How Big Tobacco Can Triumph Over CVS Cigarette Ban

The industry has a potentially massive weapon in its back pocket: e-cigs.

Catharine Candelario, an employee at the newly opened Henley Vaporium, vapes an electronic cigarette, on December 19, 2013 in New York City.
National Journal
Matt Berman
Add to Briefcase
Matt Berman
Feb. 6, 2014, midnight

On its face, Wed­nes­day was a bad day for Big To­bacco in Amer­ica.

CVS, the second-largest drug­store chain in the coun­try, de­cided to forgo $2 bil­lion in an­nu­al sales and stop car­ry­ing to­bacco products by Oc­to­ber. Oth­er drug su­per­stores, like Wal­greens, are now weigh­ing their op­tions.

But Big To­bacco’s re­sponse so far has been muted. “It is up to re­tail­ers to de­cide if they are go­ing to sell to­bacco products,” a spokes­man for Al­tria, the par­ent com­pany of ci­gar­ette man­u­fac­turer Philip Mor­ris, said in a state­ment. “We’ve ap­pre­ci­ated work­ing with CVS over the years, and we re­spect its de­cision — for our part, we will con­tin­ue to fo­cus on the nearly 250,000 re­tail stores with whom we work to sell to­bacco products to adult con­sumers in a re­spons­ible way.”

The quiet re­sponse isn’t just an in­dustry strategy to save face. In fact, Big To­bacco may not have much to worry about. That’s be­cause if to­bacco products dis­ap­pear from Amer­ica’s biggest drug­stores, the to­bacco in­dustry doesn’t have to go with them. 

Nev­er count out Big To­bacco. Just look to e-ci­gar­ettes, a young but quickly boom­ing mar­ket.

“We don’t sell e-cigs today,” CVS CEO Larry Merlo said Wed­nes­day. “It’s something that there’s ob­vi­ously been a lot of con­ver­sa­tion about and we’ll con­tin­ue to mon­it­or FDA ac­tion on it.” The FDA, for its part, is still fig­ur­ing out how to reg­u­late the new in­dustry.

But Big To­bacco is read­ily hop­ping in. Lor­il­lard, the third-largest ci­gar­ette man­u­fac­turer in the coun­try, already owns one of the big­ger brands in the e-cig mar­ket, blu. Al­tria is in­creas­ing its e-cig in­vest­ment, the com­pany’s CEO said last week, in­clud­ing through a new com­pany called Nu Mark. And Al­tria isn’t drag­ging its feet either: Nu Mark is now clos­ing a roughly $110 mil­lion deal to buy up an e-va­por busi­ness.

There’s a lot of money in the fake-ci­gar­ette mar­ket. Rat­ings agency Fitch es­tim­ates that 2013 e-ci­gar­ette sales hit $1.5 bil­lion, up from un­der $10 mil­lion in 2007. Give it an­oth­er dec­ade or so, and the e-cig mar­ket could over­take the tra­di­tion­al to­bacco mar­ket, if FDA reg­u­la­tions al­low.

But if the na­tion’s big­ger drug­stores start dis­tan­cing them­selves from to­bacco products, Big To­bacco may be able to fill that mar­ket gap with e-cigs. Wal­greens, the coun­try’s largest drug­store chain, already sells e-cig products, in­clud­ing Lor­il­lard’s blu.

This week’s move by CVS was about brand­ing in more ways than one. Sure, CVS can now take pub­lic pride in be­ing the first drug mega-store to stop selling to­bacco, along with the pres­id­en­tial epaul­ets that come with the de­cision. But Big To­bacco still has a po­ten­tailly big fu­ture in Amer­ica’s drug­stores. It just doesn’t in­volve to­bacco.

Sophie Novak contributed to this article.
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