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An e-cigarette boom could be around the corner

A person smokes an E-cigarette
ALBERTO PIZZOLI | AFP | Getty Images
A person smokes an E-cigarette

Traditional tobacco companies need to adapt to the rise of electronic cigarettes - or e-cigarettes - ahead of the product becoming regulated in the U.K., according to an analyst at Berenberg Bank.

Britain's Medicines and Healthcare Products Regulatory Agency is set to regulate the sale of e-cigarettes in 2016. However, Erik Bloomquist, senior analyst of consumer staples at Berenberg, told CNBC that the agency will endorse an e-cigarette produced by British American Tobacco (BAT) next year, which will be a turning point in the product's popularity.

(Read more: E-cig sellers jockey for market position before FDA issues regulations)

"We think [this] will be really critical because then they'll be able to tell people: 'this is a product that is lower risk than a traditional cigarette'," he said.

An e-cigarette is an electronic inhaler, usually containing nicotine and emitting a harmless vapor, that is meant to simulate - and be a substitute for - tobacco smoking,

Bloomquist said that Imperial Tobacco, a company whose second-quarter earnings on Thursday missed Berenberg's expectations, is making the right move in planning to release e-cigarette products in 2014.

He added that tobacco companies have a number of advantages in the e-cigarette space.

(Read more: Reynolds American Sees E-Cigarette Launch as a 'Game Changer')

"We think they will adapt and we think they have some competitive advantages that really are sustainable," he said. "Critically among those are the knowledge they have of the consumer and also the distribution systems they have."

He said that some companies were putting a lot of effort into developing e-cigarette products, albeit "belatedly."

Currently, BAT and Philip Morris were ahead internationally when it came toe-cigarette production, Bloomquist said, while in the U.S., Lorillard was leading the way, with their blu e-cigs dominating innovation and enjoying around 40 percent of the share of the market.

(Read more: FDA: Menthol cigarettes pose public health risk)

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