If you vowed to stop smoking in 2013, Big Tobacco won't be caught off guard. The industry is quickly moving into the manufacturing and sale of electronic cigarettes, a business which Bonnie Herzog at Wells Fargo said brought in $400 million to $500 million in sales in 2012 and will "at least" double in 2013.
"We're actually predicting that consumption of e-cigs could surpass consumption of traditional cigarettes in the next decade," she said.
The technology used in making these tobacco-free, battery-powered products is increasingly making them more lifelike.
"I'm a smoker and I could not quit smoking," said John Cameron, brother of Oscar winning director James Cameron.
About the time James was releasing "Avatar," John decided to get healthy. He took his first puff of an e-cigarette and got hooked. Now he's CEO of Safecig, an e-cigarette company.
"I can tell you that this is a revolutionary product. It will change the human race," he said. "It will change our relation to technology. It will change our relation to addiction."
Safecig uses technology and components which Cameron said are often found in cellphones. These help recreate the look, heat, taste, smell, and feel of smoking tobacco. Even the packaging mimics a regular pack of cigarettes. But instead of "smoking," users inhale liquid nicotine heated into a vapor, without tobacco or tar.
Why bother, when you can buy nicotine gum or patches? Often it's hard to quit because smokers miss the act of smoking. "It's probably 60 to 70 percent — the experience," Cameron said.
Other brands in the space include Njoy and Vapor Corp., which trades as a penny stock. China-based Ruyan has been a pioneer in electronic cigarettes, but as rivals began multiplying last year, the company filed suit against ten American firms, including Safecig, alleging patent violations.
Now the bigger players are moving in. Last year, Lorillard paid $135 million to buy Blu, and RJ Reynolds is creating its own product in house.
"We will be in this category in 2013," said RJ Reynolds spokesman David Howard. "We have very big plans."
Wells Fargo's Herzog cautions that the products could eventually be regulated by the U.S. Food and Drug Administration, as some critics are concerned that even e-cigarettes could carry health risks. Also, the products are expensive. One e-cigarette from Njoy bought at a California 7-11 convenience store cost almost $9, but it claims to be the equivalent of two packs. Herzog believes e-cigarettes could eventually provide tobacco companies with better margins, though. For one thing, they won't be subject to the government's big tobacco settlement. They also won't be subject to tobacco taxes, though Minnesota is taxing the products because they contain nicotine.
"E-cigarettes to tobacco is like the energy category to beverages," Herzog said.
The product is gaining traction, she said, as smokers trying e-cigarettes once are coming back to try them again, and they're gaining shelf space in convenience stores. "Not just one brand, but two and three brands," she said.
John Cameron said the product remains a work in progress.
"We have some ways to go, but I think that will be a very short period of development," he said. "This is not a cigarette we're talking about. This is an application driven, software and hardware interface, coupled with something I consume."
As he puffed on one inside the Vampire Lounge in Beverly Hills, Calif., Cameron said he welcomes competition from Big Tobacco. "We need them," he said. "They know how to sell cigarettes like nobody else ... we have the technology that has the potential to literally save six million lives a year."
—By CNBC's Jane Wells; Follow her on Twitter @janewells
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