who live with small children.

Regulation is essential and long overdue. Once better regulation is in place, we will no doubt see the growth of non-cigalikes continue to outpace cigalikes growth as well as declining cigarettes.