Year: 2023

  • Hong Kong: Record Cigarette Seizures

    Hong Kong: Record Cigarette Seizures

    Photo: Panksvatouny

    Hong Kong customs seized 730 million illicit cigarettes in 2022, 76 percent more than in 2021 and the highest annual figure in more than two decades, reports The Standard.

    Officers processed 7,148 cases last year, including 3,436 involving cigarette smuggling and 931 involving drug trafficking.

    The illicit cigarettes confiscated in 2022 had a market value of HKD2.01 billion ($256.07 million) and a taxable value of around HKD1.4 billion, according to Customs and Excise Commissioner Louise Ho Pui-shan.

    Customs officials attributed the spike in illicit cigarettes to the rising tobacco price under inflation.

    The increased seizures follow a relaxation of immigration measures in multiple countries after the Covid-19 pandemic, Ho added, noting Customs would recruit 90 inspectors and 170 officers to strengthen the city’s enforcement capability.

  • A Fresh Start

    A Fresh Start

    Photos courtesy of Filtrona

    After a decade of operating under the Essentra umbrella, Filtrona is back as an independent company.

    By Stefanie Rossel

    For decades, it was a household name in the tobacco industry. Now it’s back: Filtrona. Having operated as Essentra Filter Holdings since 2013, the specialty filter manufacturer was sold to a private equity firm last year and is now in the process of rebranding.

    “The Filtrona name has a rich legacy of innovation supported by strong industry partnerships, so we felt it was only right to build on what our partners were already familiar with,” says Filtrona’s CEO, Robert Pye. “We have developed a new logo and branding program and will be rolling that out in the coming weeks to rejuvenate the brand and give it a modern look and feel.”

    The company’s head office will remain in Singapore. Filtrona currently has more than 2,000 employees and is present in 120 markets. The company operates 11 manufacturing facilities across Europe, America and Asia. It also has three innovation centers, an accredited laboratory and a center of excellence focused on sustainability.

    According to Pye, 2022 was a “very solid year” for the business despite the challenges involved in completing the sale and unforeseen issues such as the war in Ukraine, which disrupted global supply chains. Pye says the company achieved outstanding double-digit growth last year. Under new leadership, the company’s focus remains on increasing its market share, particularly by expanding in China, Asia, the Middle East and Africa—where the tobacco industry continues to grow—while driving profitability and transforming its business through innovation.

    Robert Pye | Image courtesy of Filtrona

    “The Filtrona name has a rich legacy of innovation supported by strong industry partnerships, so we felt it was only right to build on what our partners were already familiar with.”

    Chinese Venture

    In 2020, a filter joint venture (JV) was established with the State Tobacco Monopoly Administration in Xiamen, China, with China Tobacco Fujian Industrial Co. Its shareholders are Essentra (now Filtrona) and three Chinese tobacco companies in Shanghai, Guangxi and Hunan. The JV manufactures specialist filters at the new facility in Xiamen in Fujian province. It is also at this location that a China Development Center for the introduction of advanced filter solutions has just opened.

    China is one of the last growth markets for combustible cigarettes. “We are delighted with the progress made at the China JV despite seeing many challenges since we held the opening ceremony in January 2020,” says Pye. “The project has been a remarkable success with commercial operation starting in July 2021, with the China Development Center recently established at the end of 2022. The partnership continues to grow capacity and capability and has already created a promising pipeline of innovative projects serving the Chinese market. We look forward to further growth as we introduce our proprietary filter technology to the market.”

    While the tobacco industry is in the midst of an unprecedented transformation with sales of combustible cigarettes stagnating and those of next-generation products rising, Pye sees significant opportunities in the sector. “It is a trillion-dollar* market globally, and we have large market penetration,” he says. “Whilst the total market volume for combustibles is declining, the demand for filter solutions that offer differentiation remains robust. The use of more complex filter specifications continues to grow proportionately in several important markets. Filtrona is also active in the heated-tobacco segment with design, testing and manufacturing of filter solutions. In addition, Filtrona is leading the way forward with sustainable filter solutions, which is becoming increasingly relevant across the tobacco market.”

    Filtrona benefits from being the only global, independent partner capable of designing, testing and manufacturing innovative filter solutions, Pye points out, with Filtrona’s laboratory being one of the few globally accredited independent scientific services for tobacco filtration.

    “In the past, we had a pivotal role in the setup of standards for combustibles through our accredited laboratory,” he notes. “Today, we are assuming a significant role in the setup of global standards for next-generation products (NGPs), including e-cigarettes and heated-tobacco products.”

    Filtrona benefits from being the only global, independent partner capable of designing, testing and manufacturing innovative filter solutions.

    Partner in Transition

    Aware that the tobacco industry is changing, Filtrona’s vision is to support its partners in their transition by continuing to deliver quality and innovation. As an example, Pye mentions the research and development Filtrona has conducted for its ECO range of sustainable solutions, which are plastic-free and biodegradable. The ECO range includes sustainable solutions for tear tapes used in packaging. The recently launched Rippatape Halo is a paper-based tape for the e-commerce packaging market. “Brands are seeking plastic-free solutions, and Filtrona is delivering on all fronts,” says Pye.

