Author: Staff Writer

  • Hawaii Sues Juul for Misleading Marketing

    Hawaii Sues Juul for Misleading Marketing

    Photo: jessica45 from Pixabay

    Hawaii Attorney General Clare E. Connors has filed a lawsuit against Juul Labs seeking penalties, damages and injunctive relief for violations of the state’s Unfair and Deceptive Acts and Practices Law.

    The complaint alleges that, for a period of more than five years, the defendants misleadingly marketed Juul e-cigarettes, intending to hook users on the product in the same manner used by tobacco companies in the marketing of cigarettes. 

    According to the attorney general, the defendants used marketing strategies that targeted teenagers, making Juul products seem desirable, all while falsely understating the nicotine content of the product and its addictiveness.

    “In marketing their e-cigarettes to Hawaii’s children, these companies ripped pages directly out of the tobacco company playbook and resurrected Joe Camel for a 21st Century audience,” said Connors. “By misrepresenting nicotine content and by presenting their products as healthy alternatives to cigarettes, they deceived the public and created a new generation of nicotine addicts.”

    The state seeks civil penalties of up to $10,000 per violation and damages along with an injunction requiring the defendants to halt their deceptive advertising practices and fund mitigation programs, including vaping-cessation programs.

  • Altria Veteran Brian Quigley Joins Respira

    Altria Veteran Brian Quigley Joins Respira

    Photo: Jakub Jirsák | Dreamstime.com

    Brian Quigley has joined Respira Technologies as chief operating officer.

    Quigley spent 16 years at Altria Group where he was CEO of the smokeless tobacco business from 2012 to 2018.
     
    “We are thrilled to have Brian join the Respira team as we prepare to enter the commercial phase of our company’s growth,” said Mario Danek, Respira’s Founder and CEO. “Brian’s vocal leadership for responsible industry practices and harm reduction combined with his impressive track record of driving business performance in FDA-regulated businesses make him the perfect leader for the next phase of growth for our unique product platforms.”
     
    Respira has developed two proprietary drug delivery platforms designed for safe aerosol-based delivery of drugs to patients and end users, without the creation of harmful byproducts and compounds. According to Respira, the platforms have applications in nicotine-replacement therapies, reduced-harm tobacco products and pharmaceutical drug delivery.
     
    “I am excited to be joining Respira Technologies at this critical moment in the company’s journey,” said Quigley. “I look forward to working with our team, investors and partners as we prepare to commercialize our proprietary drug delivery platforms.”

  • Sourcing Success

    Sourcing Success

    Photos courtesy of Belaprom

    Based in Bosnia and Herzegovina, Belaprom obtains its materials from the EU to deliver high-quality cigarette tubes at an affordable price.

    TR Staff Report

    As the cost of cigarettes continues to rise, consumers are finding less expensive ways to smoke. Many are turning to make-your-own (MYO) cigarettes. Using a little machine, MYO allows consumers to create cigarettes at home by inserting their preferred tobacco blends into hollow cigarette tubes.

    A relative newcomer to the filter tubes business, Belaprom was founded in Bosnia and Herzegovina in 2014. Over the past six years, the company has been expanding its operations, product portfolio and consumer base. According to Belaprom’s founders, brothers Nadir Jasarevic and Fadil Jasarevic, the company has grown more than 600 percent since opening its doors.

    “The main reason why Belaprom continues to grow its customer base is because of the quality of the product we produce,” explained Nadir, who added that the brothers ventured into the tobacco industry because they wanted to provide high-quality products at a reasonable price. They also wanted to be the type of business that its clients could count on by providing the highest level of customer service possible.

    “After many years of importing cigarette filter tubes from other European companies, we decided to start producing our own products in order to better the Bosnian economy and bring something new to our country,” says Nadir. “Since beginning Belaprom, the company has grown into the largest cigarette filter tubes producer in the region. This shows that we’ve been doing things the right way.”

    The Jasarevics started Belaprom because there were no major importers of cigarette filter tubes in Bosnia and Herzegovina. They believed that starting a local business could become a lucrative project if the company offered higher quality products at more reasonable prices than other players in the market.

    “The process of starting the tube manufacturing endeavor had many obstacles. Other companies from Bosnia and Herzegovina operated on a smaller scale; however, from the very beginning, Belaprom was designed to be both a manufacturer and an exporter of goods,” says Fadil. “Finding the right machine, training the personnel and securing the best material suppliers took more than two years.”

