Brave new world
New “tobacco” products will alter the cigarette paper market in the long run. In the meantime, suppliers must deal with everyday challenges.
By George Gay
There was a time when life was relatively simple for the suppliers of cigarette manufacturing materials. Of course, they have always had to keep their eyes open for what their competitors were up to, and, in recent times especially, they have had to deal with the evolving demands of their customers as cigarette producers have become increasingly focused on manufacturing performance, product integrity and logistical efficiencies.
But the point is that, up to now, the end product has always remained more or less the same. It was and remained a cigarette of fairly standard dimensions made from tobacco, flavors and other additives, various types of papers, a filter, and several glues to hold the whole lot together. Even cigarette packaging, which became increasingly sophisticated in design, clung mostly to the same types of materials that had been used for decades. And why would there have been other changes? The cigarette and its packaging composed one of the most consumer-friendly products imaginable, health issues aside.
But now, the traditional tobacco cigarette crudely described above has what I would call two direct competitors: the e-cigarette and the heat-not-burn (HNB) cigarette, though the companies that supply the latter have been careful to discourage the “cigarette” moniker so as to avoid their products falling into the same trap that ensnared the former. References to HNB are usually followed by “product” or “device.” This is odd in a way because HNB devices are far more closely related to traditional tobacco cigarettes than are e-cigarettes, which do not contain three of the five materials listed above: tobacco, papers and filters.
The difference* in the designs of these two vapor products—e-cigarettes and HNB devices—is important, and not only insofar as regulators are concerned. It is also important to the suppliers of manufacturing materials. From a construction point of view, the HNB device, or at least the consumable items that are part of these devices—the sticks, shall we say—can be seen as a rejigging of the construction of the traditional tobacco cigarette, but this is certainly not the case with the e-cigarette, which, no matter what the U.S. Food and Drug Administration (FDA) may care to believe, presents a clean break with the past.
This means, of course, that the suppliers of traditional cigarette-manufacturing materials, such as paper products, have much to lose or win. If e-cigarettes, for whatever reason, win the hearts and minds of regulators and vapers, suppliers offering cigarette manufacturing papers are going to see their tobacco industry businesses decimated in the long term. On the other hand, if HNB cigarettes win those hearts and minds, it will be, if not business as usual, then certainly business as recognizable.
The point here is that while HNB sticks closely resemble traditional tobacco cigarettes, they are smaller, and so cigarette paper volumes—though not necessarily tipping paper and plugwrap volumes—are likely to be down. Packaging for HNB sticks is smaller, too, of course, and so volumes here are going to be down also. Of course, as paper suppliers attempt to grapple with these new realities, they will have to take into account the fact that there is always the possibility that, eventually, the number of HNB sticks that are sold around the world could surpass that of the number of traditional tobacco cigarettes, but that is another story and one that would take us way too far into the future for the purpose of this story. And then there is the great unknown: Is there another next-generation product that is just about to pop into somebody’s head—a product that either is made only of large amounts of paper or that has no paper?
For now, one of the challenges that paper suppliers must face is the fact that, according to Omar Rahmanadi, the CEO of BMJ, demand for virgin pulp has increased, causing pulp prices to remain “buoyant” at a time when most industry players had expected them to fall. Although new pulp capacity has been coming on-line, a Chinese ban on unsorted recycled paper has apparently helped cause this upswing in demand.
But this increase in demand for virgin pulp has been reined in to some extent because the trend of shrinking cigarette consumption has finally landed in China, which, for many years, has been largely responsible for propping up worldwide cigarette usage. This has affected the market for cigarette papers, and, currently, supply is ahead of demand. Basically, there are too many players producing cigarette industry papers, and the result is likely to be a shakeout of inefficient factories, though it is not clear when this might happen.
For those left in the business, the papers currently in increasing demand are nonporous, barrier-coated plugwraps—which are used on filters with crushable capsules—and stiff plugwraps, according to Rahmanadi, who added that HNB papers were likely to be the focus of much attention in the future. Manufacturers were seeking also papers that offered counterfeit protection, he said.
Rahmanadi is confident about the future and believes that BMJ, which is based in Indonesia and whose main markets are within the Asia-Pacific region, can grow its business. He would like to believe that there will be pockets of increasing demand in the future—and, indeed, the cigarette markets within some countries of the Asia-Pacific region are providing growth—but it is more likely that BMJ’s growth will have to be based on taking market share from other companies.
When Tobacco Reporter asked Rahmanadi why a tobacco manufacturer should buy BMJ papers rather than those from other suppliers, Rahmanadi said that the company was fully committed to the cigarette industry. “We position ourselves as the long-term partner of tobacco manufacturers,” he said. “With this mindset, we do not hesitate to invest in technologies that best suit the cigarette industry. As an example, we are currently running one of the most advanced paper machines—one that is specially designed to produce cigarette paper.”
