Hailed by manyas an emerging threat to the tobacco cigarette industry, electronic cigaretteshave provided smokers with an alternative to traditional tobacco-based smoking.These battery-operated devices simulate the experience of traditional cigarettesmoking by supplying the user with a nicotine delivery system, the appearanceof smoke upon exhalation and the hand to mouth familiarity of smoking, whileremaining free of the many harmful toxins found in traditional tobaccoproducts.

For2012, according to Wells Fargo, e-cigarette sales generated roughly $300million at retail. But that number is expected to grow exponentially—developinginto a $1 billion category as early as 2013 and offering gross marginscomparable to traditional cigarettes, within a decade. While Wells Fargo'sfigures didn't differentiate between sales of disposable and rechargablee-cigarettes, one thing is for sure: the opportunity for new sales isboundless.

"It'sa fairly new category, and that's what I find so exciting," said BonnieHerzog, senior market analyst at Wells Fargo. "I'm making some pretty bigpredictions. I think it's possible that consumption of e-cigarettes couldsurpass that of traditional cigarettes within the next decade."

Thecategory got its biggest boost to date in April 2012 when Lorillard became thefirst of the big three tobacco companies to leap into the e-cigarette businesswith its acquisition of blu ecigs. RJ Reynolds joined the fray several monthslater when it launched e-cigarette Vuse in limited test markets in Virginia and North Carolina. British American Tobacco announced inDecember that it had purchased CN Creative, which makes the Intellicige-cigarette brand. Phillip Morris has repeatedly declined to discuss its plansfor the e-cigarette category, but given the popularity of the products, it'ssafe to say they are keen observers of the sales trends.

New Product Excitement

Conveniencestores are a natural outlet for e-cigarettes. New products like NJOY Kings andLogic are garnering more and more retail space. Tedeschi Food Shops in Rockland, Mass.,has been testing disposable and rechargeable e-cigarette brands at 15 of its190 stores, and is also testing the refill cartridges. "I believeelectronic cigarettes and cigars are here to stay and will become more dominantas the year goes along," said Stephen Monaco, director of purchasing forTedeschi.