    The company appears to be well placed to meet growing demand for plastic-free, biodegradable filters driven by legislation such as the European Union’s Single-Use Plastics Directive (SUPD). While cigarette butts have been exempted from the SUPD for the time being, a provisional agreement in the legislative process encourages the development of sustainable alternatives to tobacco product filters containing plastic through the introduction of extended producer responsibility (EPR), an application of the polluter-pays principle. EU member states have until Dec. 5, 2023, to set up EPR schemes for tobacco filters that contain plastic.

    Research conducted by Filtrona reveals that in 75 percent of countries, smokers are more eager to positively impact the environment than the general population. According to Pye, “This gives us significant opportunity to innovate and meet these evolving consumer needs.” Pye adds that Filtrona is investing significantly in paper-based filters with improved sensory performance, specifically taste.

    For veterans of the tobacco industry, paper-based filters are a familiar concept; they were standard until the 1950s before the first commercial cellulose acetate filters arrived on the market. “Interestingly, current ECO ranges are loosely based on the first paper filters to arrive on the market, so our long heritage in paper-based filters is highly relevant to the challenge of finding sustainable solutions for today’s market,” says Pye.

    “Whilst the total market volume for combustibles is declining, the demand for filter solutions that offer differentiation remains robust.”

    Opportunities Ahead

    Going forward, Pye expects Filtrona to increasingly focus on consumer customization and modularity. “Capsule flavors are likely to be high on the design agenda, allowing the user to pick type and flavor as well as choosing when to crush the capsule. Japan and South Korea are well-established low-tar markets, with a significant slim/super-slim segment. We see this trend growing in other parts of Asia.

    According to Pye, increasing sales of tobacco-heating devices and other NGPs underscore an appetite for innovation that should benefit the company. Filtrona offers a dedicated range of filters for heated-tobacco products.

    “Keeping a close eye on new products launching into the market, we see a fresh wave of innovation in areas such as organic, additive-free and sustainable tobaccos. This further underlines and substantiates the relevancy of our ECO range of filters,” says Pye.

    Filtrona, he says, is looking forward to supporting its customers to transform and grow. “It’s an exciting time for the industry, and we’re proud to play our part,” Pye says.

    *$935 billion, according to Euromonitor

  • Conquering the World

    Conquering the World

    On Jan. 30, KT&G CEO Baek Bok-in and PMI’s Jacek Olczak signed an agreement to intensify their companies’ cooperation in smoke-free products. Photo: KT&G

    KT&G is making steady progress toward its ambition to become a “global top-tier” tobacco company.

    By Stefanie Rossel

    Things are going well for KT&G: In its ambition to become a global top-tier tobacco company, South Korea’s leading cigarette manufacturer reports steady progress, having broken sales records every year for the past five years.

    During an investor day on Jan. 26, 2023, CEO Baek Bok-in presented the company’s vision for 2027 and outlined growth strategies that focus on three core business areas: heated-tobacco products (HTPs), health functional food (HFF) and overseas business. Three days later, the company secured a long-term supply and distribution contract with Philip Morris International to commercialize KT&G’s Lil HTP outside of South Korea.

    KT&G, which increased its sales from KRW5.23 trillion ($4.26 billion) in 2021 to KRW5.9 trillion in 2022, aims to generate KRW10.2 trillion in annual sales by 2027. More than half of the company’s sales are supposed to come from overseas by then, Baek said during the investor conference. In 2022, overseas sales accounted for around 33 percent of KT&G’s annual sales.

    To achieve its goal, KT&G announced an investment of KRW4 trillion over the next five years. The company plans to establish a “virtuous cycle” by investing the earnings from its cigarette and other core businesses into new businesses.

    Focus on Heated-Tobacco Products

    KT&G CEO Baek Bok-in during the company’s recent investor day.

    A top priority in KT&G’s strategy is the global expansion of its HTP segment. Of the company’s overall sales in the nicotine category, around 76 percent are currently generated by the cigarette division and 24 percent by the HTP business.

    “Our revenue target for the HTP business by 2027 is KRW2.08 trillion, which is 138 percent growth compared to 2022’s estimated KRW0.87 trillion,” says KT&G Senior Executive Vice President Bang Kyung-man. “To reach the target, we will increase investments in R&D capabilities and production capacities to respond to the worldwide growing demand for HTPs.”

    As Bang pointed out during the investor day, KT&G is considering Kazakhstan and eastern Europe as possible locations for a new factory. To raise the necessary capital, KT&G may sell some of its current financial assets, Bang said.

    In its domestic market, KT&G dominated the category, with a share of 48.5 percent in the third quarter of 2022, according to The Korea Herald. South Korea’s highly competitive HTP category has been growing at a remarkable speed. In 2022, manufacturers sold 538.6 million packs of consumables, up 21.3 percent over the same period of the previous year, according to the ministry of strategy and finance.

    To stay ahead of its rivals, KT&G has invested heavily in R&D over the past years.

    Last November, the company introduced two new Lil models, Lil Aible and Lil Aible Premium, which deploy artificial intelligence to optimize the heating temperature, calculate the number of available puffs and measure the battery percentage. The premium version comes with an additional OLED touchscreen and a mobile app that among other things allows the user to receive calls and messages on his or her device. Shortly after the launch, PMI started selling its latest HTP model, IQOS Iluma, in South Korea.

