RICHMOND, Va. -- Reynolds American Inc. is expanding its Tobaccoville, N.C., manufacturing complex as it plans national distribution of its Vuse brand vapor "cigarette" this summer, the company said Friday.
The owner of the nation's second-biggest tobacco company did not disclose the costs related to the expansion, but said the move would create more than 200 jobs over the next four years. The expansion includes a multimillion-dollar investment for high-speed manufacturing equipment.
Reynolds, based in Winston-Salem, N.C., released Vuse in Colorado last June and plans the initial wave of national distribution next month.
Production is currently done at a contractor facility in Kansas, but the company said more production will be needed for the foreseeable future to meet anticipated market demand. The company will carve out about 70,000 square feet of space in its existing 2 million-square-foot Tobaccoville facility. It does not publicly provide the number of employees that work at the plant that also makes its cigarette brands, including Camel and Pall Mall.
The market for vapor devices has grown from the thousands of users in 2006 to several million worldwide and reached nearly $2 billion in sales last year. The battery-powered devices heat a liquid nicotine solution, creating vapor that users inhale. Users say the devices address both the addictive and behavioral aspects of smoking without the thousands of chemicals found in regular cigarettes. The Food and Drug Administration last month proposed regulating electronic cigarettes.
Reynolds says the rechargeable Vuse has technology that monitors and adjusts heat and power more than 2,000 times per second to deliver the "perfect puff." It also has a smart light on the tip to let users know when it's getting low, or needs to be replaced or recharged.
"This is all about smokers getting satisfaction from these alternatives and how many smokers find that an acceptable way to enjoy nicotine instead of smoking tobacco products," Reynolds Chief Executive Officer Susan Cameron said at a news conference Friday with North Carolina Gov. Pat McCrory. "I think we'll see this evolve and it's certainly in growth mode, but how big and how fast, we really don't know yet."
The nation's biggest tobacco companies all have entered into the fast-growing vapor device business as part of an industrywide push to diversify beyond smoking traditional cigarettes, which has become tougher in the face of tax increases, smoking bans, health concerns and social stigma.
Altria Group Inc., owner of the nation's biggest cigarette maker, Philip Morris USA, plans to expand its MarkTen vapor device nationally during the first half of the year. Lorillard Inc., the nation's third-biggest tobacco company, acquired Blu Ecigs in April 2012. Blu now accounts for almost half of all the devices sold.
Reynolds has explored the purchase of Lorillard Inc. for several months and found its efforts so far stymied by the complexity of a potential agreement, people with knowledge of the matter said.
Reynolds's largest shareholder, British American Tobacco PLC, has been involved in the on-again, off-again talks, the sources said, asking not to be identified in discussing private information. BAT is weighing options, such as increasing its stake in Reynolds or funding Reynolds' purchase of Lorillard, and hasn't yet decided what it wants to do, one person said.
The talks have fallen apart on several occasions, with three companies involved and antitrust implications to consider complicating a potential deal, the people said. Deterrents also include Lorillard's price, which has increased by almost a fifth this year, and British American's efforts to sell some of its own brands, one of the sources said.
Information for this article was contributed by David Welch and Jeffrey McCracken of Bloomberg News.
Business on 05/24/2014