One of the fastest growing industries in the United States is for vaporizers and e-cigarettes, clearing $1.7 billion in sales in 2013, a year that saw a doubling in year-over-year revenue. What was previously viewed as a niche technology is now clearly a disruptive force to the tobacco industry that has major cigarette companies entering the space. And one of the first companies to reach the market with an e-cigarette device was Vapor Corp (VPCO) , which currently offers a wide variety of brands at tens of thousands of retail locations across the country.
Equities.com sat down with Vapor Corp’s President Jeffrey Holman to talk about the future of Vapor Corp and his industry.
EQ: You recorded record revenues for both Q4 2013 and FY 2013, so it’s looking like a great time to be in the e cigarette business. Looking forward, how do you feel about 2014?
Jeffrey Holman: Let me say first of all, we don’t make projections or give guidance. Having said that, the industry is looking great. They are projecting 100 percent growth again in 2014, and I think that’s a fair estimate.
Up till now, the data that we have has shown that only 20 percent of actual cigarette smokers have even tried the product. So, that being the case, there’s a lot more room for growth. And, in addition to that, the same data suggests that roughly 60 percent of all sales are repeat sales. So there is every reason to believe we’re going to keep a lot of satisfied customers as an industry and as a company and also be able to add a lot of new folks coming into the fold in 2014.
So I think with the added distribution that we’re already working on, the capital raise that we did at the end of the year with ROTH that took away our capital restraints, and with some strategic moves we’ve made recently, including the addition of Ryan Kavanaugh as a strategic advisor onto our Board of Directors, I’m very optimistic that in 2014 we’ll be able to keep pace with the industry.
EQ: You guys have a broad catalogue of available products.
Jeffrey Holman: One of the broadest in the industry.
EQ: What was behind the approach of segmenting yourself as diversely as you have?
Jeffrey Holman: We believed from day one that if we went with a multi-brand strategy it would allow us to hit every socio-economic demographic group, and we have found that to be true.
We have Krave, our flagship retail brand which goes out to most of the chain stores. We’re in over 10,000 Dollar Generals, 6,600 Family Dollars, and over 5,000 Rite Aids with that product line.
Then you have the VaporX line, which are a line of vaporizers. That’s a very growing segment, a completely different segment. That’s something that can be vaped with either e-liquid or leaf. Earlier this year we announced that we are adding our patent pending biometric fingerprint locking technology onto our VaporX line of vaporizers in time for the 2014 holiday retail season.
And we have our original brand of e-cigarettes, Fifty-One, which also offers the popular e-cigar, which is a higher-end retail specialty brand that appears in mall kiosks and smoke shops, things of that nature.
So by using that strategy, we‘re able to offer a product that interests every demographic.
EQ: On March 5, the LA City Council passed their ban on vaping in public places. Do you envision this as being an issue in terms of other cities and states following suit?
Jeffrey Holman: Whether other cities will follow suit remains to be seen. I will say, quite frankly, that I’m disappointed that this was enacted without any science behind it. And I’m going to point to comments from the director of the FDA, whose rules we’re presently waiting for, who stated very unequivocally that any rules promulgated by the FDA, any regulations that will be set in place, will be based on science. These widespread state bans lumping us in with tobacco are not based on science.
I say this because if you look at the studies, they are all, almost without fail, in favor of the industry. They talk about e-cigs being, at worst, a harm-reduction product. One study indicated that there’s less than 10 percent the amount of nicotine in exhaled vapor as there is in second-hand smoke. So if you look at all the science that’s available right now, lumping us in with tobacco is a knee-jerk reaction. And I think it’s one that folks will be held accountable for later on.
One of the reasons I say that is because the industry fear, at least from folks I’ve spoken to, is if you stop people from vaping in places they otherwise would be able to do so you’re kind of pushing them back to their cigarettes. And, according to the CDC, over 455,000 people a year die from smoke-related illnesses. So if this legislation is pushing people back towards smoking cigarettes, are they really doing something that’s in the public interest here? I have to question that wisdom.
I’m hopeful that when the FDA comes out with their regulations that local government is going to say “you know what, maybe that’s the appropriate way to handle e-cigarettes. On a national level rather than a local level.”
EQ: Do you envision this being an issue for your business model?
Jeffrey Holman: If folks want to vape, for the most part, they’re going to vape. Will there be a slight slowdown as a result of these changes? It’s certainly possible. If the suppositions are correct that people may go back to or use regular cigarettes more than they would have had they had access to their e-cigs, certainly that’s possible. But I think the growth that the industry has is going to well exceed any slowdown we’re going to have from bans like these.
EQ: In addition to running a public corporation for a profit, there’s also a clear public health angle to this. How do you feel about working in an industry that may be giving people a chance to quit smoking and maybe improve their health in the long term and decrease morbidity in the future?
Jeffrey Holman: On a personal note, that’s one of the reasons I got into this in the first place. We at Vapor Corp are one of the oldest companies in this industry. I had a running joke with the former CEO of NJOY about who got to market first, because I think we were a week or two apart.
One of the reasons we got into this initially was that we saw what we believed was an incredible opportunity to be disruptive to tobacco, and five or six years ago people were laughing at me when I said that. But five, six years later, that’s come to fruition and we have become disruptive to tobacco, which is a wonderful thing.
Another running joke is that they should be awarding the industry if not Vapor Corp a Nobel Peace Prize rather than giving us a hard time. Even if we are, at best, a harm reduction product as some of the studies suggest, we should be seen as a dream product for folks that are trying to get the public away from smoking. I cannot and will not make any health related claims, but down the road, in terms of dollars and cents, if some of the studies are correct, and you’re able to cut down on the morbidity rate obviously that’s a great public savings. There’s a lot of folks who do die these long, terrible deaths as a result of smoking related diseases and they do become a financial burden on the state and/or federal government.
So I would be more hopeful that, in the future, once the FDA comes out with their regulations, that wisdom that I’m anticipating based on the comments made by the new director, will be a little bit more inviting to the industry.
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