    Fruitful Cooperation

    Outside South Korea, KT&G and PMI have successfully partnered for the past three years. In January 2020, they entered into an agreement that gives PMI exclusive access to KT&G’s smoke-free brands and innovation pipeline and provides KT&G with access to PMI’s global commercial infrastructure and experience in commercializing smoke-free products. As a result of the collaboration, Lil is currently present in 31 countries in Central America, Europe and Central Asia, with both market share and profitability continuing to grow significantly, according to Baek.

    On Jan. 30, 2023, PMI and KT&G turned their agreement into a 15-year contract. To respond to evolving market conditions, the agreement calls for frequent performance evaluations. Both companies expect their commitments to increase over the duration of the agreement, starting with a commitment for the first three-year period equivalent to 16 billion consumables.

    KT&G expects its HTP overseas sales and consumables volume to grow 20.6 percent and at a 24 compound annual growth rate for the next 15 years through the collaboration with PMI. Based on that assumption, JP Morgan anticipates KT&G’s combined domestic and overseas HTP sales to reach KRW5.8 trillion, which is almost equivalent of the current consolidated annual sales of KT&G group. Hanwha Investment & Securities, meanwhile expected the cumulative revenue from the 15 year contract to be KRW31.5 trillion.

    While stepping up its efforts in next-generation products, KT&G will continue to focus on the conventional cigarette business. “For our overseas cigarette business, we aim to reach KRW3.8 trillion by 2027, which is 44 percent growth compared to 2022’s estimated KRW2.7 trillion,” said Bang. “We will increase the number of overseas subsidiaries and further implement the direct business model in the overseas market.”

    KT&G currently has four tobacco manufacturing plants, one each in South Korea, Russia, Turkiye and Indonesia, with a combined annual production capacity of 13.6 billion cigarettes of overseas facilities, excluding Korea.

    Exploring a Growth Market

    For the HFF business, which is part of KT&G’s Korea Ginseng Corp. (KGC) subsidiary, the company has set a revenue target of KRW2.1 trillion for 2027, an increase of more than 58 percent over 2022. “We plan to support our subsidiary to expand its presence in the overseas market, especially the U.S. and China, by leveraging its strong competitiveness in the domestic market,” said Bang.

    KGC aims to become a global nutrition solutions provider. HFFs are a growing market worldwide. Spherical Insights & Consulting values the global market for functional foods and drinks at $189.5 billion in 2021 and expects it to increase to $285.3 billion by 2030. Consumer demand for products with enhanced nutritional profiles, the consultancy said, has been spurred by changing lifestyles and rising affluence. In 2020, North America dominated the global functional food market owing to the prevalence of chronic diseases and increasing consumer knowledge of the benefits of functional foods.

    In South Korea, sales of HFFs generated KRW3.1 trillion in 2020, according to the Ministry of Food and Drug Safety’s Food and Drug Statistical Yearbook for 2021. In addition, the country exported health functional food worth KRW226 billion. KGC is estimated to generate annual revenue of KRW1.4 trillion in 2022.

    KT&G remains committed to KGC despite calls by Flashlight Capital Partners to spin off the subsidiary. The Singaporean activist fund noted that while many overseas funds are interested in the company’s ginseng business, they are currently unable to invest in it because of their environmental, social and corporate governance principles against tobacco.

    In its annual meeting, however, KT&G said there was no plan to divest of its ginseng unit. “We will not decide on spinning off our ginseng business at this point,” Bang told Tobacco Reporter, adding that it is unclear whether the spinoff will enhance shareholder value in the long-term perspective.

    Bang also disagreed with suggestions that KGC is undervalued, pointing out that research analysts are applying higher EV/EBITA multiples to KGC than they are to its peers. “Also, KGC has been benefiting from synergies with KT&G Corp. as it has been leveraging KT&G’s overseas business network and infrastructure,” Bang said.

  • Doing the Math

    Doing the Math

    Photo: Fran_kie

    The numbers presented on illicit trade (and many other topics) should not always be taken at face value.

    By George Gay

    Shortly before I was asked to write this story on the illegal trade in cigarettes, the U.K.’s prime minister, Rishi Sunak, came up with a plan aimed, I assume, at helping to ameliorate the damage done to the country by his and previous conservative governments since 2010. His idea was that all pupils should be made to study mathematics until the age of 18, an aim that included some obvious pitfalls. For instance, given the plan was put in place, increasing numbers of people would come into contact with imaginary numbers, and even numbers that are difficult to imagine, such as 0.0005, which is about the percentage of the population who voted for Sunak to become prime minister.

    Even if, like me, you’re not a mathematician, it’s worth keeping your eye on figures that are presented to you. And in this regard, I was intrigued by a press note announcing the publication of a paper by Researchers at the International Tobacco Control Policy Evaluation Project, the University of Waterloo, Canada, who were said to have “evaluated the impact of federal and provincial menthol cigarette bans in Canada by surveying smokers of menthol and nonmenthol cigarettes before and after Canada’s menthol ban.” The research study was said to have found that “banning menthol cigarettes does not lead more smokers to purchase menthols from illicit sources, contradicting claims made by the tobacco industry that the proposed ban of menthol cigarettes in the U.S. by the Food and Drug Administration will lead to a significant increase in illicit cigarettes.”

    However, even a person with a limited understanding of mathematics would have to wonder whether the study’s findings support this statement, even leaving aside the seemingly important issue that Canada isn’t the U.S. It seems to me that it is a bit of a leap to make the above claim when the number of menthol cigarette smokers who took part in the study seems to have been only 138 (the study included, too, 1,098 smokers of nonmenthol cigarettes, who were used, at least in part, as a “control group”).

