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The electronic cigarette industry is one of the fastest growing consumer goods categories worldwide. The category is only a few years old, but already exceeds $1 Billion dollars in sales with the largest market for Electronic Cigarettes being the United States.

99% of all E-Cig consumers are cigarette smokers in search of a healthier alternative, or looking to be able to smoke in places where traditional cigarettes are not allowed. This is particularly attractive for the Electronic Cigarette segment as the Tobacco market is $720 Billion in size, which provides a tremendous source of growth for Electronic Cigarettes.

The E-Cig segment is still in the very formative stages, both in terms of product and market structure. The category is less than five years old and has been essentially doubling every year since inception. Importantly, less than 10% of all smokers have ever tried an E-Cig, so over 90% of the opportunity is still in front of the industry. As a result, leading industry analysts predict that E-cigs will achieve from 15% to over 50% share of broader tobacco market in the next decade.

Given the size of the Tobacco Industry, this equates to a size of segment of E-cigs of between $110 Billion and $360 Billion over the next ten years.

Bonnie Herzog, from Wells Fargo Securities and one of the leading industry analysts predicts sales topping $10 billion by 2017. “The long-term growth trajectory of the category will be robust.”

“Use of electronic cigarettes could overtake consumption of traditional cigarettes within 10 years.” While difficult to predict, we think it is possible that consumption of e-cigarettes could outpace traditional cigarettes over the next decade, especially given the rapid pace of innovation and consumers' demand for reduced harm products," Herzog said.

Goldman Sachs’ Judy Hong describes e-cigarettes as basically all the good stuff about regular cigarettes but none of the bad, and Goldman has listed E-Cigarettes as their number one extraordinary technology forcing businesses to adapt or die. "Imagine a product that is possibly >99% less harmful than cigarettes, delivers a similar user experience and offers a better economic bargain—this is the proposition of electronic cigarettes (e-cigs)."

E-cigarettes could grab a tenth of the entire tobacco market. E-cigs yield higher margins for manufacturers and retailers as they aren't subject to excise taxes or settlement payments. Hong estimates they could hit $10bn in sales over the next several years, compared with more than $1bn this year, while grabbing 10% of the overall tobacco market (and 15% of market profits).