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
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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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