    As I read things,* menthol cigarette smokers were surveyed in 2016, before the nationwide ban** was brought in, and again in 2018, after the ban was introduced. Of the 138 menthol cigarette smokers who were surveyed in 2018, only 36 reported smoking menthol cigarettes after the ban while brand checks indicated that only 17 were actually smoking menthol cigarettes at that time and that the most recent cigarette purchases of only 13 of those 17 had comprised menthol cigarettes. Again, as I read things, only nine of the 17 bought their menthol cigarettes from outlets on First Nations reserves, but, despite these tiny figures, the researchers present their results to the first decimal place and are happy to conclude that “After Canada’s menthol ban, there was no increase in illicit purchasing of menthol or nonmenthol cigarettes from First Nations reserves.”

    The press note seems to push that conclusion further. Its heading, “Study refutes industry claims that ban on menthol cigarettes leads to increased use of illegal smokes,” is not confined to First Nations reserves outlets but presumably encompasses the other outlets covered: convenience stores, the internet, supermarkets and bars/pubs.

    This is important, I think. You can imagine somebody in the future quoting the report by saying that 51.2 percent of sales of illicit menthol cigarettes in Canada post the menthol cigarette ban were made on First Nation reserves. That sounds impressive, of course, unless you know that the 51.2 percent figure is based on little more than a handful of purchases.

    What is the justification for trying to “save” menthol cigarette smokers, but not other smokers, from the consequences of their own actions?

    An Alternative Destination

    Having said that, my main gripe with the study was that it was superfluous, and yet the authors called in at least two places for further research into this matter. Why is money spent on such studies when the world is in desperate need of funding for basic science?

    I was never sold on the idea that a ban on menthol cigarettes would necessarily and greatly increase the sale of illicit products in the place where the ban was imposed. And I certainly wasn’t sold on the idea that you need to carry out studies to get to the bottom of this question, though I understand that they are needed to keep going the huge economic benefits to be enjoyed by the increasingly large, multi-faceted industry dedicated to making the lives of smokers more miserable.

    So the following is my contribution—an open-access, no-cost method of getting to the bottom of the menthol cigarette question. Wait until you are alone, sit down in a not-too-comfortable chair, switch off all electronic distractions, refrain from drinking alcohol and allow yourself the luxury of thinking; and, after a time, it will probably become clear that, assuming those selling menthol cigarettes post a ban will set their prices competitively, three major factors will interact to determine the level of sales of illicit menthol cigarettes in the place where such products are banned. Those are: the appeal of the products in the place where the ban is imposed, the efficiency of the authorities charged with preventing the manufacture and distribution of illicit products in that place and the ease with which the borders of the place can be sealed against the products.

    It is not difficult to figure out which countries would find it relatively easy to enforce bans on menthol cigarettes successfully and which would find it more challenging. And, as to the appeal of the products, it only needs to be remembered that the prohibition is not on cigarettes but on menthol. Importantly, the prohibition is not on nicotine, the thing that we are told keeps people coming back for cigarettes, but on a flavor that is preferred by a minority of smokers; so, without moving from my chair, I came to the belief that normally law-abiding, former menthol cigarette smokers were more likely to switch to nonmenthol brands than to go looking for illicit menthol cigarettes. And, in one sense, the research backs this up when it reports that of the 36 people who claimed to be smoking menthol cigarettes after the ban, 19 of them were mistaken. Of course, since the advent of the motor car and the tendency to speed has made most adults fairly flexible when it comes to obeying certain laws, and since it is possible that illicit menthol cigarettes might be offered to them in venues where alcoholic drink is being consumed and, therefore, decision-making flawed, a certain level of illegal trade has to be expected.

    But the fear of increasing the illegal trade is probably the least of any number of issues that are raised by bans on menthol cigarettes. One ethical consideration concerns discrimination. What is the justification for discriminating against menthol cigarette smokers? Or, looked at another way, what is the justification for discriminating against the smokers of nonmenthol cigarettes? What is the justification for trying to “save” menthol cigarette smokers, but not other smokers, from the consequences of their own actions?

    Rising Poverty

    But that’s enough from Canada. Let’s alight briefly in France where, in January, there was a report of a raid on an illicit tobacco factory that resulted in the seizure of more than 100 tons of tobacco-related products said to be worth €17 million ($18.7 million).

    Sitting in my chair, I wondered what I was supposed to make of this story. I guess it was meant to come across as a success in which the coordinated powers of national and international law and order foiled the activities of criminals. But I couldn’t help thinking that it described a failure since the main aim of law enforcement should be prevention rather than the clumsier activities associated with detection and prosecution. And there was a rather unpleasant aspect to the story, which described how the French police had arrested nine suspects, “most of them Moldovan nationals.” Unsurprisingly but unfortunately, we shall probably never know what brought these people to feel that their best hope was to live and work in a factory far from their home and constantly with the fear of detection.

    Could it be that they were financially impoverished? In a report in The Guardian on Jan. 23, wealth correspondent Rupert Neate quoted Nobel Prize-winning economist Joseph Stiglitz as saying that, in the period defined by the Covid pandemic and its aftermath, many people found life very difficult. And he added that, during the same period, it was shocking how many people and rich corporations made off like bandits. Those bandits, of course, will not be brought to justice.

