Can I Invest in E-Cigs Right Now?

If you're looking to invest in e-cigs right now, or trying to find pure play e-cig stocks, you may be disappointed.

That's not to say the market is barren. Recent Centers for Disease Control studies show that 1 in 10 adults have used e-cigarettes, while 8 in 10 are aware they exist. So there is a lot of room for growth.

And the global e-cigarette product market is expected to grow over $39.6 billion by 2024, according to BIS Research.

invest in e-cigsBut to invest in e-cigs, there needs to be a viable public company out there. And that hasn't happened yet. Sure, cigarette companies like Philip Morris International Inc. (NYSE: PM) and Altria Group Inc. (NYSE: MO) are moving into the space.

But they are far from purely e-cig stocks. And what's more, they aren't first movers or revolutionizing the market by any stretch.

"The Philip Morrises and the Altrias of the world, they are getting involved in the vapor space," Aaron LoCascio, founder and CEO of VapeWorld told Money Morning.  "But they're doing so in what is already becoming an outdated line of products, which is the micro-cig. This is a type of vaporizer, also referred to as electronic cigarettes. They have the look, shape, and feel of a traditional cigarette, except they're electronic."

VapeWorld is a sales, marketing, and distribution company in the business of vaporizers. It is one of the largest companies in the space, with more than 100 employees and rapidly approaching seven figures in sales, LoCascio said.

It was born out of LoCascio's dream of being the "Wal-Mart of the Internet." In college, he began buying vaporizers from manufacturers and selling them online at a markup. He moved into home audio equipment and kitchen appliances. He saw a drop-off in sales during the last recession in all but one product line: vaporizers.

Vaporizers were exploding then, at a time when the technology wasn't well known, and the market has a compelling growth story ahead of it. VapeWorld has grown purely out of retained earnings and has something that Philip Morris and Altria don't have.

"You can only cram so much technology into something that small," LoCascio said of e-cigs. "A large portion of the market is going to these larger devices where you can customize the experience, you have a lot more options, and you have a lot more room to pack a lot more technology, so the devices are just delivering a better experience."

VapeWorld has an extensive network of vaporizer manufacturers it taps to sell to mom-and-pop operations and small smoke shops. In many cases, VapeWorld has "exclusive arrangements with some of the most dominant products in the marketplace," LoCascio said. And being in the business for 10 years, VapeWorld has first-mover advantage.

So, how can you buy into this promising company and start to invest in e-cigs and vaporizers today?

You can't. Not yet.

Why You Can't Invest in E-Cigs...Yet

VapeWorld is a promising company in the space, but like most of the best e-cig and vaporizer companies out there, it's private.

E-cig stocks are hard to come by. VAPE Holdings Inc. (OTCMKTS: VAPE) was a public company in the space. But it was an over-the-counter penny stock that, after exploding more than 20,000% by March 2014, lost 90% of its value when a number of pot stocks had trading halted by the U.S. Securities and Exchange Commission in the summer.

VAPE stock turned out to be just another penny stock caught in the hype that followed recreational marijuana legalization, a space that the vaporizer market intends to capture as the political climate becomes more receptive to the drug.

"The companies that are currently being traded on the public market - and there are actually a couple of them - to me, they're not real companies," LoCascio said. "These are shell companies, pump-and-dump schemes, and scams. It doesn't take much experience to just look at the surface level of their organizations and the reports that they're putting out and the P/E ratios to know that these are not good companies."

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You can't invest in e-cig stocks right now because there's simply no viable public company in the space. You can invest in PM stock or invest in MO stock -- and they are good stocks to buy -- but the allure of those tobacco stocks is that they're solid brand names with high-dividend yields.

You're going to have to wait and see. If there ever is a spate of vaporizer IPOs, then you'll want to look for companies that offer what VapeWorld offers.

"We have a real organization," LoCascio said. "We have real revenues, a lot of employees, a really robust infrastructure - something very, very tangible - whereas a lot of these other organizations do not."

The Bottom Line: Hold off on trying to invest in e-cigs right now. The market is sure to grow and that could help bring a lot of the impressive private companies into the public exchanges -- but that's just not happening at the moment. Meanwhile, PM stock and MO stock are good picks. They offer e-cig product lines, but aren't revolutionizing the vaporizer market in the same way companies like VapeWorld are. However, they could serve as a foundational play with high dividends.

Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.

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