E-Cigarettes: Escaping the Smoke

Smokers seeking alternatives to cigarettes have found cause for optimism in electronic cigarettes, which use vapor to simulate tobacco smoke, and look and feel almost like the real thing, minus the unpleasant smoke, odor and ash.

E-cigarettes, which contain nicotine and are sold in the U.S. by such companies as V2 Cigs and NJOY, may have unknown side effects. Nonetheless, some intrepid smokers have embraced e-cigarettes, if only for the health of their bank accounts.

Cigarette prices have skyrocketed due to high taxes. In New York City, for example,local, state and federal levies add $5.85 to the cost of a pack. The cost of a three-pack of disposable e-cigarettes -- the equivalent of six traditional packs --- is less than $25 via the V2 Cigs website.

V2 Cigs CEO Andries Verleur said in an interview that such price differences drive the 20-percent growth that his company has seen month over month. "We are not yet a regulated industry, and being unregulated, there's a cost savings because there's no taxes," he said. "I expect that we'll do more than $80 million in net sales this year." 

The product likely wouldn't sell without convincingly replicating the experience of traditional smoking. He insists that it does, and as a former two-pack-a-day smoker who now puffs on his own company's product, he should know. Still, he insists that the transition can be a challenge.

"It's not the holy grail," he said. "In a traditional cigarette, nicotine gets into your bloodstream much faster, so with e-cigarettes there's a delay in nicotine delivery, and an adjustment in moving to the product. But it mimics the smoking experience better than anything, because you still get the oral fixation, the puffing, the whole ritual."

He also stressed that e-cigarettes are not smoking cessation aids. "It's not a nicotine replacement tool," he said. "There are customers that maybe use it like one, but most people are switching just to escape the smoke."

He added that a large segment of V2 Cigs' customer base has seen some benefit, physical and otherwise. "Nicotine's not good for you, and we don't want to say that our product is healthier," he said. "But our customers say there's a significant improvement in their lives. … I use it, and I just breathe easier."

For now, major cigarette manufacturers seem content to stay on the sidelines. In a transcript provided by David Sylvia of Altria, the company's chairman and CEO, Martin Barrington, said in a January earnings call that the company is waiting to see what unfolds.

"Well, what I would say about e-cigarettes is that we're monitoring it carefully," Barrington said. "It's still a relatively new phenomenon. ... The FDA has said as you know that it intends to regulate e-cigarettes. So we're monitoring all of that very carefully."

The time to stop monitoring and start moving in may come soon. Bonnie Herzog of Wells Fargo told CNBC that consumption of electronic cigarettes could surpass that of traditional cigarettes in the next 10 years. And if NJOY President and CEO Craig Weiss has his way, it could be a rough decade for cigarette manufacturers who don't adapt.

"Our mission is to 'obsolete' cigarettes," he told the Financial Times. "We think of ourselves as the digital to their analogue."