    The question arises as to why it is seen as perfectly legitimate to create within the EU a fertile environment for the illegal trade in cigarettes by applying unfair levels of taxes while mandating that licit cigarettes should be as unpleasant as possible and then spend precious resources on hunting down those who try to get around such obstacles. With the advent of next-generation products (NGPs), the time is overdue for new thinking. Reduce taxes on cigarettes, remove the laws that require licit cigarettes to be unappealing, heavily promote alternative, low-risk tobacco and nicotine products, and the laws of competition will dissolve the problem of the illegal trade in cigarettes. 

    Of course, NGPs are not immune from being traded illegally, and I was intrigued by a recent press note from the U.K.’s Chartered Trading Standards Institute entitled “Illicit vapes top list of high street threats, say Trading Standards experts.” The note made some good points, but I was pulled up short by one comment. “It’s important we support retailers to ensure that products [vapes] are sold responsibly …. If we don’t, there’s a risk that products could be banned or overregulated, leaving smokers without the option of a product that carries a fraction of the risks of smoking and is an extremely effective aid to quitting.”

    At this point, I had to retire to my chair. What was this person saying? That he believes the U.K. government is so muddled in its thinking that it might ban vapes, a product that, in his own words, carries “a fraction of the risks of smoking” and comprises “an extremely effective aid to quitting [smoking],” if those products are sold to children? At the same time, he seemed to be implying that the government would not ban combustible cigarettes, the consumption of which is hugely riskier than is the consumption of vapes, and which are also sold to children.

    But perhaps he’s right to be concerned. You have to wonder whether the U.K. government isn’t a little hazy on questions of risk. Last year, while he was chancellor, Sunak was forced to pay a fine for breaking Covid-19 lockdown rules. And he started this year by having to pay a fine for traveling in a vehicle while not wearing a seatbelt.

    *Not being a mathematician nor a scientist, I had some difficulty following the figures, in no small part because percentages did not correspond with reported sample sizes, possibly because of the tiny sample sizes involved.

    **The report and the press note use, sometimes in the same sentence, both the words “ban” and “bans,” the latter to refer sometimes to provincial bans. I have used only “ban,” reflecting the fact that the menthol cigarette ban now applies nationwide, but I should point out that whereas the provinces introduced menthol cigarette bans between 2015 and 2018, the two surveys took place in 2016 and 2018.

  • Questioning the Numbers

    Questioning the Numbers

    Image: megaflopp | Adobe Stock

    Changes in the U.S. Tobacco Tax and Trade Bureau’s reports have made its data less useful.

    By Marissa Dean

    Each month, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) publishes excise tax statistical reports for tobacco products. In November 2022, the TTB announced that it would be changing the way in which it releases and reports this data—changes that significantly affect the quality of the data for its previous users.

    The reporting changes are attributed to the decrease in market players; the TTB stated that with so few remaining players, the data, as it had been published, made it easy to identify specific companies and their production and sales levels. This made for an unfair market, with some manufacturers privy to information that may affect product pricing and create unfair marketing practices.

    While at face value, the changes may not seem relevant, especially to those not adept at interpreting tax data, they are actually quite substantial. The TTB’s changes have led to shifts in the categories listed (categories now consist of cigarettes and a smaller number of other tobacco products) and the aggregation of tax-exempt data from all product categories; additionally, some months are missing data points. Tobacco products that are greatly affected include large cigars, little cigars, chewing tobacco, pipe tobacco and roll-your-own tobacco. As vapor products are not subject to a federal excise tax, the TTB does not, and did not previously, release any data regarding electronic cigarettes, e-liquid or other novel tobacco products.

    The trade association TMA uses the TTB’s tobacco tax data to create reports dissecting the information to discuss the U.S. tobacco product markets and trends. With the TTB’s changes, this information is now less useful than before. Overall, cigarette data hasn’t changed significantly outside of the lack of specific tax-exempt information; however, the other tobacco products are lacking much information that was previously available, making it impossible to get a complete picture of the market.

    When the TTB implemented its changes, it implemented them retroactively, meaning all of its previous excise tax statistical reports were removed from its website. The TTB also does not plan on notating which figures have been changed in revised reports to accommodate the new aggregation system, according to a source familiar with the matter.

    This poses a problem for TTB data users. Now, there are likely to be more discrepancies in data because one source may be using the “new” data while another may be using the previously published data. There are likely to be more gaps in information as well because many categories are missing information due to the aggregation—data comparisons are more difficult to obtain if missing data points become more common. Sources are less likely to be able to effectively discuss market outlooks and comparisons as well due to the gaps in data and the fact that categories have been combined. At best, they would be estimations and educated guesses based on historical data and trends.

    The aggregated information now provided by the TTB is useful in small part to give a snapshot of the market, but with gaps in data and large category aggregation, there is no way to dissect the market and understand possible trends in any comprehensive manner. Unless more players enter the game, it is unlikely that the TTB will revert to the way in which it originally reported the statistical data, creating a roadblock for those trying to discern potential market changes.

  • Where’s the Parade?

    Where’s the Parade?

    Photo: TRITOOTH

    Record-low youth smoking rates get no respect.

    By Cheryl K. Olson

    Back in 2009, when planning its 10-year public health objectives, the U.S. Department of Health and Human Services (DHHS) set an ambitious goal for reducing youth smoking. At the time, said government data, one in five teens (19.5 percent) had lit up in the past month. The Healthy People 2020 target was 16 percent.

