SPECIAL REPORT-When it comes to e-cigs, Big Tobacco is concerned for your health

By Martinne Geller

LONDON, March 23 (Reuters) - The health warning on a MarkTen electronic cigarette package is 116 words long.

That's much longer than the warnings on traditional cigarette packs in the United States. Nicotine, the e-cigarette warning says, is "addictive and habit-forming, and it is very toxic by inhalation, in contact with the skin, or if swallowed." It is not intended for women who are pregnant or breast-feeding, or people ... who take medicine for depression or asthma. "Nicotine can increase your heart rate and blood pressure and cause dizziness, nausea and stomach pain," says MarkTen, a leading brand in the United States. The ingredients can be "poisonous."

MarkTen's parent company Altria, maker of Marlboro cigarettes, said the language seemed appropriate. There is no required health warning on electronic cigarettes in the United States, so "we had to do what we thought was right," said a spokesman for Altria Client Services.

The company's frankness about the perils of nicotine dates back to the late 1990s, when it led a campaign for cigarettes to be regulated by the U.S. Food and Drug Administration (FDA). Small tobacco companies at the time said the big guys would use regulation to seal their dominance. Today, small e-cigarette makers are saying the same thing. Many argue that firms like Altria and Reynolds American (NYSE: RAI - news) want hefty rules to help neutralise the threat that e-cigarettes pose to their businesses. By accentuating the risks of 'vaping,' they say, big firms may deter smokers from trying the new devices, even though most scientists agree they are safer.

"If you read that (warning) as a smoker, you might think 'Oh, I'll just stick with a cigarette,'" said Oliver Kershaw, a former 15-a-day-smoker who quit through e-cigarettes and founded websites that advocate them.

Big tobacco companies have pushed for a range of controls on e-cigarettes. These include lengthy health warnings, reduced product ranges, restricted sales, and scientific testing requirements. Kershaw and others say such efforts risk squeezing small players. Too many rules would stifle innovation and reduce the range of products to "a very simple, utilitarian e-cigarette," said Fraser Cropper, CEO of Totally Wicked, an independent e-cigarette company based in the UK.

Big tobacco companies say their goal in pushing for firm control is not to hurt smaller competitors. Regulation will benefit consumers and e-cigarette companies alike by ensuring safety and quality standards and boosting confidence, they say. Small companies should not be exempt from responsible behaviour.

"Our stated goal is to get to e-vapour leadership, to have the strongest brands in the marketplace," said the Altria spokesman. He could not predict the impact of increased regulation on smaller firms. "I don't know how they run their businesses and what it would cost them to meet those requirements."

Most anti-tobacco campaigners agree that e-cigarettes should be regulated. But some believe they deserve a lighter touch than tobacco because they can help smokers quit, and may be less harmful than smoking.

Measures that make e-cigarettes less appealing or hard to come by may keep people smoking, these people say. Clive Bates, a former head of UK charity Action on Smoking and Health (ASH), thinks public health officials who advocate tough controls end up helping Big Tobacco's conventional brands.

"They really are all doing their utmost to protect the cigarette trade," Bates said. "They just don't realise it." He thinks regulations should encourage smokers to quit, or switch.

The image of e-cigarettes is already changing. The proportion of people in Britain who think vaping is just as harmful as smoking doubled last year to 15 percent, according to a survey by ASH. In the United States, a similar picture is emerging. The growth in U.S. sales of e-cigarettes slowed to 5 percent in the fourth quarter last year from 19 percent a year earlier, according to Wells Fargo analyst Bonnie Herzog. She attributes that partly to increased uncertainty about the products.

Derek Yach, a director at Vitality Institute, a health research company, doubts there is any "conspiratorial effort" to crush the new business. But he says that "if the dominant message is one of doubt, then the status quo gets maintained." Yach once headed tobacco control at the World Health Organization and worked at PepsiCo (LSE: 0QOS.L - news) .

Japan Tobacco International, the world's third-largest tobacco company, thinks strict regulations could hurt young firms. "If you make it extremely hard (to comply), you would drive small companies out of business," said Ian Jones, JTI's head of scientific and regulatory affairs for emerging products. "You would lose the value of the category, you would lose the spark."

"OPEN SYSTEMS"

E-cigarettes came onto the market a decade ago promising a safer nicotine fix. The devices heat nicotine-laced liquid to create an inhalable vapour, rather than burn tobacco. That gives smokers the traditional hand-to-mouth ritual without the deadly smoke.

The global vaping market, which could top $7 billion this year, is evenly split between cigarette look-alikes, often sold by tobacco companies, and refillable "vapours, tanks and mods" - devices which users modify to suit their needs. These are often made by smaller firms. Demand for them is growing three times as fast as the overall market, as users say they find them more satisfying than early all-in-one models.

Serious devotees favour such refillable "open systems" that let them mix and match liquids and batteries to vary their nicotine intake. Open systems are often sold in vape shops and lend an edgy, do-it-yourself creativity to the vaping community. According to Wells Fargo, there are now around 8,500 vape shops in the United States and 19,400 globally. Vape shops account for about one-third of all U.S. sales, while the Internet accounts for another third.

In August, Reynolds - which does not produce mods - urged the FDA to "ban open system e-cigarettes, including all component parts." Such systems, Reynolds wrote, present a "unique risk for adulteration, tampering and quality control."

If the FDA does not want a ban, Reynolds suggested, it should regulate vape shops as manufacturers. That would subject them to FDA inspection, registration, manufacturing standards and product clearance requirements.

Vape shops often mix nicotine and flavouring, just as pharmacies compound drugs, said Richard Smith, communications manager at Reynolds. This means "the vape shop seller is a manufacturer under the applicable laws and regulations."

E-cigarette independents say such a move targets them; analysts note that the business model of big tobacco firms depends on mass production, not mix-and-match.

"I think they (Reynolds) probably want that snuffed out before it gains traction," said Philip Gorham, an Amsterdam-based tobacco analyst at Morningstar (NasdaqGS: MORN - news) .

Reynolds says that's not true. "We fully support innovation in tobacco products, including vapour products," said Smith. The company wants "a level playing-field where all manufacturers are subject to equal treatment."

DOING THEIR DUTY

Shane MacGuill, a tobacco analyst at market research firm Euromonitor International, said Reynolds' move may seem zealous, but companies have a duty to shareholders: "It would be remiss ... of them not to try and push for the competitive environment that is as favourable to them as possible."

Steven Parrish, a former Alt