British American Tobacco and Reynold’s Deal Will Change E-cig Market Forever

Nov 09, 2015

British American Tobacco Ltd (BAT) recently announced a vapor-technology sharing and licensing agreement with Reynolds American Inc., an essential step towards its expansion into Reynolds.  The companies are expected to close the deal by Dec. 31, with the proposed sharing running through the end of 2022. Over the past decade, health advocacy and anti-smoking campaigns has generated a strong cigarette alternative market. Studies project that e-cig sales will outpace the sale of combustible cigarettes soon. This has prompted big tobacco companies to invest in e-cigs and other technologies to combat plummeting sales. The deal between BAT and Reynolds is most likely the beginning of more technology and licensing deals in the tobacco industry.

Electronic cigarettes are made of plastic or glass cigarette-like tubes which hold a liquid cartridge and battery. Flavored juices made of propylene glycol are placed inside the cartridge along with a variety of other chemicals. The battery heats up the liquid and generates a vapor from the flavored juice. The juices can hold tobacco-based nicotine, synthetic nicotine, or be nicotine free. Flavors can range from cotton candy to cappuccino.

The impending agreement will give BAT access to Vuse, the leading U.S. electronic cigarette made by R.J. Reynolds Vapor Co. Reynolds is predicted to leverage BAT’s international sales force., so that BAT can be the global distributor of Vuse, which would save Reynolds the time and expense of global distribution. Securities analysts believe the agreement will speed up global e-cig innovation and distribution as a whole. Reynolds executives predict that combined vaporizers ($2 billion) and e-cig ($1.5 billion) sales will exceed $3.5 billion in 2015, and eclipse traditional cigarette sales by 2025.

BAT also plans to buy the CHIC Group of Poland, an e-liquids production company that makes e-cigarette brands Provog, Cottien, Aromativ, Volish, P1, and LiQueen. BAT’s proposed agreement sets a precedent for future collaboration and mutual licensing agreements of vapor product technologies. Collaboration could include joint research and development, and manufacturing of vapor products. Technology-sharing could transform the tobacco industry, and allow the creation of more innovative, high-quality vapor products.

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