Tobacco Bond Holders Beware!

1371406_25798697In 2012, Americans purchased 14.1 billion packs of tobacco cigarettes and 200,000 equivalent packs of electronic cigarettes. In 2013, Americans purchased 13.3 billion packs of cigarettes and 400,000 equivalent packs of electronic cigarettes. This trend is not to be taken lightly as tobacco bond analysts believe the rapid growth of electronic cigarette sales poses a rising risk to tobacco bond holders. Many analysts believe that tobacco bonds will begin defaulting within the next ten years. And we believe those analysts are on to something. Since 2000, cigarette consumption has dropped annual at an average rate of 3.4 percent per year. The rise of electronic cigarettes and other vaping products have been phenomenal as the e-cig market has grown to be worth more than $2.2 billion and it will continue to rise based upon the statistics given above.

However, Dick Larkin, senior vice president and director of Credit Analysis, believes electronic cigarettes is a fad. “E-cigarettes are not a real replacement. They are just another tool for people to quit smoking, but they are not a substitute.” Just a fad, eh? Well, let’s give electronic cigarettes and other vaping products another five years and then we’ll see if Mr. Larkin was right or wrong. We’re pretty sure he’s wrong.

Visit Reuters for more to read on how Electronic cigarettes could stub tobacco bonds sooner than thought. 

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