Will a Proposed Tax on E-cigs, Tank the Electronic Cigarette Revolution?

Mar 28, 2014

New Jersey Gov. Chris Christie has proposed a tax on e-cigs in his 2015 budget proposal, making this popular cigarette alternative just as expensive as traditional combustible cigarettes. A tax on e-cigarettes would raise an estimated $35 million for the state.

The potential to generate such large revenues from taxes on e-cigarettes has led to other states consider the same proposals. The smoke-Free Alternatives Trade Association estimates that a federal tax on e-cigarettes could lead to a 20% sales decrease nationwide.

Cigars CEO Jason Cardiff told Fox Small Business that his product should not be taxed like traditional tobacco products, “Taxes on combustible cigarettes are there to offset the expense that is generated by combustible tobacco — from the strain on the health-care system. We’re not generating additional harm or health-care expenses.”

Currently, e-cigs are cheaper than traditional cigarettes. One $6 cartridge refill generally lasts for a week.

Over the past 6 years, Cardiff’s Cigirex brand has grown between 100% and 300%. These types of staggering profits are commonplace among e-cig entrepreneurs who claim that it is the fear of missing out on revenues, not fear for public health that is behind the push for taxing e-cigarettes.

Proponents of taxation say that e-cigarettes should be regulated the same as other tobacco products as many e-cigarettes contain trace amounts of nicotine and do produce vapor, which can be as disruptive as smoke. E-cigarettes are made of plastic or glass cigarette-like tubes that contain a battery and a liquid cartridge. The cartridge contains a flavored juice that is made of propylene glycol, a variety of other chemicals, and tobacco-based nicotine, synthetic nicotine, or no nicotine. The battery generates vapor from the flavored juice.

Although e-cigs do not contain tar, research on their health effects has been contradictory or inconclusive at best, making health groups hesitant to aggressively campaign against e-cigs. Conflicting research is also why the FDA has not made a ruling on e-cigarettes. The agency is not sure if e-cigarettes could lead users to try traditional cigarettes, a result that could justify a federal tax.

This uncertainty is why state government officials like Kevin Lusk, a chairman of the Tobacco-Free Chattanooga coalition, are wary about the non-regulation of e-cigarettes. “There are still plenty of health risks,” Lusk told The Chattanooga Times, “In 30 years there may be a problem with vaping that’s just as bad as cigarettes are today.”

Still, there are many former cigarette smokers who insist that e-cigs do help smokers kick the habit, which is why Jason Cardiff worries about federal taxation. The entrepreneur believes that heavy taxation will stifle the booming industry, making e-cigarettes so expensive, that only the wealthy could afford them.

Bonnie Herzog, a Wells Fargo Securities analyst, says that the e-cig market is currently worth about $1.85 billion, and believes that e-cig sales will outpace traditional cigarettes within ten years. She remains optimistic about how the FDA would regulate e-cigarettes, stating that stifling industry growth would also slow down conversion from conventional cigarettes to a safer alternative. This, she believes, “would be counterproductive to their cause”.

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