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How an Edmonton-based company cornered the Canadian market for a new, still relatively unknown product – electronic cigarettes

Lighting It Up: Edmonton-based electronic cigarette maker Smoke NV is smoking hot

Jan 14, 2013

by Geoffrey Morgan

#4 on Alberta’s Fast Growth 50

Sometimes, as Freud said, a cigar is just a cigar. But that’s no longer true, thanks in large part to an Edmonton-based company that’s managed to take the smoke out of smoking. In the process, Smoke NV has become one of Alberta’s fastest growing companies. In 2009 it had two employees and no sales, but by the next year it had sold $1.1 million worth of electronic cigarettes. It grew its sales to more than $6 million in 2011, and expanded its team to include a full-time staff of 17 along with 43 independent sales people representing the company’s products across the country.

Smoke NV president Shanu Mohamedali enjoys a nicotine-free electronic cigar in the comfort of a non-smoking lounge Photograph Bluefish

Company president Shanu Mohamedali says his father and grandfather are both smokers, but he prefers the smokeless variety. You wouldn’t know it from a distance, mind you, since the product he’s pioneered looks almost exactly like a real cigarette. As the user inhales the tip turns bright red, while the outward breath produces a puff of odourless vapour that looks awfully similar to genuine smoke. But because there’s no combustion going on whatsoever – the device is battery-powered – it can be used in bars, restaurants and offices. What is the purpose of this product? To help people quit smoking?

Smoke NV is a play on the term “smoke envy,” not an abbreviation for “nicotine vapour.” In fact, the company’s products contain zero nicotine or tobacco. “It’s vegetable-grade food liquid in there,” Mohamedali says. Electronic cigarettes were first invented in China in 2007 but have since gained in popularity around the world. The products account for roughly $500 million in U.S. sales, and were originally sold only by startup companies like Smoke NV. But in April 2012, Lorillard, one of the oldest tobacco companies in the U.S., entered the market (one that’s expected to grow by 40 per cent by 2015) by purchasing North Carolina-based Blu Ecigs for $135 million.

For the moment, Smoke NV doesn’t need to compete with Lorillard in Canada, as importing electronic cigarettes is illegal. In fact, nicotine-filled electronic cigarettes – like Lorillard’s – are illegal as well. Right now, Health Canada is discouraging people from buying any e-cigs because, says the agency, “These products may pose health risks and have not been evaluated for safety, quality and efficacy.” Canada banned the sale of electronic cigarettes containing nicotine in March 2009 because little was known about the liquids in each unit and because there wasn’t enough statistical evidence to show the products helped people quit smoking.

“This type of product is interesting because it allows [a person] to go into an environment where people are smoking and deal with that type of social trigger.” – Dr. Shawkat Kibria, Smoke NV medical director

This almost devastated Smoke NV’s business, and Mohamedali had to send the first shipment of products to a storage facility in Hong Kong. But after a lengthy consultation with Health Canada, he branded his products as “a healthy alternative” to real cigarettes and reiterated that they contained zero nicotine – a message that he continues to have to share with overzealous health inspectors in smaller cities across the country.

It helps that two of the company’s owners are medical doctors, including Dr. Shawkat Kibria. Kibria is also medical director of Smoke NV and a clinical lecturer in the University of Alberta’s faculty of medicine. He says smoking is a two-part habit. The first part is the physical addiction to nicotine, and he encourages people to treat that addiction with either nicotine patches or gum. But the second part of the habit is social and, Kibria says, Smoke NV wanted to target the social triggers for smoking. “This type of product is interesting because it allows [a person] to go into an environment where people are smoking and deal with that type of social trigger.”

That’s the message Kibria and Dr. Preet Rai have taken to pharmacists across the country. Smoke NV’s marketing plan targets pharmacists rather than consumers because, as Mohamedali says, pharmacists will recommend products they trust to consumers. The approach led to Smoke NV’s first distribution agreement in September 2010 with London Drugs. “That’s when things just exploded,” Mohamedali says.

Within three months, companies like Costco, Sobeys, Safeway and Petro-Canada wanted to sell Smoke NV products in their Canadian stores, and the company is now in talks with Costco and Safeway in the U.S. Mohamedali received an order for $350,000 worth of product from Petro-Canada. He spent 24 hours putting the order together and shipping it, and realized it was time to hire staff and find more office space.

Smoking Hot: In just three years, Smoke NV’s electronic cigarettes have gained national distribution. Its revenues have grown accordingly

Since that Petro-Canada order, Smoke NV has begun discussions with chain stores in the U.S. and has started selling its products in Hong Kong, Colombia, Australia, the U.K., Dubai and India. Mohamedali says he’s also looking to establish a manufacturing facility in Canada (the company’s liquids are currently produced in Japan) so that it can fill orders more quickly. At the rate his company, and his market, is growing, Smoke NV will need that facility built soon.

As it stands today, Smoke NV is in an enviable position of having cornered the Canadian market for electronic cigarettes. Health Canada would not comment when asked if there were plans to review its current ban on nicotine-filled electronic cigarettes or its ban on imports. A spokesperson for Health Canada did say that such products were “currently not compliant with the Food and Drugs Act.”

And while Smoke NV products are nicotine-free, they’re still only available to people over the age of 18. In fact, Mohamedali has pulled his company’s products from three convenience stores in the country after finding out that the store owner was selling the products to minors. “Growth is good,” he says, “but not at any cost.”

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