The electronic cigarette – also known as e-cig – industry has grown from virtually nil to over $1.7 billion in annual sales over the past five years. According to Wells Fargo, the relatively new industry is set to reach over $10 billion in annual sales by 2017 driven by increasing affordability and personalization, which would still only account for a fraction of the $100 billion tobacco industry.
Many large tobacco companies have already taken notice, as evidenced by Lorillard Inc.’s (NYSE: LO) $135 million acquisition of eCig in 2012 and Altria Group Inc.’s (NYSE: MO) purchase of Green Smoke for $110 million. However, the industry remains highly fragmented with small regional players controlling the majority of annual sales, which has created an enormous opportunity for consolidation.
Vaporizers have also been rapidly growing in popularity. While e-cigs use a liquid that’s broken down and turned into a vapor, vaporizers gradually heat material with warm air that vaporizes the ingredients and pushes them into the air without being burned. Vaporizers can be used in conjunction with a wide range of materials, which can create a larger range of flavor and taste profiles for end market consumers.
In this article, we’ll take a look at a company that’s looking to capitalize on the growing market for vaporizers with its unique product line-up.
The e-cig and vape market spans from small “home brew” entrepreneurs to large national brands like NicQuid and Johnsons Creek. With an estimated 60% of vapor sales going through untracked channels online and smaller firms with less than $3-5 million in annual sales, the vast majority of the market still consists of small regional, cottage, and home brew operations rather than large established brands.
Over the coming year or two, the industry is likely to see significant consolidation due to a number of different factors. First, large tobacco companies are likely to roll-up major brands in order to establish themselves in a faster-growing niche market. Second, the FDA is likely to begin regulating the industry over the next year or two, which would put up a key barrier to entry for smaller competitors.
These dynamics have created an opportunity for companies to roll-up brands and establish a presence now, when the market remains penetrable for early-stage companies. As large tobacco companies seek to expand their presence, many of these companies could become acquisition targets or attractive licensors of brand names that become household names in the e-cig and vapor space.
Building a Brand
Avalanche International Corp. (OTC: AVLP), a Nevada-based holding company, recently acquired Smith and Ramsay Brands LLC, a manufacturer and distributor of premium vape liquid and accessories. Over the coming months, the company plans on rapidly moving into the market place with its signature brand and aggressively launching new flavors and additional brands and accessories.
While its premium products will be focused on vape stores and traditional smoke shops, its other products will target convenience store and gas station markets, as well as ethnic-specific markets. Management also plans on introducing external brands that will focus on hardware/liquid combinations, including disposable devices with preloaded liquid and/or preloaded cartridges for specific devices.
Recently, the company introduced its Avatar Vape Pen, which was licensed from European manufacturers where it has already been broadly deployed. With a discrete and stylish Italian design, the vape pen provides a convenient, easy-to-use, and functional design that’s reliable and attractive to end market consumers, as evidenced by a recent study conducted in Europe.
The company’s initial manufacturing capacities will be established at 5,000 to 15,000 bottles per week, while plans are in place to expand production to more than 250,000 bottles per week to meet demand. At the same time, quality control processes are in the works to ensure compliance with cGMP, FDA, and ISO guidelines in order to potentially pre-empt any upcoming regulations.
A Safer Fix
Avalanche International released the results of a clinical study in November evaluating the use of its Avatar Vape Pen for smoking cessation. In a 4-month study involving 34 volunteers, researchers found that 50% of participants quit smoking, 92% reduced their cigarette use, and carbon monoxide levels in the patients’ blood was reduced by as much as 10 times by the end of the study.
In December, the Quit Smoking Network, a non-profit organization dedicated to providing alternatives to those seeking to reduce or quit smoking tobacco products, announced that it will feature the Avatar Vape Pen and Smith and Ramsay e-liquids as recommended choices for their “harm reduction” program. The endorsement was largely driven by the impressive clinical trial results from Italy.
These efforts and others in the pipeline could drive the market’s adoption of the Avatar Vape Pen and Smith and Ramsay brand e-liquids over the coming months. At the same time, management continues to gear up for an ongoing expansion and the potential introduction of new products into the market over the coming months in order to capitalize on the rapidly growing and fragmented industry.
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