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E-Cigarettes Are Smoking the Competition: Update

Updated with more information about the e-cigarette marketplace.

NEW YORK (TheStreet) -- Part 1 of 2

Electronic cigarettes, commonly called e-cigarettes, are becoming more and more common. From relative obscurity five years ago, e-cigarettes have grown to $500 million in sales in 2012, and over $1.5 billion in 2013. The growth in the market is expected to continue, with e-cigarettes sales expected to top traditional cigarettes sales within the next decade.

How can investors profit from this trend?

There are a number of ways to take advantage of the growth in the e-cigarette market.

Investors who seek exposure to e-cigarettes can buy into the larger tobacco companies. They are now entering the market, following on the heels of smaller start-ups. Lorillard (LO) ($48.00 at market close on Friday, Feb. 14), Altria (MO - Get Report) ($35.57 at last close) and Reynolds American (RAI - Get Report) ($48.21 at last close) are all major cigarette companies. But for now, e-cigarettes are a very small portion of their overall revenues.

Smaller companies such as Vapor (VPCO:OTC, $5.78 at market close on Friday, Feb. 14), Victory Electronic Cigarettes (ECIG:OTC, $13.50 at last close) and mCig (MCIG:OTC BB, 33 cents at last close) offer pure play access to e-cigarettes. In addition, mCig offers access to investing in the legalization of marijuana -- though it is also a penny stock, and inherently very risky.

What Are E-Cigarettes?

An e-cigarette is a battery-operated alternative nicotine delivery system. E-cigarettes have a replaceable inhaler cartridge containing vegetable glycerin and/or polyethylene glycol, flavoring and nicotine. With every inhalation, a sensor triggers a "vaporizer" to heat a small amount of liquid flavoring. The liquid turns to vapor and is drawn into the user's mouth and then lungs.

The vaping technology of e-cigarettes does not burn anything. The liquid mixture is simply vaporized. The vapor does not contain the harmful additives found in true smoke from hookahs or cigarettes.

The replaceable cartridges come with different nicotine levels. Each is equivalent to 2 packs of cigarettes. HowStuffWorks has created a visual on the anatomy of an e-cigarette.

Market Size

Electronic cigarettes' sales are growing wildly, from almost nothing five years ago to roughly $500 million in 2012 and over $1.5 billion in 2013. E-cigarettes are now for sale at the 75% of tobacco retailers that carry at least one e-cigarette brand.

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