Interview: Why Now Is Still a Good Time to Invest in Vaping

In recent years, the e-cigarette market has become extremely popular. Entrepreneurs from all walks of life, Internet celebrities, and aspiring young people have joined the e-cigarette industry to create their own brands.

At the same time, the capital market is unwilling to invest a lot of money in the e-cigarette industry.

Why is the e-cigarette industry so favored?

What changes will the injection of capital bring to the e-cigarette industry?

Where will the e-cigarette industry go in the future?

With these questions in mind, not long ago we interviewed Mr. Wu Li, deputy director of Tianfeng Securities, who has in-depth research in the e-cigarette industry and capital market.
 
1. The irreversibility of new tobacco replacing traditional cigarettes

When Tianfeng Securities studied New Third Board Companies in 17 years, it found that the performance of many e-cigarette companies has shown rapid growth in the past two or three years.

At the same time, I found that more and more people around me began to use IQOS bought from Japan.

In particular, original smokers began to convert to heated products without burning.

They realized that this would bring changes and opportunities to the product form and trend of the entire tobacco industry.

Facts have proved that in the past two years, both IQOS's booming sales in the East Asian market and JUUL's leading rise in small cigarettes around the world.

We can all see changes in consumers 'consumption tendencies.

It turns out that people smoke traditional cigarettes to relieve anxiety, stress or social needs.

However, as everyone continues to pay attention to health, harm reduction has gradually become the main demand of smokers.

In this context, IQOS or JUUL are based on the premise of reducing harmful ingredients by more than 90%.

To meet users 'nicotine intake, product iteration changes users' consumption habits.

Moreover, this change is irreversible, and it is difficult for many users who have smoked IQOS to smoke back to traditional cigarettes.
 
2. What kind of e-cigarettes are the most popular?

E-cigarettes are still a new product and a new track. Director Wu believes that many institutions that focus on investment in emerging industries prefer emerging industries like e-cigarettes.

There are also many institutions that like to invest in addictive consumption:

For example, many internationally renowned investment institutions will invest in tobacco, alcohol, gambling, etc.

E-cigarettes also have this consumption characteristic.

Judging from the current valuation of e-cigarette brand companies at the forefront of the industry, such as foreign JUUL, domestic Yueshi, Lingxi and other companies, they all have the following characteristics:

1) Product: Cool appearance, excellent product quality and easy to carry;

2) Tobacco oil: Rich in taste, and the technology of using nicotine salt provides a smoother smoking experience than nicotine base;

3) Brand: Create distinctive brand characteristics through its own high-traffic channels and quickly capture the awareness of target customer groups.

To sum up, the commonality of these brands actually comes from the strong technology and supply chain support behind them. At the same time, they also have a set of business methods at the front end that can form a closed-loop.

The fundamental need for humans to smoke is to be satisfied by nicotine.

Smoking traditional cigarettes is just one means for us to achieve this goal.

In fact, major tobacco companies have long been meeting nicotine needs based on immediate needs.

We also strive to develop various products based on the two standpoints of not causing harm to health or reducing harm to health.

New tobacco is an inevitable product of tobacco companies in the aforementioned R & D trends, and with changes in technology.

Companies that do not have the ability to make traditional cigarettes can also participate in this trend by manufacturing products such as atomized e-cigarettes that can meet similar needs.
 
From the perspective of the capital market, Director Wu believes that the technologies involved in this R & D trend are still at the development stage.# p#pagination title #e#

For a long time in the future, companies participating in the new tobacco track will continue to work hard to achieve consumers 'access to nicotine with low health risks.

This also means more and updated investment opportunities for investors.

3. Is the influx of capital a blessing or a curse?

In the past two years, many e-cigarette companies have successfully raised funds, and capital has quickly entered the entire e-cigarette industry.

So what changes will the entry of capital bring to the e-cigarette industry?
 
In this regard, Director Wu said: The entry of capital mainly plays a catalytic role.

That is to accelerate the improvement and maturity of existing business models of e-cigarette start-ups, and play a role in shortening the monetization progress.