    As part of its business promotion efforts, Belaprom exhibited at TABEXPO 2019 in Amsterdam. Pictured are General Manager Adnan Mesanovic (left), and Export Manager Mirza Imamovic. (Photo: Taco Tuinstra)

    The brothers developed their business acumen by opening a small grocery store, a business that has since grown into a conglomerate of more than 20 supermarkets, 14 gas stations and Belaprom. Fadil oversees the finances and directs the operations of the supermarkets and gas stations while Nadir is charged with importing goods and services, finding new suppliers and increasing the company’s customer base. “Our goal is to be recognized as a leader in both the industry and the marketplace,” says Fadil. “Our clients are more than customers; they are our partners.”

    At Belaprom, the company focuses on the production of cigarette filter tubes and the import and wholesale of products for broad consumption. “Our production meets the highest of European standards. All our materials used in production are from the European Union. We do this because it allows Belaprom to guarantee the final product meets the needs of even the most demanding of customers,” says Nadir. “The production plant is equipped with state-of-the-art machinery using highly sophisticated technology to create the highest quality products possible.”

    Belaprom’s 3,000-square-meter (approximately 32,292 square feet) production facility is built specifically for the manufacturing of cigarette tubes, according to Nadir. He says that every section of the factory is organized to optimize the production progress. “We decided to purchase Hauni machinery because Hauni is considered the best machine manufacturer in the tobacco industry,” Nadir says. “We use machines that are capable of producing 8,000 tubes per minute or 3,840,000 tubes per day.”

    Belaprom is positioned at the crossroads between the eastern and western countries of Europe. The company currently employs 50 skilled and highly motivated workers producing more than 20 brands, according to Nadir. He says that Belaprom can easily produce a brand that meets the specific criteria for any company in need of cigarette tubes. Currently, Belaprom has four licensed brands: Zlatni Filter, Bella, Practic and Casual. Its most popular brand is Ritual 500, which has a modest but pleasing design.

    “The reason our brands are popular is that the designs are simple, yet appealing. Our customer base includes many different regions of Europe, so our brands are designed to represent the region where they are sold,” says Nadir. “For example, customers from the flatlands of Croatia use the brand Pannonian Choice, which has a green box symbolizing lush, fertile valleys and golden letters that stand for the plentiful harvest of barley.”

    Currently, Belaprom is negotiating the purchase of another tube machine from Hauni for installation sometime later this year. The investment required for the state-of-art equipment is more than €3.5 million ($3.9 million), according to Fadil.

    “Belaprom is ramping up its production capabilities and investing more resources into opening up operations to other parts of the world, especially Southeast Asia with its vast population and economic areas. It is part of our five-year plan,” says Fadil. “Long term, we hope to expand globally, with a primary focus on Eastern Europe and North Africa. It’s a balancing act. While we want to offer more markets our superior products, it must not come with a compromise in customer service. Providing the highest level of service to our partners is our primary mission.”

  • The Endgame Revisited

    The Endgame Revisited

    Photo: Tobacco Repoter archive

    It is time to confront the fundamental confusion about the public health aims for tobacco and nicotine policy.

    By Clive Bates

    In 2013, the journal Tobacco Control published a supplement, “The Tobacco Endgame,” setting out various ways in which various experts thought a tobacco-free society could be attained. Ideas included annually increasing age limits, a cap and trade system, outright prohibition, taking control of the industry and making it put itself out of business, and removing most of the nicotine from cigarettes. In the intervening seven years, most of these ideas have not progressed at all. And rightly so, as I argued in a detailed critique, these policies are mostly impractical or excessively coercive and would fail if tried. The only one that attracted any real interest was the idea of lowering nicotine concentrations in cigarettes to make the product subaddictive (i.e., to eliminate the main reason people smoke). But even this de facto prohibition has not fared well. After backing the idea in 2017, the U.S. Food and Drug Administration (FDA) dropped the reduced nicotine rule from its regulatory plan in 2019. The most senior researchers engaged in the idea recently acknowledged that its viability would depend on the availability of credible safer alternatives to smoking.

    So, all this begs the question, where is the endgame now? Or maybe the more interesting prior question is: endgame for what? What will end and what, if anything, will continue? Does the endgame mean the end of tobacco and nicotine use? Or is the endgame, as I believe, the final stages of a transition—a shift from an unsustainable to a sustainable nicotine market?

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    At the heart of this question is a fundamental confusion about the public health aims for tobacco and nicotine policy. This dispute is rarely surfaced and never resolved but confronting it has now become unavoidable. At least five objectives can be identified in tobacco control: (1) reducing disease and premature death; (2) eliminating smoking and smoke exposure; (3) eliminating tobacco; (4) destroying the tobacco industry; and (5) achieving the nicotine-free society or “ending nicotine addiction.” When the consumer nicotine market was supplied almost exclusively by cigarettes, it was possible for activists to say, “all of the above.” Activists could get away without having to declare or even recognize their underlying aims or to face the trade-offs and tensions between them.