Finally, TR asked whether Rahmanadi was concerned that future trends might take tobacco manufacturers away from cigarettes and toward products, such as snus and chewing tobacco, that did not require paper, or that required very little paper. “Of course we are concerned, but luckily one of the most successful new products, heat-not-burn, still uses papers,” Rahmanadi said. “I might add that a significant portion of our business comes from tobacco packaging materials, and I assume the need for packaging materials will still exist, even for paperless products.”
TR then turned to RYO cigarette papers and asked Michael O’Malley, president of Curved Papers, a similar question: Why should a consumer buy his company’s papers rather than those of other suppliers? O’Malley’s answer was to the point. “They’re easy to roll,” he said. “It’s like power steering. The best rollers don’t need it, but it’s still real nice, and they like it. Also, we’re an innovation brand and stand for good values.”
Then TR asked: Are you concerned that future trends might take consumers away from RYO cigarettes and toward products, such as vaping devices, snus and chewing tobacco, that do not require RYO papers? Again, his answer was direct. “No,” he said. “In my humble opinion, vaping sucks. It’s not smoking. It can help you to stop smoking, but all the other ways of smoking and quitting smoking have not killed RYO. And think about the environmental profile of vaping devices—metals, solvents, batteries, plastic—[and] compare that to plant, paper and fire. The whole extraction industry takes us further from the plant, and the economics are not good. RYO is still cheap, pretty natural and high-quality.
“I guess over time smoking [prevalence] is going to go down as hopefully people use all drugs more moderately and wellness becomes more understood and more common. Meditation and yoga should replace a lot of the things people do to relax.”
But not just yet. O’Malley said that the RYO papers business was in a second golden age, the first one having been the 1970s. And Curved Papers should anyway take market share from other suppliers. “People are already switching to Curved Papers, and they don’t switch back,” he said. “We copy the best papers in the world, so our quality can’t be beaten, and we have the curved edge, which makes them genuinely easy to roll. They’re nice.”
Currently, O’Malley said, Curved Papers is focused on North America and the cannabis market, but it already has plans for launching its products in Europe in 2018.
There is currently a movement within the RYO and cannabis markets for “natural” products, and O’Malley said Curved Papers was making tubes from hemp and bioplastics for pre-rolls, the largest stock-keeping unit in cannabis, where single joints came in “horrific petroleum plastic tubes.” This market was said to equal 100 million units last year, but O’Malley vowed to rid the cannabis industry of nonbiodegradable plastic.
The company is also planning to launch matches made from hemp rather than wood pulp, but, at the same time, it is not afraid of the word “bleach.” Curved Papers was “picking up on” bleached hemp papers for the medicinal cannabis market, O’Malley said. “There is nothing wrong with bleaching rolling papers if it is done in an environmentally safe way. There is no health risk. The process cleans them and makes them burn perfectly. That’s why they started bleaching rolling papers. It’s not like bleaching flour and making white bread; it’s like bleaching your baby’s diapers so that they are very clean. Even a lot of so-called unbleached papers are in fact bleached—just not very much.”
At the same time, Curved Papers is working on what it calls a “pre-roll” machine that will allow cannabis farmers to roll joints rather than, as now, use cones. Quite how this machine will operate, O’Malley is not saying, though it is expected that the machines will be commercialized by leasing them to farmers and selling the paper. He says that traditional cigarette makers will not work with cannabis and neither will cigar machinery. However, he believes that the market for the pre-roll machine presents only a short window—perhaps five years—of opportunity before pre-rolling is taken over by big machines.
Finally, TR asked O’Malley whether he believed he could grow his RYO paper business, and he said he knew he could because the company has “something”—it is known to be innovative. And this confidence is there even though he sees the market for RYO papers as being unbalanced in some respects. For instance, the market is glutted with minor, white-label products. Everyone has their own brand, many of which come from China and are of questionable quality by European standards.
And there seems to be a race to make the lightest paper, but some of these are too thin. It is about doing what can be done, rather than what anybody wants, according to O’Malley. They don’t burn well, and they are hard to roll. They are generally a bad idea, though not quite as bad as “tips,” “crutches” or “filters.” “Of course, these are not filters; they don’t filter anything,” O’Malley said. “They are litter.”
O’Malley is confident that his business will not only grow but become “impressively profitable” before it launches in Europe. “Rolling papers is a high-margin business, though it’s super competitive and pretty locked down by real experts,” he said.
*The differences between the designs and, especially, the performances of these two vapor products are important also to the vaper or would-be vaper, but that is a different story.