    These targets aren’t meant to be slam-dunks. In 2020, a third of the 985 trackable Healthy People objectives were met; the rest improved some, stayed the same or got worse. So what happened with high school smoking?

    It plummeted. After passing the goal in 2013 (15.7 percent), teen cigarette use kept on falling. At the ten-year mark, in 2019, it hit 6 percent.

    The Healthy People 2030 youth smoking target is 3.4 percent. The newest national figures suggest we’ve already left that number in the dust. The 2022 National Youth Tobacco Survey (NYTS) pegged high school cigarette use at an astonishingly low 2.0 percent. That’s even just a puff in the past 30 days, not daily use.

    Dave Dobbins

    “We’re crushing it, right? It’s great news,” says Dave Dobbins, former chief operating officer at the Truth Initiative who is now a consultant for Altria. “For many years, I never thought we’d get youth smoking under 5 percent; I thought the job would be done around seven or eight. And we’re beating the heck out of that.”

    Did I miss the champagne cork-pop celebration? Why aren’t we talking about this? 

    There’s a clue in the title of this 2016 DHHS press release: “Cigarette smoking among U.S. high school students at an all-time low, but e-cigarette use a concern.”

    In the 2022 NYTS, past-month e-cigarette use was 14.1 percent. The answer may be that we’d have to give e-cigarettes some credit for choking off youth smoking. And we have decidedly mixed feelings about that.

    In the Rearview Mirror

    The article in the New York Times Magazine was provocatively titled “If It’s Good for Philip Morris, Can It Also Be Good for Public Health?” It included an interview with Matthew L. Myers, president of the Campaign for Tobacco-Free Kids.

    “The challenge to me is not to eliminate smoking but the death and disease from smoking,” Myers said in 2006. “That should be the end goal. If you had a product that addicted 45 million people and killed none of them, I would take that deal. Then you’d have coffee! I have to believe that if the marketplace incentives were such that over time someone could devise a product that would give the same satisfaction as tobacco but didn’t kill them, people would flock to it.”

    In that first decade of our century, the future of youth smoking looked gloomy. This 2010 DHHS press release title summed up the mood: “Little Progress Being Made in Reducing Smoking Among High School Students.” It noted that cigarettes’ rate of decline had slowed.

    Kathleen Sebelius, then secretary of health and human services, wrote an introduction to the 2012 Surgeon General’s report Preventing Tobacco Use Among Youth and Young Adults. “Despite the well-known health risks, youth and adult smoking rates that had been dropping for many years have stalled,” she stated.

    Michael Pesko

    The surprise decline in teen smoking that followed isn’t fully explained by tobacco control policies or changing demographics, experts say. Michael Pesko, an associate professor of economics at Georgia State University, has published over 20 papers on e-cigarette policies and their effects.

    “Something unexpected clearly happened between 2012 through 2019 that caused this exceeding of the smoking reduction goal by 400 percent,” he says.

    “Tobacco 21 happened, and research suggests this had an impact in the later part of the decade. But the other big thing that happened was wider availability of e-cigarettes.”

    The Pivot to E-Cigarettes

    Rather than celebrating minuscule smoking rates, anti-tobacco organizations pivoted to e-cigarettes and nicotine addiction. Consider a recent Campaign for Tobacco-Free Kids press release on the 2022 Monitoring the Future survey findings. In his statement, Myers relegated smoking’s decline—“a remarkable public health success story that will save lives for generations to come”—to the third paragraph. He led with youth e-cigarette use and a call for the Food and Drug Administration to eliminate “the flavored products driving this youth addiction crisis.”

    The Healthy People website today describes tobacco use in teens as “getting worse.” Reducing past-month tobacco use is a 2030 target. The new focus is on “cigarettes, e-cigarettes, cigars, smokeless tobacco, hookah, pipe tobacco and/or bidis.”

    “I understand the reasoning of people who are skeptical of reduced-risk products,” says Dobbins. “There’s a fear that people who otherwise would not have used nicotine will use them and then be more likely to transition to cigarettes if they continue to exist in the market.”

    “However, this has yet to be reflected in population data,” he continues. “Instead, the data suggest a transition to less harmful products. I think we have done a better job at educating people of all ages about the dangers of smoking than I gave credit.”

    Is Vaping Displacing Smoking?

    Pesko and colleagues have been analyzing the natural experiments created by variations in state policies regarding sales of e-cigarettes. He points out the remarkable consistency across a large body of research, none of it industry funded. In short, when governments regulate e-cigarettes—including taxes, minimum legal sales ages and advertising restrictions—it reduces e-cigarette sales to and use by both youth and adults.

    “And it also increases combustible cigarette use, again across all populations,” Pesko says.

    “The laws operate as intended in terms of reducing e-cigarette use but with the large unintended effect of increasing combustible use.”

    Vaping appears to be displacing smoking. Set aside the moral panic over vaping and legitimate fears of this new unknown; what’s left looks like a public health success story.

    “That’s what I believe is happening: a remarkable public health achievement,” says Pesko. He applauds advocates for passing Tobacco 21 but says nicotine companies also deserve credit. “Sometimes there is overlap between profit incentive and public health. The adoption of e-cigarettes may have been one of those things.”

    Nicotine Gut Check

    How should we feel about nicotine once it’s separated from combustible cigarettes? If, as Myers speculated about in 2006, we have appealing but addictive products with health risks similar to coffee … is that OK? This is a massive cultural adjustment that may take years to process.

