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FORTUNE.COM // NOVEMBER 2019
entire industry on its haunches. The Trump
administration recently proposed a total ban
on flavored e-cigarette pods; dozens of state
attorneys general are suing e-cig manufac-
turers over marketing and consumer safety
concerns; and regulators in huge markets like
China and India are cracking down on vaping.
To a casual observer, the e-cigarette indus-
try’s stumbles may seem like a lucky break for
old-school Big Tobacco. But to a large extent,
the e-cigarette industry is Big Tobacco. With
combustible cigarette use in steady decline in
the U.S. and other markets, traditional tobacco
companies have latched on to the opportunity
to sell sexier, high-tech products that carry an
aura of being, if not objectively healthy, at least
healthier than a pack of Lucky Strikes.
Through partnerships, investments, and
acquisitions, the tobacco giants have fielded
their own nicotine ponies in the vaping race.
Imperial Brands, which sells Salem and Kool
cigarettes, also sells the Blu e-cig brand. Brit-
ish American Tobacco subsidiary Reynolds
American (Newport and Camel) sells Vuse,
the second-most-popular e-cigarette on the
market, according to Nielsen data, with about
13% of convenience store sales.
And then there’s the sector’s, well, crown
Juul. That San Francisco startup dominates
the e-cig industry. As a private company, it
doesn’t report sales figures, but Wells Fargo
analyst Bonnie Herzog estimates Juul ac-
counts for around 70% of the U.S. vaping
market. It’s also in business with the country’s
biggest tobacco company. In December 2018,
Altria—the firm that markets Marlboro—took
a 35% stake for $12.8 billion, awarding Juul a
$38 billion valuation.
That valuation has come crashing down in
the wake of the regulatory, legal, and public
blowback. Shares of Altria are down, too, by
more than 25% from their spring peak and
more than 10% since Sept. 1. And their con-
joined woes point to the dilemma facing the
whole smokeless-cigarette sector: If snowball-
ing controversies chase customers away from
vaping, who and what fill the void for Big
Tobacco?HON LIK’S AEROSOLIZED-nicotine technology has
taken on countless new permutations over the
years. The earliest products were, essentially,
disposable cylinders that closely resembled
conventional cigarettes; then came devicesIN THE EARLY 2000S, HON LIK’S FATHER, a heavy smoker, was diag-
nosed with lung cancer. Hon, a pharmacist by training living in
Shenyang, China, had a tobacco dependency of his own. That
fact, along with the sobering news, spurred him to invent the
device that became the precursor of most of today’s e-cigarettes.
Hon believed that “aerosolizing” nicotine, infusing it in a vapor
rather than delivering it through smoke from tobacco, could help
addicts sustain their habit without risking their life from expo-
sure to tar and toxic chemicals. Hon’s product made its debut in
- His father died shortly afterward, but within a few years,
e-cigarettes proliferated worldwide—their rapid adoption driven
by the belief that they were safer than traditional cigarettes.
Sixteen years later, e-cigarettes and “vaping” devices represent
a $9 billion business in the U.S. alone. But belief in their safety
has been replaced by doubt—and manufacturers are under attack
from all sides. First came scandals around the devices’ market-
ing claims, including allegations that e-cig makers were pitching
them to children. Then came something far more grave: a recent
epidemic of mysterious flu- and pneumonia-like lung illnesses,
predominantly in the U.S., that appear to be connected to vaping.
Since the beginning of summer, nearly 1,300 of these cases
(and 29 confirmed deaths, as of press time) have emerged. The
victims include lifelong smokers of retirement age and chil-
dren too young to vote: On Oct. 8, New York Governor Andrew
Cuomo announced that a 17-year-old Bronx teen had become the
youngest person nationally to die of such an ailment.
While many of the serious recent cases have been linked to the
use of illicit marijuana or nicotine pods, the crisis has put the