    No longer.

    Even in the 1990s, splits in tobacco control were already emerging over snus, an obscure Scandinavian oral tobacco product. The faction interested in reducing disease was intrigued by Sweden’s abnormally low smoking rate. Toxicology and epidemiology suggested that substantially lower rates of disease in Swedish men were due to use of snus as an alternative to smoking. For that group, the harm reduction potential of snus had great potential. However, the faction interested in the end of tobacco saw the European Union’s ban on snus (other than in Sweden) as a win and incremental progress toward their goal of the tobacco-free society. Thirty years later, snus remains banned in the European Union despite undeniable evidence that snus reduces smoking and by doing so, reduces individual and population harm. This willingness to forego major public health benefits should tell us something fundamental: The dominant tobacco control faction is engaged in a war-on-drugs mission and not, as often assumed, a public health crusade. It is trying to forge a path toward a nicotine-free society with little concern for the collateral damage inflicted to health on the way to meeting its goal.

    However, the rise of vapor and heated-tobacco products in the last 10 years means this is no longer a localized conflict. The harm reduction “proof of concept” of snus can now be generalized to an experience much closer to smoking in every respect other than harm to health. Add in the recent developments in oral nicotine pouches, which will make snus-like products more acceptable to a much larger population, and the diverse portfolio of smoke-free alternatives to smoking is starting to look quite formidable. The products available to nicotine users have changed beyond recognition in the last 10 years. If we project forward through another 10 years or 20 years of innovation in these new categories, imagine how the market could look in 2030 or 2040.

    This is the opening phase of the technology disruption now roiling the industry. But it is also disrupting the tobacco control community by surfacing the tensions between its objectives. In particular, we are seeing the goal of the “nicotine-free society” coming to the fore, with an increasing stress on nicotine and the inclusion of goals to end nicotine use or “nicotine addiction” where there was previously an aim to pursue the end of smoking or to prevent disease.

    Even many public health supporters of “tobacco harm reduction” see the smoke-free products as an expedient and effective way of helping to stop smoking—a sort of pimped-up nicotine-replacement therapy. And that is a good argument, as far as it goes. But it doesn’t really settle the question of our collective attitude to nicotine over the longer term.

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    To look ahead, let’s consider the situation in Norway where daily smoking among 16-year-old to 24-year-old women has fallen from 15 percent to only 1 percent in just 10 years, according to 2019 data from Statistics Norway. Have they stopped using nicotine? No, they have been using snus from the outset. By 2019, daily snus use was at 14 percent in this group. That group is now using nicotine without ever starting to smoke, and they probably never will. Harm reduction supporters argue that this is “a win” for public health because without the use of snus, many of these young women would otherwise be smoking. But how will that argument look in 10 years or 20 years when cigarette smoking may be well on the way to obsolescence?

    Here we need to confront the deeper question about nicotine that goes beyond harm reduction in which the cigarette is the reference point for harm. The concept of harm reduction feels unsatisfactory in this context—what if no one uses a harmful product to start with? If there is going to be a long-term market for nicotine, the question becomes how to regulate a recreational nicotine market based on consumer-appealing products with risks that are within our normal appetites for risk? I believe the product portfolio is now evolving toward how it could look over the longer term—smokeless and electrically heated tobacco and nicotine products. I don’t expect the combustible products to disappear but to become a niche interest—like vinyl records in a world dominated by digital music streaming.

    For some in tobacco control, this is a nightmare vision. This is not the nicotine-free society that has been their ultimate endgame. But if the harms are not particularly large and the drug is popular, why should governments stop people using it? Drug use is pervasive in human society and throughout history, perhaps started by our hominid ancestors millions of years ago. Nicotine, a relative newcomer, was domesticated between 6,000 years and 8,000 years ago. To say that a drug should be legal and available in relatively safe form is not to endorse its use or somehow to recommend it but to acknowledge that some people may wish to use it, and there isn’t a good reason to stop them by force of law. That idea has both philosophical and practical underpinnings. The philosophical foundation recognizes adult autonomy and the right to indulge in risky behaviors that do not harm others. The practical experience of prohibitions is that they do not work (a new supply chain is established by criminals) and cause serious harms to the individual and to wider society.

    Prohibition does not even protect adolescents. Despite federal prohibition, past-30-day use of cannabis among U.S. 12th graders has been over 20 percent for at least a decade. The recent U.S. lung injury outbreak that hospitalized 2,800 and killed 689 was largely a consequence of reckless criminal behavior in the illicit supply of cannabis (THC) vapor products.