    Social scientists Kirsten Bell and Helen Keane described our confused emotions in an article critiquing the gateway theory. “The nicotine in NRT [nicotine-replacement therapy] products is ‘good’ because it weans smokers off the ‘bad’ nicotine in cigarettes and ideally nicotine itself,” they wrote. “The nicotine in e-cigarettes is ‘bad’ because it facilitates addiction to nicotine, which, in turn, drives the user to seek it in ‘harder’ or more dangerous forms.”

    “My belief is that there will be an ongoing persistent demand for nicotine,” says Dobbins. “And if I’m right, it’s important that that demand be met with products that don’t subject the user to disease and death.”

    Another new objective for Healthy People 2030 is “Eliminate cigarette smoking initiation in adolescents and youth adults.” In 2018, four percent of youth aged 12 to 25 first picked up a cigarette. The 2030 target: zero percent. Does this trajectory suggest that zero youth use of nicotine should be the next goal?

    Pesko is not a fan of that approach. He uses the analogy of the Environmental Protection Agency’s regulation of water. They generally don’t use a zero standard for even nasty things like lead.

    “It’s so expensive to go from that trace level to zero, and the benefit is so small,” he notes. “It’s a reasonable goal to try to get use very low and with as safe a nicotine product as possible. But to go to zero nicotine use by kids, I can’t imagine the types of aggressive regulation and extra policing we’d need to do that. And even then, we wouldn’t achieve the goal, as we’ve seen with the war on drugs.”

    More Productive Policies

    Given limited resources, where might policymakers and regulators most productively put their attention to reduce tobacco product risks to youth?

    First, if we accept that the demand for nicotine exists, steer it toward reduced harm. “In terms of policy, having lower regulation of e-cigarettes than cigarettes makes a lot of sense,” says Pesko. “We want to incentivize people to use safer products. We should be taxing proportional to risk.”

    He would also like to see lower regulatory hurdles for products like e-cigarettes and nicotine pouches and incorporation of studies like his into appropriate for the protection of public health calculations: “Natural experiments are a strong, consistent body of evidence that could be used to approve more PMTA [premarket tobacco product application] applications. I’d like the FDA to use this body of work more.”

    Another suggestion is to turn up the heat on those nicotine companies known to sell to youth. Journalists have reported on the FDA failing to police vape products with candy flavors and toy-like packaging. Reynolds American even submitted a citizen petition a to the FDA requesting ramped-up enforcement of disposable e-cigarettes like Puff Bar and Elf Bar.

    Dobbins understands the discomfort of many anti-tobacco advocates with this evolution in thinking.

    “The reduced-harm products option allows companies that make money off selling cigarettes to continue doing business, albeit with much less harmful products,” he says. “But I think the most likely alternative of restrictive policies will be a move to a gray market that won’t be accountable to regulatory systems or the law, the way large companies must operate in the present.”

    Recalling industry chiefs’ past staunch denials of tobacco harms, Dobbins adds, “We must acknowledge that we are nearly 30 years from 1994.”

  • Altria in Talks to Buy Njoy

    Altria in Talks to Buy Njoy

    Image: Tobacco Reporter archive

    Altria Group is in advanced talks to buy e-cigarette startup Njoy Holdings for at least $2.75 billion, the Wall Street Journal reported, citing people familiar with the matter, according to Reuters.

    The Njoy deal could be announced as soon as this week, though the talks could still fall through, according to the report.

    The proposed deal includes an additional $500 million earnout if regulatory milestones are met.

    The potential deal follows Altria’s decision last year to be released from its noncompete deal with Juul Labs almost four years after buying a 35 percent stake in the company. Altria was planning to divest its stake in Juul. As of Dec. 31, Altria valued the stake at $250 million.

    It was reported in July that Njoy had hired bankers for a possible sale of the company. The privately held firm is likely to be valued at up to $5 billion.

    Njoy has a roughly 2 percent of the U.S. vape market by volume, according to Jefferies, Juul, by contrast, accounts for around a quarter of American vapor product sales.

    Unlike Juul, however, Njoy is one of the few vape brands that have permission from the U.S. Food and Drug Administration to continue to sell its products. Juul is waiting to hear whether the FDA will allow its e-cigarettes to remain on the market.

    In June 2022, the agency ordered Juul to remove its products from the market after finding that premarket tobacco product application failed to prove they would “appropriate for the protection of public health.

    The FDA agreed to take another look at Juul’s application after the company appealed the marketing denial order in court. The company can continue selling its products at least until the agency makes a final decision.

    Altria is keen to supplement its income from combustible products with earnings from smoking alternatives, such as e-cigarettes.

    Its cigarette sales volumes fell 9.5 percent last year as high gasoline prices and general inflation pinched smokers’ disposable income.

  • Top Court Declines to Hear Flavor Ban Appeal

    Top Court Declines to Hear Flavor Ban Appeal

    Image: Tobacco Reporter archive

    The U.S. Supreme Court on Feb. 27 declined to hear an appeal by three Reynolds American Inc. subsidiaries seeking to overturn the county of Los Angeles ban on flavored tobacco products, reports Law360.

    R.J. Reynolds Vapor Co., American Snuff Co. and Santa Fe Natural Tobacco Co. had petitioned the high court in October to take another look at the case after the full 9th Circuit upheld a lower court’s dismissal of the suit.

