E-cigarette makers eye US output
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SOME of the leading US producers of electronic cigarettes are moving their manufacturing to the United States from China in response to growing concern about quality and the prospect of tighter federal regulations.
In recent weeks, some of the best-selling US e-cigarette companies, including closely held Mistic and White Cloud, announced that they would move production to new, highly automated US factories that would enable them to track ingredients and quality more closely. As a fringe benefit, they even expect costs to be lower than in China, the country that invented the battery-powered cartridges that produce a nicotine-laced inhalable vapor.
“People are concerned about quality,” said Bonnie Herzog, a senior analyst at Wells Fargo Securities, expecting more manufacturing to shift to the US.
“There is varying quality among all these different brands,” she said. “I think regulation will standardize these products because they will be forced to improve.”
The shift has gained momentum since April, when the US Food and Drug Administration proposed rules that would require, among other things, manufacturers that want access to the US market to register with the agency and list the ingredients in their products.
Output to move to US
“As a general rule, the FDA regulation will require more control over the manufacturing process,” said Bryan Haynes, an attorney at Troutman Sanders, a law firm in Richmond, Virginia, that represents e-cigarette companies. He said more companies plan to move production to the US because it “could make compliance easier.”
Many of these companies already produce the nicotine-laced liquid used in e-cigarettes in the US and then ship it to China, where the battery-powered devices are assembled. Most batteries will continue to be made in China.
E-cigarettes are considered a crucial business for the three major US tobacco companies, which have bought or developed their own brands in recent years to offset shrinking sales of conventional tobacco cigarettes. Compliance with new US regulations has become a top priority.
US sales of e-cigarettes are expected to outpace sales of tobacco cigarettes by 2020, in part because of the perception they are safer to smoke.
Their advocates say e-cigarettes are a safer alternative to smoking traditional cigarettes since they do not produce lung-destroying tar. But there is little data about the long-term health effects of the products.
Reynolds American Inc is the only one of the nation’s three largest tobacco companies to make its e-cigarettes in the US, at a factory in Kansas. It currently sells its Vuse brand in two states but expects to expand nationwide this summer.
Lorillard Inc’s blu brand is assembled in China but the liquid is produced in the US. Reuters said earlier this week that Reynolds was in active discussions to buy Lorillard. Blu is the top selling e-cigarette brand in the country, with about half of the market share.
Altria Group Inc makes the liquid for its MarkTen in Richmond, Virginia, and manufactures the brand in China. It also expects to sell the e-cigarettes across the US this summer.
To be sure, most e-cigarettes are still made in China. Many companies are pleased with production in China and have no plans to move their operations. NJOY, for example, produces the liquid for its NJOY brand in the US and assembles the devices in China.
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