    As a drug, nicotine is relatively innocuous—it doesn’t cause serious disease, intoxication, overdose, violence, road accidents, sexual vulnerability, incapacitation or family breakdown. Perversely, this relative safety becomes a serious tactical problem for the war-on-drugs tendency in tobacco control. If the prospects of cancer, lung disease and heart disease are greatly diminished, why should people fear nicotine? It is even possible that more people will take up nicotine if the consequences of using it are much less dreadful—that would be the economist’s assumption. Harm (from smoking) is the most persuasive reason not to use nicotine, and that reason is going up in a puff of vapor. In a weirdly inverted way, the greatest threat to the nicotine-free society is the availability of relatively safe nicotine products. I think that explains why so much strenuous, even desperate, effort is going into finding serious harms in smoke-free products though, beyond reasonable doubt, there are none.

    The theme of this year’s online GTNF 2020 is “Sustainable change through innovation and regulation.” It will be a great opportunity to discuss the future of nicotine in greater depth.

    Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).
  • Rethinking Business

    Rethinking Business

    Photo: Tobacco Reporter archive

    The impact of the Covid-19 pandemic may endure after the crisis.

    By George Gay

    The Covid-19 pandemic has created a lot of problems for the leaf tobacco trade, problems that have ranged from irritations to major hurdles, but it has been reasonably even-handed with them. While one business might have been in a better position than another to deal with these problems because of, say, its contacts or the strength of its business model, all businesses have had to face similar problems.

    This was brought home to me by a comment made by Rainer Busch of NewCo when he opined that nobody really knew how to do business in the current circumstances. In an email answer to a question about predicting future unmanufactured tobacco trade, he responded with a question of his own: Who knows what comes next? The additional level of doubt caused by the pandemic, he said, was an obstacle for everyone trying to forecast requirements and sales. Every company, he suggested, would be concerned about the future.

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    Busch’s main problems so far have had to do with logistics. Movements within Europe had been difficult because travel restrictions and infection warnings had limited the availability of trucks, he said, a problem that had been exacerbated by closed border crossings. This had meant that, for a while, transport prices had risen significantly, though now [Busch’s email was dated May 22], with lockdowns easing, the situation was changing, and transport companies were having to compete for orders.

    Looking at the wider picture, shipping problems had been caused initially by a lack of containers, which were bunkered in large quantities in China, and even now, some ports are still functioning only to a limited extent. At the same time, not being allowed to travel had changed tobacco business culture, said Busch, though he intimated that the industry was nothing if not innovative and flexible. Although it was usually necessary to visit the countries of origin to gain a full picture of crop quality and market conditions, business was still being conducted. Investments had been made in internet communications, and home office work had been introduced.

    Initially, shipping problems were driven by a lack of containers, which were bunkered in large quantities in China. (Photo: Transcom Sharaf)

    Protecting stakeholders

    All companies that responded to TR’s request for information have relied on switching to remote working and conferencing, and it is alarming to consider what might have happened if the pandemic had struck in pre-internet days. Premium said in a June 1 email message that its primary response to the pandemic had been focused on protecting its employees and their families by conforming to or surpassing the requirements of the countries in which it operates. But, at the same time, it had been at pains to reassess the way it operated so as to find innovative ways of protecting its business interests, in part by replacing the traditionally crucial personal contacts with remote working and conferencing systems. For the time being, all nonessential business travel had been suspended while the company monitored the situation.

    Protecting the interests of its staff and customers, however, has not been easy. Grant Readings said that at times it had been difficult to deal with regulations that differed from country to country, though he added that Premium had managed so far to keep its companies operating at a reasonable capacity by having its management teams stay vigilant and fully engaged with the authorities and other industry stakeholders in the countries in which they operated.

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    Interestingly, Readings said the pandemic had not severely disrupted communications between the company’s agronomists and growers and that the company had interacted with the authorities and relevant stakeholders in Brazil, Malawi, Tanzania, Uganda and Zimbabwe to ensure that buying operations were secure and efficient while remaining transparent. Premium’s Brazil factory had been running at capacity, and the company was expecting that all processing in Argentina, Malawi, Tanzania, Uganda and Zimbabwe would continue with relatively little disruption. Keeping other facilities open and functioning was described as an ongoing challenge but one the company was determined to meet.

    Most people have been affected by travel restrictions, and Readings said Premium’s customers had been unable to visit the various countries of origin to inspect tobacco as they normally would. For this reason, some disruption in ordering patterns was expected, and, potentially, the shifting of some product inspections to destination ports. At the same time, the reduction in available shipping routes and in the frequency of services on some of the available routes had led to longer-than-usual delays in shipping, but Premium indicated it was working with customers to minimize such delays.  

