Cigarette and tobacco companies must adapt and embrace the new technology of electronic cigarettes or risk losing out in this ever expanding market according to a senior analyst from Berenberg Bank.
Big tobacco firms must position themselves accordingly to take advantage of this product becoming regulated by the Medicines and Healthcare Products Regulatory Agency (MHRA) in the UK. Regulation will give tobacco companies a critical advantage.
“We think they will adapt and we think they have some competitive advantages that really are sustainable,” he said. “Critically among those are the knowledge they have of the consumer and also the distribution systems they have.” Erik Bloomquist told CNBC on Thursday.
The MHRA are set to regulate electronic cigarettes as medicines in 2016 to “ensure appropriate standards of safety, quality and efficacy” they announced last month. But this legislation which will ban all current electronic cigarettes in the UK will create a massive void in the market, allowing the tobacco companies responsible for getting people hooked on cigarettes to reap the rewards of this new technology to help people quit.
British American Tobacco (BAT) is well aware of this lucrative opportunity and will position itself accordingly to take advantage of new legislation. BAT is set to launch a new product in 2014 which Erik Bloomquist confirmed will be endorsed by the MHRA. This will allow them to make claims about the devices benefits, such as low health risk compared to tobacco cigarettes. “(The MHRA endorsement) will be a turning point in the product’s popularity” he predicts.
Small and medium business are outraged at the MHRA’s plans as it effectively pushes them out of the market, handing it to tobacco companies on a silver platter. The cost of medical regulation is just too high for current electronic cigarette manufacturers and suppliers to compete. One electronic cigarette company was quoted by the MHRA as needing over 1.8 billion pounds to regulate its current range of products. Another e-cig retailer commented “There are over 1.3 million people using current electronic cigarette products in the UK. There have been no reports of safety issues, quality is ensured through Trading Standards and if efficacy was an issue (the ability to produce a desired effect) why are 1.3 million people happily using these products?”
Current e-cig users are also infuriated with the decision to regulate these products as medicine. “I am no more taking a medicine now by using an e-cig than I was when I smoked cigarettes” one vaper said. “This regulation will ban the variation in these products that makes them so successful. It will deprive users of choice, flavours and performance and will ultimately drive e-cig users back to tobacco and increased risk of smoke related disease.”
Anger has been directed at the MHRA which receives its majority of funding through approving medical products. Criticism has been made that implementing regulation advised by specialists with vested interests in pharmaceutical companies who are losing money from this technology is a poor way to make policy. Excessive regulation will restrict availability of devices that aim to tackle the world’s biggest cause of avoidable illness – tobacco smoking which kills over 5 million people yearly.