Big opportunities exist for electronic cigarettes.

Wells Fargo Securities hosted its Inaugural E-Cig Forum in New York City on Nov. 21. The conference gathered e-cig industry leaders, public health and regulatory experts and investors.

“We came away with an even greater conviction that e-cigs will be a game changer and will eventually be margin enhancing to the tobacco industry. We reiterate our Overweight rating on the tobacco sector as we are increasingly optimistic on e-cigs,” noted Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research for Wells Fargo Securities LLC.

Continued Disruptive Innovation Needed

Wells Fargo hosted “fireside chats” with 10 e-cig companies and provided the following key takeaways:

(1) There is a vast opportunity for the category and it is only just getting started—there’s room for both responsible independents and Big Tobacco;

(2) Companies are exploring international expansion—possible combinations or partnerships could be on the horizon;

(3) E-cigs/vapor products are in the early stages of innovation. Wells Fargo anticipates meaningful and positive changes to come over next several months;

(4) E-cigs margins said to be very attractive—rivaling those of combustible cigs with many companies moving towards the rechargeable/razor-blade model;

(5) E-cig companies are differentiating themselves on both technology and branding;

(6) Retailers and wholesalers continue to embrace the category given its attractive margins (~3x those of cigs).

Public Health Panel Suggests Huge Global Health Opportunity

David Sweanor, adjunct professor of law at the University of Ottawa, moderated a panel of industry experts including David Abrams, PhD, Clive Bates, and

Jean-Francois Etter, Ph.D, to discuss current perceptions on public health risks and trends for the e-cig category.

Key takeaways:

(1) E-cigs likely significantly less harmful than traditional cigs and offer a compelling alternative to smokers, which isn’t universally known among smokers since relative risk claims are not allowed;

(2) Current studies on e-cigs are both insufficient and often misinterpreted, leading to a misunderstanding about the risks/benefits of e-cigs by both the public and legislators;

(3) Ongoing innovation is needed to improve “experiential” aspects of e-cigs and convert more existing smokers;

(4) Regulation must be thoughtful and allow for (rather than stifle) innovation and education of the public.

Bottom Line—There appears to be a broad belief in the benefits of e-cigs and the vast public health opportunity, according to Wells Fargo.

Cigarette and E-Cig Differentiation

Clive Bates, former head of ASH (Action on Smoking and Health) hosted a panel—Regulators Must “Mind the Gap” of Differences Between Cigs and E-Cigs—including, Neil Wilcox (blu/ Lorillard), David Graham (NJOY), and Scott Ballin, JD.

The panelists agreed regulation is good and necessary, but the regulation of e-cigs must be different than cigarettes. The panelists generally believe that Mitch Zeller understands this and were encouraged by his recent comments that regulation of all nicotine products should be comprehensive and based on a continuum of risk.

Wilcox summarized the principals that he believed regulators should follow:

(1) Encourage robust research;

(2) Employ rigorous quality standards;

(3) Allow innovation to continue;

(4) Ensure e-cigs are promoted to adult smokers only.

“We believe there is an active, ongoing dialogue with relevant decision makers and believe forthcoming regulation could be an opportunity for e-cig manufacturers to better educate consumers and convert smokers,” noted Herzog.