    Teleworking presents a challenge for a business that relies heavily on personal contacts and product inspections. (Photo: Taco Tuinstra)

    Beyond the mitigation plans

    Overall, and given the way that people’s lives have been hugely and negatively affected by the pandemic, the outlook for the leaf tobacco trade is generally optimistic. Readings said there had been no major slowdown in demand for leaf tobacco, and he wrote of a possible future increase in demand for flue-cured, stable demand for air-cured burley and increased interest in better-value dark fire-cured and oriental. Premium, he added, believed business could start to normalize in the next three months to five months [August–October].

    In part, this optimism springs from the supply side since the major production countries of South America and Africa are still operational. On the demand side, Readings said, it was assumed that some of the bigger manufacturers were reviewing their requirements in light of whatever impact the pandemic was having on consumption while regional and smaller manufacturers were expected to increase their buying activities from about July as is traditionally the case.

    Meanwhile, in a May 21 email comment that seemed to echo Busch’s remark about the difficulty in knowing what to do in the present circumstances, HN Ramprasad, chief executive of ITC Leaf Tobacco Business, made the point that while the Covid-19 pandemic struck quickly, giving businesses little time to respond, it also set challenges not covered by existing risk and mitigation plans.

    Nevertheless, he said, ITC’s deep links with the farming community and its presence across the supply chain meant that it was able to act swiftly in supporting growers in crop production thereby ensuring the continuity of its operations all the while adhering to the Indian government’s health and safety directives.

    When the government announced a lockdown on March 24, India’s internationally oriented leaf tobacco industry faced two different challenges. Flue-cured tobacco growers in Karnataka were preparing for their planting season while those in Andhra Pradesh had almost finished curing their tobacco and were getting ready for auction sales.

    In Karnataka, ITC’s local field staff helped ensure there were adequate supplies of quality seeds and the village nursery areas needed to grow them, and it supported growers in respect of best practices in nursery management while in Andhra Pradesh, field staff concentrated on advising growers about the best way to store tobacco on their farms so as to maintain its color and quality.

    Overall, ITC, which many years ago was in the vanguard of using computers to assist growers, leveraged its technology, including an ITC app, a dedicated WhatsApp group and one-to-one phone calls along with village-based field staff, to encourage best farming and safety practices. In addition, during the lockdown, ITC’s partnership project that sets up water plants in rural villages became even more important because, as well as providing a continuous supply of clean drinking water to more than 175,000 people, it meant that growers and workers didn’t have to travel outside their villages to fetch water for household purposes. To date, 140 water purification plants have been established to serve 200 villages.

    ITC said that tobacco auctions had resumed after a 40-day lockdown in phases and amid heightened safety precautions, which meant that the pace of the auctions was slower than would normally be the case. However, the company’s warehouses and processing facilities were little affected once the necessary permissions were obtained to operate them with appropriate safety measures, which included the thermal scanning of workers, the wearing of face masks, the use of hand washing and sanitizers, and implementing social distancing rules. In fact, Ramprasad said that ITC’s processing factory had started as early as the first week of April, almost within a week after lockdown, demonstrating agility and resilience.”

    Interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown in India. (Photo: Taco Tuinstra)

    Constraints

    Local transport also caused little problem given the implementation of official safety procedures, but interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown as vehicles were stopped by police at check posts. But the situation eased following appropriate representations, and ITC reported that, on the supply side, all activities were returning to normal at a much faster pace than had been expected.

    On the other hand, said Ramprasad, the situation at end markets might take more time to return to normalcy. There were still operational issues at some destination ports, from increased restriction and documentation requirements to complete lockdowns. The reduced trading across the globe had resulted also in a reduction in the availability of containers and the number and frequency of ships. 

    Otherwise, from an export viewpoint, Ramprasad said the constraints had affected travel, the dispatch of samples and the acceptance of grade standards by customers. The auction market delays had meant that samples could not be sent on time to allow customers to confirm orders for the new crop, which could lead to a reduction in demand for 2020 India crop tobaccos, though the extent of such a reduction was difficult to estimate at the time.

    Ramprasad said he expected the industry to experience a short-term slowdown due to the impact of the Covid-19 pandemic, but he said he was “hopeful of regaining full demand for Indian tobacco in [the] long run due to its versatility and ability to deliver consistent supply of superior sustainable product at competitive prices.”

    There is no doubt, however, about the short-term damage that has been caused. Maddi Venkateswara Rao, director of the India-based, unmanufactured tobacco supplier, Maddi Lakshmaiah & Co. (ML Group), made the point that the pandemic’s effects would mean that every business would be negatively affected up to the end of this year and perhaps beyond and that tobacco was not going to be exempted.

    In a May 25 email, Rao said the ML Group was still assessing the situation and that it was too early to conclude whether the aftermath of the pandemic would bring a downturn or upturn in demand for leaf tobacco. Much would depend upon the cultivation and consumption policies of the largest tobacco producer, China. But he added that, following the pandemic, there was a possibility that global cigarette sales would be affected and the ML Group, a supplier to the global market, was concerned about how this might turn out.

