Midday Report: Marlboro Maker Moves Into E-Cigarettes

Cigarette makers are embracing a non-tobacco alternative.

Altria Group (MO) makes the Marlboro brand and is the world's largest cigarette manufacturer. But sales of tobacco products have been in decline for years, so Altria and others are looking at electronic cigarettes to make up for some of their lost tobacco sales.

Tyler Bush puffs on an electronic cigarette.  (Max Faulkner/Fort Worth Star-Telegram/MCT)
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Altria said last week that it plans to roll out an e-cigarette later this year, as it tries to catch up to rivals who already have them on the market.

Lorillard (LO) has a leading brand – blu eCigs. And Reynolds American is looking to expand sales of its Vuse brand. British American Tobacco is working on what it calls a new "tobacco inhalation device" that is not an electronic cigarette.

The market so far is pretty small. According to The Wall Street Journal, sales totaled just $500 million dollars last year – less than one percent of tobacco sales. But the market for e-cigarettes is expected to double this year, and continue to grow.

And with tobacco sales declining, the industry needs a new source of revenue. Altria reported that cigarette sales in the U.S. tumbled 5.2 percent in the first quarter, and the industry-wide drop has been even steeper.

So how do these e-cigarettes work, and are they really any healthier than traditional tobacco-rolled cigarettes?

An advertisement we found on several popular websites lists some of the benefits. It claims e-cigarettes do not have any tar, tobacco or carbon monoxide. It also says there is no second-hand smoke.

The FDA is expected to release its report on e-cigs any day now. It doesn't currently regulate them, but is likely to push for that oversight responsibility. So far, it's said only that "further research" is needed into the potential health benefits and risks.

As we said, Altria is starting from behind, but analysts say it can use its size and strength to quickly catch up. Some say an acquisition is likely.

While e-cigarettes hold the potential to offset some of the sales declines, there's also the possibility that they could accelerate that trend, by cannibalizing existing sales. But some estimates, 20 percent of all smokers in the U.S. have tried e-cigarettes.

For smokers there are other benefits to the alternative. There's no second-hand smoke, you won't small like a cigarette, and you could save money. Each cartridge, which roughly equals a pack of cigarettes, costs about $2 – considerably less than the real thing.