There's a new vape pen taking over America - and it has Wall Street worried about tobacco stocks

Pax Labs

• The Juul, a wildly popular vape pen with twice the nicotine content of similar devices, is starting to encroach on Big Tobacco's financial terrain.
• In a recent memo, Citigroup analysts warned investors that the device's sales could have a negative impact on tobacco stocks such as Altria and British American Tobacco.
• The Juul isn't just popular among adults, however, and scientists say its potential health effects are concerning.
• Shares in Altria and Philip Morris International plunged Thursday, following disappointing earnings reports which showed that sales of its new products were not meeting expectations.

A new vape pen is starting to encroach on Big Tobacco's financial terrain.

In a recent research note, Citigroup analysts warned investors that the Juul - an e-cigarette that's particularly appealing to former smokers because of its powerful nicotine punch - is beginning to show signs of disrupting tobacco stocks. The note suggested that the rise of the Juul could bode poorly for companies including Altria, British American Tobacco, and Imperial Brands as sales are falling faster than they should.

A sustained slowdown for Big Tobacco is expected in the future, the analysts warned - a trend they see as directly attributable to the Juul and its "rapid growth," whose skyrocketing sales they said would pose a significant challenge to traditional tobacco earnings.

"The US tobacco market is beginning to be disrupted by Juul," the analysts wrote, adding, "We don't expect underlying cigarette trends to improve much in the rest of 2018."

Several tobacco companies like Altria, Philip Morris, and British American Tobacco make so-called "next generation" devices designed to compete with the Juul. Most have failed to generate profit for companies, however.

On Thursday, shares in Altria and Philip Morris International plunged, likely the result of disappointing earnings reports which showed that sales of its new products were not meeting expectations.

In 2016, Philip Morris International launched the iQos, a heat-not-burn device that lies somewhere between a regular cigarette and an e-cig and is expected to be approved by the US Food and Drug Administration later this year. But that device isn't expected to protect Altria - which maintains sole distribution rights for the product in the US - from the slump, the analysts said.

Vaping and the future of Big Tobacco

Unlike cigarettes, which burn their ingredients, e-cigs or vape pens heat vapor via a small portable device. The Juul, which is composed of an e-cig device and interchangeable pods that contain nicotine, is one of the most popular vape pens available, having generated a whopping $224 million in retail sales between November 2016 and 2017 and snagging a third of the total e-cig market share during the four weeks that ended November 4.

But the Juul is also trendy among teens. The recent fad that has been a big red flag to scientists, who warn that nicotine is highly addictive and damaging to the developing brain.

Aside from nicotine, several other health concerns related to vaping are starting to emerge. A study published this spring found some of the same toxic metals in conventional cigarettes in e-cigs. Another found that at least some of those toxins appear to be making their way through vapers' bodies, as evidenced by a urine analysis run by researchers who randomly sampled nearly 100 people in the Bay Area who vape. And research presented recently at a large conference concluded that there was substantial evidence tying daily e-cig use to an increased risk of heart attack.