    As of mid-May, major leaf producing countries, such as Tanzania, were still operational (Photo: Taco Tuinstra)

    Lasting impact

    But that is for the future. Leaf businesses have suffered substantially already. Rao described how during India’s lockdown, the ML Group’s tobacco operations had come to a standstill—from purchasing to processing and shipping. Although some relaxations of India’s lockdown, originally set to last until the last day of May, were allowed from about May 10, in general, it was not possible to meet growers or others involved in the tobacco business, and no auctions were held.

    Processing of leaf had been interrupted, which meant keeping unprocessed stocks in the company’s warehouses, something that would impact costs and therefore sales. It had been impossible to keep facilities open because it was not possible to guarantee the safety of workers, who were advised to stay at home during the lockdown and to take all precautionary measures by following government guidelines. By virtue of their nature, said Rao, tobacco operations could not be done sitting at home online.

    Travelling had been seriously disrupted by the lockdown, said Rao, and there had been no new movements of cargo either by road or ship. The ML Group had faced difficulty in supplying customers with documents relating to tobacco already in transit, and it had had further difficulty in obtaining documentation, such as phytosanitary certificates. Subsequently, financial inflows and outflows were disrupted.

    But perhaps there is light at the end of the tunnel. Shortly before Rao responded to TR’s questions, lockdown relaxations had seen the resumption of about 30 percent of public transport and the ML Group was able to resume processing operations on a limited scale, adhering to government guidelines in respect of physical distancing and by providing personal protective equipment, including masks and sanitizers.

    Finally, looking to the future, Busch, whose comments opened this piece, thinks that the experience of the pandemic will have a permanent, or at least long-term, impact on the future of the leaf business, with fewer trips being made and more work from home being allowed. “Fortunately, we have our representatives and partners in most origins and are therefore always up to date on information about crop qualities, market developments and availabilities,” he said. “I miss being able to visit the origins to do my own crop evaluation, but the team does an excellent job of keeping me up to date.”

    While in retrospect the pandemic will of course be seen in a highly negative light, perhaps some good will be gleaned from it. Perhaps in being forced to reassess how it does business, the leaf industry, for instance, will identify areas where its operations could be improved. Certainly, any reduction in air travel would be a welcome boon for the environment, which is a woefully underestimated pandemic.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Setting Priorities

    Setting Priorities

    Photo: PixaBay

    The WHO needs to target more of its resources at communicable diseases.

    By George Gay

    Since it was suggested that the wellbeing of nonsmokers could be negatively affected by secondhand tobacco smoke, smoking has been banned in an ever-increasing number of public places, including workplaces, in more and more countries; and, in this way and to a large extent, the perceived problem has been solved while retaining most of the economic benefit the tobacco industry delivers.

    Since almost everybody in the world has been under some level of threat of contracting Covid-19, the disease caused by SARS-CoV-2, people have been banned from an ever-increasing number of public places, including workplaces, in more and more countries; and, in this way and to some extent, the spread of the virus has been slowed, though those measures have caused, are causing and will cause for an as-yet-unknown time untold social problems and a reduced economic output such that, according to at least one headline, the world is going bust—whatever that means.

    It takes about 40 years for a smoker to die of a smoking-related disease. It takes about three weeks to die of Covid-19.

    And yet … it’s tobacco that seems to be uppermost in the mind of the World Health Organization (WHO). The Conference of the Parties to the WHO Framework Convention on Tobacco Control (FCTC) and the Meeting of the Parties to the Protocol to Eliminate Illicit Trade in Tobacco Products was due to be held in November, according to a note on the FCTC website dated Feb. 5 and still current well into April. But there was no mention of the Conference of the Parties to the WHO Framework Convention on Pandemic Prevention and Control, or of the Meeting of the Parties to the Protocol to Eliminate Trading on Markets Known to Present a Significant Risk of Zoonotic Diseases.

    It’s true that, on April 27, the joint meeting was postponed until November 2021, but not, as one might have expected, because the WHO needed to have all hands to the Covid-19 pump, but: “In light of the COVID-19 global pandemic and its impact on the conduct of international global conferences and travel…” But surely, it cannot go ahead even then. I cannot believe that the countries that normally fund this event are going to put up the money for the ninth meeting of the Parties—not at this time. Not when their treasuries are in hock and it is clearly time to focus attention on a few of the health threats that, unlike the threat of tobacco, people cannot deal with themselves: pollution, pandemics and poverty, for instance.

