Can Tobacco Be A Growth Industry Going Forward?  by Ben Strubel

Dear Investors,

I wasn’t one of the cool kids in high school. I’m not one of the cool kids now (at least, I don’t think). I’m not even sure what the qualifications are for being considered “cool.”

The one thing I do know is that smoking, although much less popular now, is still a part of looking cool. A friend of a friend from Drexel University runs an excellent bespoke men’s clothing boutique in downtown Philadelphia called Commonwealth Proper. He (and his company) have a blog where he posts updates about the company, new products, and photos that inspire him. Below are some photos I cribbed from the blog.

Here is a guy that is definitely cooler than I am. He is smoking.

Here is a woman. I have no idea what she is doing, but she is wearing more clothing than most of the blog’s pictures of woman. I’ve included her here for gender equality purposes. Considering I got picked second to last in high school gym class, it’s probably safe to assume she is cooler than me.

Here is another picture of a guy smoking. Despite wearing what looks like at least five shirts he is still cooler than me.

So the message is clear. If you want to look like a dangerous bad boy or an intriguing man of mystery, then light up. Want to look like a mysterious vixen? Light up.

According to data from Breathe California of Sacramento-Emigrant Trails, which compiles statistics on tobacco usage in movies, the numbers of smoking depictions in PG-13 and R movies have been essentially stable since 1995 (although there is lots of year-to-year volatility).

In fact, smoking is Hollywood’s dirty little secret (one of them, anyway). Cigarettes act as appetite suppressants and are a great way to stay thin to keep those on-screen roles coming. And I don’t blame the movie stars; the camera really does add 10 pounds.
Don’t get me wrong. Even with all of the above about smoking being cool, smoking rates are still declining in the US (and in most countries).

The point I’m making about smoking being cool is that the declines should continue to moderate and level off at some non-zero number. Indeed, over the past five years smoking rates have been steady.

The other point I’m trying to make is that doing something that seems or looks slightly rebellious will always be appealing to many people. For tobacco companies, the future is in smokeless tobacco products and e-cigs (or vaping).

Sales and, more importantly, shipments of smokeless tobacco have been rising (data fromFTC).

E-cig usage is also growing. Unfortunately, the only data I could find was the usage among high school-age kids. But according to a USA Today article, the number of kids who have tried e-cigs almost doubled from 2011 to 2012. It’s no surprise, as e-cigs are quickly becoming the new Hollywood cool.

Here is a picture of actress Michelle Rodriguez (left in white shirt) and her fashion model friend smoking an e-cig, courtside, at a Knicks game.

Right now, tobacco companies look fairly priced. Cigarette volumes continue to decline, and price increases have continued to offset declines. There is an upside in smokeless tobacco products.

For the clientele that we serve, mainly individuals looking for steady retirement income or for steady wealth building pre-retirement, tobacco companies still look like a good bet. With many tobacco companies underperforming the market last year some, like Philip Morris International Inc. (NYSE:PM), are starting to look downright cheap.

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