    The RAI companies said the 9th Circuit had twice before erred in allowing sales bans at the state and local level that were preempted by federal law.

    While the federal Tobacco Control Act grants state and local municipalities broad authority to regulate the sale of tobacco products, it does not allow them to completely prohibit the sale of those products for failing to meet state or local tobacco product standards, the companies argued.

    In dismissing their initial suit, District Judge Dale S. Fischer in 2021 found that the ban doesn’t regulate tobacco product standards. The judge said the ordinance is protected by the federal law’s preservation clause, which allows states and localities to prohibit the sale of tobacco products even if those bans are stricter than federal law.

    The companies appealed, calling the ban unconstitutional and saying state and local governments can’t bar the sale of tobacco products because they disagree with federal tobacco standards.

    L.A. County countered that the ban doesn’t pose an obstacle to federal policy since the FDA announced it intends to ban menthol cigarettes and all flavored cigars.

  • Youth Protection Guidelines Updated

    Youth Protection Guidelines Updated

    The U.K. Vaping Industry Association has updated its guide to retailers on preventing underage sales.

    UKVIA Director General John Dunne said tackling the sale of vaping products to minors was “one of the most fundamental challenges facing the industry.”

    The UKVIA is making its “Preventing Underage Sales Guide” freely available via its website.

    The 20-page guide has been developed in partnership with the association’s Primary Authority Partners, Buckinghamshire and Surrey and Trading Standards.

    Dunne said: “The entire UKVIA membership is united behind the message that we must do all in our power to stop underage sales.

    “This is one battle that we simply have to win, but we need the support of government, regulators and enforcement authorities in order to do so.

    “Our underage sales guide will give retailers all the information they need so that they don’t inadvertently sell to someone under 18.

    “Policymakers, politicians and consumers must have confidence that the vaping industry is a responsible sector, and this will be undermined if businesses do not implement and uphold robust age verification processes.

    “The guide gives clear advice on how to implement a ‘Challenge 25’ policy and why it is important that anyone who appears to be younger than 25 should be asked to provide ID.”

  • Industry Unimpressed by CTP ‘Reset’

    Industry Unimpressed by CTP ‘Reset’

    Photo: aleksandar kamasi

    Vaping industry representatives are unimpressed by the U.S. Food and Drug Administration’s plan, announced Feb. 24, to address the shortcomings in the operations of its Center for Tobacco Products (CTP) identified by independent evaluators working through the Reagan-Udall Foundation.

    “While the devil is in the details, nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product,” Tony Abboud of the Vapor Technology Association told AP News.

    The CTP has come under fire from various sides, with health advocates urging the agency to more aggressively police regular cigarettes and flavored e-cigarettes, and tobacco companies complaining that the FDA is unwilling to approve new products, including e-cigarettes, which might help adults quit smoking.

    To address such criticisms, FDA Commissioner Robert Califf in July 2022 ordered an independent investigation into the CTP’s operations.

    On Dec. 19, 2022, the Reagan-Udall panel issued a blistering report. Evaluators described the FDA as “reactive and overwhelmed,” with a demoralized workforce that struggles to oversee both traditional tobacco products and a freewheeling e-cigarette market.

    In response, the FDA pledged a reset to the agency’s tobacco program. The CTP director promised to develop a five-year plan by the end of 2023 outlining priorities, including efforts to clean up a sprawling market of largely unauthorized electronic cigarettes. The agency also said it would provide more transparency to companies about its decisions, following the rejection of more than 1 million applications from e-cigarette makers seeking to market their products as alternatives for adult smokers.

    Nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product.

    Vaping industry representatives expressed disappointment with the FDA announcement, which they said would continue to result in denials for most vaping products.

    “After the scorching findings from the Reagan-Udall report, the FDA should be issuing a mea culpa to the American public for the calamity created by the agency’s insistence on crushing the nicotine vaping market,” the American Vapor Manufacturers Association wrote in a statement.

    “But instead of taking responsibility, the agency is proposing yet more task forces, more bureaucrats and even a so-called ‘five-year plan,’ which is government shorthand for punt, retreat, and see you later. It’s not good enough, not by a long shot, and the millions of Americans relying on vaping products to stay off cigarettes have once again been bast to the wind by the FDA’s chronic negligence and indifference.”

    Americans for Tax Reform described the CTP’s response as “inadequate,” saying it fails to address the critical issues highlighted by the Reagan-Udall Foundation. “Since [CTP] Director King and FDA are clearly unwilling to step in and fix the problems plaguing the Center for Tobacco Products, this falls upon Congress, and specifically the new Republican House Majority, to use oversight powers to reestablish trust in FDA and improve public health,” the group wrote in a statement.

    While welcoming the CTP’s new commitment to transparency, the Premium Cigar Association (PCA) expressed concern that the CTP continues to view industry engagement as an afterthought rather than a means to better understand how its approach can be better designed in the developmental phase of regulations, guidance or strategic planning.

    The PCA also questioned the CTP’s desire to increase its workforce and raise more funds through user fees. “Until the systemic failures are addressed, growing an agency that already spans over 1100 employees will only complicate and compound its problems,” the PCA wrote in a statement. “Rather, CTP should embrace Congressional oversight, as does every other Federal Agency, to ensure that its ongoing efforts remain in-line with its statutory mission and public demands.