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    Spectacularly unprepared

    It is staggering that the world was as ill-prepared as it was for the onslaught of SARS-CoV-2 (hereafter referred to as the coronavirus). Representatives of most countries have come together for eight international conferences to discuss tobacco and latterly the illegal trade in tobacco, which you have to perform intellectual somersaults to view as a health issue. Did they not come together to discuss what to do in the case of a coronavirus outbreak?

    It seems as though they didn’t since the world proved spectacularly underprepared despite the fact that the coronavirus is generally assumed to have arisen from the midst of a type of “wet market” (one that sells both live and butchered animals, some of them exotic) that is known to be one of the major risk factors for such virus outbreaks. It was underprepared despite the fact that the operation of this market was taking place within China, a country that plays a major role in the global market. And many countries were underprepared because they had fallen for the idea that the “free” market was sovereign. They had allowed to be outsourced their manufacturing capabilities, including those producing the personal protective equipment (PPE) that is vital during the sort of pandemic that has ensued, they had run down stocks of such equipment, and they had failed to put in place workable plans to ramp-up quick and local manufacturing of such PPE in the event of an emergency.

    In other words, we are dying from a perfect storm of markets: wet, global and “free.” Or rather, we are dying from a perfect storm of these markets plus the effects of the interference in two of them once the going got tough. Once the authorities in some countries realized that they had been left exposed in respect of PPE and ventilators, globalization lost its sheen, border gates were slammed shut and the “free” in free market was taken a step further so as to include the “hijacking” of PPE.

    The wet market in question was being operated in Wuhan, though it would be misleading to give the impression that if these sorts of wet markets were eliminated in China, the world would be safe. Similar markets are operated in other countries, and the risk of coronaviruses arises from many other sources, including the sorts of factory farming that supplies most of the meat consumed in the U.K., where I live. And while the problems caused by the coronavirus were exacerbated by China’s system, which tends to suppress what are viewed as negative messages, such systems are being taken up in other countries. In the U.K., we are building a cult of leadership—albeit one that is looking a little shaky at the moment—and have recently voted in a government that is itching to control the media, the message and, as a backstop, the courts. Given the narrowness and brittleness of the U.K. government’s ideology, it is not surprising that it has proved to be one of Europe’s most incompetent in the face of the coronavirus.

    Change ahead?

    But we shouldn’t despair. I keep reading how, after we come through this pandemic, things must change. For instance, it’s said that inequality must be reduced significantly. This is a nice idea, but given what happened after the 2008 financial crash, a little naive, I think.

    One of the changes that is much touted has it that a lot of people whose jobs are now undervalued and underpaid will henceforth be recognized for the essential work they do and will be paid accordingly. Of course, this predicted change concerns mainly healthcare and other workers without whom basic services cannot be maintained, but let’s look at the tobacco industry. Will this brave new way of looking at the world change the lot of the tobacco grower, who, by definition, is an essential worker when it comes to producing tobacco products? I don’t think so. They will continue to live on a pittance while those performing nonessential jobs and those performing no jobs will snap up the big tobacco money. 

    But let’s look on the bright side. Perhaps one of the changes will deliver a different type of advantage. Perhaps we will try to hang onto the environmental benefits that have seen pollution reduced over many cities partly because people have been making fewer journeys during lockdowns. Again, it’s a nice idea but unlikely. Such change would require bold political and business leadership at a time when many of the countries of the world are led by people who have so little imagination that they cannot see we have a problem or who are so in hock to the current system that they daren’t change direction. In a scene that reflects the end of the film, Dr. Strangelove, some airlines, for instance, are jostling for public money so that they will be able to take to the skies again en masse once lockdowns are lifted. You can laugh at the idea of a “mineshaft gap” only when it’s part of a film.

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    Ramping up pressure

    In fact, very little changes. Anti-tobacco crusaders have used the coronavirus to try to scare smokers (and, in some cases, vapers) into quitting. At a time of high anxiety, they have ramped up the pressure on smokers by putting forward the idea that they are at especial risk if they contract Covid-19. Looked at from one direction, this is common sense. Smoking affects the lungs—organs that the coronavirus attacks. But the one thing that we know about Covid-19 is that we know very little about it; so, I would suggest that it behooves anti-tobacco activists to take this into account before speculating. Indeed, it might be wise from their own point of view to exercise a little caution. They are going to look rather daft if, as seems possible at the moment, it is found that smoking and, more particularly, nicotine, is a defense against contracting the coronavirus.

    I’m sure that some of the people using the coronavirus as a means of scaring smokers half to death are well meaning. But I cannot say the same for those who have been putting forward the idea that tobacco is not an essential item and so should not be on sale during lockdowns, especially since in many countries tobacco products are available at the sorts of shops that are open anyway because they sell food. This idea, I take it, comes from what must be the puritanical fringe. But the puritans too should exercise some caution—on two counts. They need to bear in mind that one crucial aspect of a lockdown is that you keep as many people on side as is possible. And they need to be aware of the fact that they, also, are going to look more than a little daft if smoking and nicotine turn out to comprise a defensive weapon.