Overall, we believe that the advantages outweigh the disadvantages, because the entry of capital accelerates the birth of good companies.

The birth of every successful company will play a guiding role in the development direction of the industry.

Its experience will influence future players to improve themselves in a targeted manner.

Select the best among the best and continue to iterate to drive the industry to develop in a better direction.

4. Now is a good time to invest in e-cigarettes

We all know that the national policy on mandatory e-cigarettes is under review and is expected to be introduced within the year. Recently, the National Health Commission also stated that it will pass legislation to regulate e-cigarettes.

What changes will the national government's series of measures bring to the e-cigarette industry?

Director Wu believes that the National Health Commission's move is helping accelerate the implementation of e-cigarette supervision.

This is conducive to the healthy development of the e-cigarette industry.
 
Once the corresponding regulatory policies are introduced, the current situation of small and medium-sized industries may be significantly improved.

This trend will benefit industry leaders and service providers participating in the China Tobacco supply chain to a large extent.

From the perspective of investment timing, we believe that the current first echelon of e-cigarette brands has not yet been finalized.

The concentration of all links in the e-cigarette industry chain is low, showing the characteristics of the early development of emerging industries. It is a good time to invest.

Industry opportunities mainly come from increasing penetration of consumers in demand for nicotine.

Regardless of the domestic and international market size, the overall size of the e-cigarette market is very small compared with traditional cigarettes.

At present, the penetration rate of e-cigarettes in my country is less than 1%, and the penetration rate of e-cigarettes in the United States is only 13%.

If the penetration rate of e-cigarettes in my country reaches 5% to 10%, the potential market size will be very considerable.
 

But at the same time, we must also see that our country's relevant policies are currently in the process of atomizing e-cigarette product standards and are about to be introduced.

More detailed regulatory measures are still being implemented at an accelerated pace, which in the short term has added uncertainty to some companies in the industry from production to sales to survival.

Director Wu also revealed that many manufacturers have begun to pay attention to capital introduction or arrangements for listing plans.

However, he believes that the core issues that need to be solved for e-cigarette manufacturers are technical barriers and the sustainability of business performance, which is also the issue that may be asked most during the listing application process.

5. The combination of CBD and atomization technology deserves attention

Many people know that the concept of industrial marijuana has been a craze in the A-share market since the beginning of this year, and think it is a concept and short-term hype.

In fact, Director Wu's team has conducted research on this for a long time, and they feel that industrial hemp is indeed a direction worthy of attention.# p#pagination title #e#

In particular, its extract CBD can be used in food and beverages, cosmetics and skin care products, and medicines and health products. It is expected to become an element similar to vitamins and change the pattern of many FMCG products.

According to third-party data, the size of the CBD market in the United States was approximately US$600 million in 2018 and is expected to exceed US$5 billion in 2019.

Although still small, the growth is impressive. Capital is very concerned about this piece. In fact, foreign capital markets pay attention to this piece earlier than domestic ones.

U.S. stocks have already produced related companies with a market value of tens of billions of dollars. We have also been tracking for a long time to help investors gain a deeper understanding of this emerging industry.
 
When it comes to the combination of CBD and atomization technology, Director Wu is not surprised, and they have seen many examples of the combination of atomization technology and CBD.

The method of aerosol inhalation is easy and simple, consistent with CBD's relaxing and calming function. Therefore, it is foreseeable that this method will be recognized by more people.

In fact, it is not just CBD, but the use of atomization to ingest food is likely to become a trend. This method is for consumers.

Especially young consumers are very attractive. So we are also very concerned about atomization equipment manufacturers.
 
“The current e-cigarette industry is still in its early stages, and the industry pattern has not been completely stable whether abroad or domestically.

Because technologies and products are constantly iterating and updating, new players may emerge at any time.

But what is certain is that new tobacco must be developing in the direction of reducing harm.

On the premise of reducing harm, how to better satisfy consumers, such as smoking experience, design, portability, etc., are all possible development directions in the future. rdquo;

Director Wu said.