Ecig Company Acquisition, To Buy Or Not?

Ecig company acquisition seems like a trend in today’s electronic cigarette industry. It is quite common to hear how one ecig firm, established and all, has been purchased by bigger entity. This bigger entity could be another ecigarette firm, a tobacco company or any business unrelated to electronic cigarettes and/or tobacco.

To push through or not with the ecig company acquisition would essentially depend on the stances of parties involved. Some would see the partnership opportune while others would think it is not.

Genius-ZenCig: To Buy, A Unique Agreement

Genius Properties Ltd. has entered a letter of intent in acquiring (via a subsidiary) 70% interest of Zen Cigarette Inc. assets. ZenCig is a firm specialized in the processing and distribution of electronic cigarettes.

The LOI’s basic terms for the assets acquisition involves the creation of a new corporation, Newco. Genius will have 70% interest at Newco while the current ZenCig owners will have 30% interest. Newco will purchase the assets of ZenCig for a combined 670,000 common shares of Genius priced at $0.25 per share and also 300,000warrants for the purchase of Genius common shares.

ZenCig assets include goodwill, inventory, web domain name, intellectual property, distribution rights and permits. Genius will take over Newco’s corporate affairs so it is expected that the current management team of ZenCig will manage the day-to-day operations.

President Stephane Leblanc of Genius commented that this is a very exciting project, a transaction that brings immediate revenues to the company and will drive Genius to a higher level. After all, Genius is primarily involved in discovering new world-class deposits. The company is an excellent partner of exploration companies as well as capital pool companies.

The transaction is expected to conclude no later than July 4, 2014.

EC Smokes-Eonsmoke: Not To Buy

EC Smokes is an established leading entity in rechargeable ecigarettes, eliquids, vaporizers and e-hookahs. Recent rumors have it that EC is involved in an ecig company acquisition plans by Eonsmoke. Apparently, this is only a rumor that EC has denied.

EC stated that they are in no way involved with any purchase negotiations with Eonsmoke. It is true that tobacco giants and other companies are getting involved in the ecig arena, considering purchasing smaller firms. However, EC smokes stated that it remains loyal to the customers who want access to authentic vaping products at prices they can afford.

Joe Provenzano, the company spokesman, said that since their distributors have been inquiring about this issue, they have decided that it is best that distributors, suppliers, investors and customers be publicly assured that EC Smokes is not pursuing any transaction to sell itself to Eonsmoke at the moment.

Latest Acquisition In The Ecig Industry

Numerous brands of ecigarettes have been acquired in the past years. Blu was most likely the first to be bought by Lorillard in April 2012. Last year, Lorillard also purchased a UK brand, Skycigs, which is now marketed as Blu. Altria has also purchased another ecigarette brand, Green Smoke. Imperial Tobacco also acquired the electronic cigarette division of the company established by the recognized inventor of ecigarettes, Hon Lik.

The recent acquisition involved Japan Tobacco Inc that announced recently about its acquisition of outstanding shares of Zandera Ltd that is better known for its E-lites ecigarettes. Ecigs still comprise a very small fraction of the $100 billion worth tobacco industry.

The sector also remains fragmented and thus indicates that these fragments might be consolidated in the years to follow. Consolidation might be a good thing for the industry especially so that it is threatened by imminent regulations and restrictions.

Victory Electronic Cigarettes, a larger non-tobacco ecigarette company is also involved in not just one, but numerous acquisitions of other established brands. It has acquired Vapesticks, FIN ecigs, and more.

Challenges That The Booming Ecigarette Industry Is Facing

The ecigarette industry is certainly booming, but it is definitely not exempted from challenges and difficulties. Since tobacco cigarettes share the same last name with electronic cigarette reviews, one could expect that the same dark clouds could be covering this emerging market.

Booming And Growing Electronic Cigarettes

Nicotine is an addictive substance and this addictiveness is even made more pronounced by the additional ingredients put into cigarettes by tobacco companies. Quitting is a feat hard to achieve. There are approved smoke cessation products that are offered to smokers so they have options other than cold turkey.

Not everyone could quit using these tools and methods. With ecigarettes now widely available, many smokers now turn to them as more preferred means of weaning themselves off cigarettes.

Looming Ecigarette Industry Hurdles

Classification As Tobacco. The FDA has recently announced its proposal for classifying electronic cigarettes as one of the newer tobacco products in the market. The FDA is rather taking a more conservative approach in this matter as not much is known about the effects of ecigarettes especially the long term effects.

Ecigarette regulations are definitely needed and the need for them seems fair. Yet, the decision of the federal agency could have adverse impact on ecig manufacturers. Meanwhile, ecigarettes classified as tobacco could also boost the profits of insurers.

Smokers thinking they will be rated at such lower rates since they are essentially keeping away from cigarettes. Yet, if ecigs are also tobacco; they have no other choice except for getting higher insurance rates than non-smokers and non-vapers. Right now, insurance companies have varying stances on treating electronic cigarette users applying for their health insurances.

Increasingly Steeper Competition. Debates about ecigs have endlessly focused on the possible benefits and risks of vaping on health. The potential oversaturation of the market seemed to have been forgotten and set aside. Competition is good for the part of the consumers because they can have a lot of options to choose from.

For businesses, however, excessive competition is not really good because it could potentially reduce pressure margins and pricing power. Manufacturers will need to invest more money on advertising so their brands will stand out from the other products.

Competition could also lead to poorer quality of products because of the rapid influx of products. According to the recent study published by UCSD, newer products appear to focus more on the flavor and health advocates become even more concerned about the youths being more enticed.

With too much competition, some manufacturers could resort to lowering the quality of the products so that they could offer less costly products to consumers who are more concerned about earning profits.

Viability Of Vaping Business Model. The ecig industry is truly growing at an impressive rate that many entrepreneurs are lured in venturing to it. Right now, this business might earn you excellent amount of profits while more and more smokers are turning to it.

In 2013, ecigarette sales crossed its $1 billion mark. While this is impressive, it is still more or less just at 1% of the $346 billion worth of tobacco industry. In essence, ecigs are still just having a minute effect on the radar of tobacco companies although many of them are already venturing into the sector.

Many see a great opportunity from putting up ecig businesses. These products offer amazing advantages over real cigarettes such as light regulations and low sales taxes. These benefits are truly lucrative at the moment and while the proposed regulations of the FDA are not yet approved and implemented.

However, once regulations treating ecigarettes as tobacco are enacted, it would mean more stringent policies on the use of ecigs in public, more stringent policies o advertising and higher taxes that will make the products more expensive. Innovations will also be blocked by policies and all in all, the allure of ecigarettes will be lost and it could be the wick of the industry’s draining success.