    And there are aspects of this idea that simply don’t make too much sense. We are told that smokers are addicted to their habit and find it nearly impossible to quit. So, what do politicians think is going to happen when they cut the official tobacco supply to addicted smokers, especially if those smokers suspect that smoking could be a defense against contracting the coronavirus? The likelihood is that there will be an increase in the illegal trade, which won’t, because of the nature of that trade, be observing social distancing. And it is a racing certainty that tax revenues will fall—at a time of special need for such revenue.

    Targeting resources

    But let me flip back to the beginning of this piece because I might have given the wrong impression. I support the institution of the WHO and do not think that the president of the U.S., Donald Trump, was wise to threaten to cut his country’s funding for the organization, though I can understand why he is feeling a little cross with it.

    As is stated above, however, the WHO needs to target more of its resources at communicable diseases such as the coronavirus that is now running amok across the world. It can backpedal on tobacco. The tobacco and nicotine industries, with their ever-improving, new-generation products can do a better job than the WHO in reducing and, eventually, eliminating smoking. This is the sort of area where the “free” market does work.

    What the WHO doesn’t need to do is be the cause of thousands of people flying around the globe to come together in November 2021 to discuss a problem that others can solve. Holding the FCTC meeting will cause pollution and, even at that time perhaps, before the world has figured out how to interact with nonhuman animals in a civilized manner, send out the wrong message about bringing people together for major international meetings.

    Finally, it needs to be remembered that tobacco, unlike novel viruses, cannot pose an existential threat to civilization. For the WHO and its members to concentrate on tobacco is reckless.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • No Baggage

    No Baggage

    Photo: Swedish Match

    Unburdened by the legacy of traditional tobacco products, nicotine pouches are starting to catch on in a variety of markets.

    By George Gay

    Having been asked to look into whether interest in and sales of nicotine pouches have increased in the wake of the Covid-19 pandemic, I have to own up to failure. In my own defense, however, I would suggest that the consumer buzz around these novel products had been getting louder from well before the onset of the virus and that any additional interest caused by the pandemic would probably have been difficult to discern against that background noise.

    Having said that, I did find some evidence of increased interest in nicotine pouches brought on, at least in part, by the pandemic. Jason Carignan, president of Dryft Sciences, which offers its Dryft brand of nicotine pouches in the U.S., made some interesting observations about the way that nicotine users had been reacting in the face of Covid-19 and how they might respond in the future. “Consumers are responding well to Dryft’s convenience, simplicity and functionality at a time when wearing masks is more prevalent and remaining indoors is required,” he said as part of a statement issued in response to a number of questions posed by TR. “Online subscriptions are increasingly attractive with deliver-by-mail options, and we’re receiving positive feedback about our different flavors and strengths, as well.

    “We are seeing new consumers arrive at Dryft with a desire to choose nicotine without toxins that accompany combustion—yes, that is true. But those consumers are also rethinking how nicotine is viewed in public health circles. They’re seeking fact-based discussion and research. They expect us to be responsive to their feedback. And they want the freedom to responsibly choose from alternatives in a future state that presents completely new nicotine products.”

    The Dryft nicotine pouch has been well-received in the marketplace, according to its manufacturer. (Photo: Dryft Sciences)

    Don’t inhale

    Aside from these remarks, I think there is a robust, common-sense argument to be made for why interest in nicotine pouches might have increased since the start of the pandemic. The initial information made public about Covid-19 concentrated on how the disease attacked the lungs, and so it wouldn’t have been unreasonable for cigarette smokers to have been concerned that their habit might exacerbate the damage done to their health should they contract Covid-19; this might well have led them to cast about for a form of tobacco/nicotine consumption that did not pose the same level of risk as smoking does.

    So where would they have headed? Well, I think that most reasonable people would conclude that vaping is hugely less risky than smoking is, but one of the current stumbling blocks here is that vaping too involves inhalation, albeit that in this case the inhalation avoids the toxic products of pyrolysis consumed in smoking. Add to this the fact that most smokers have been exposed to a cacophony of anti-vaping propaganda put out in many cases by people who should know better, and it is probably the case that smokers would look elsewhere for relief during the Covid-19 pandemic.

    And what better product than a no-burn, no-inhalation one whose low-risk credentials are backed by a comprehensive body of evidence stretching back decades? The problem here, however, is that snus, for all its advantages, comes with baggage acquired over its long history. It is beset by a back catalogue of negative health-risk reports that, while they might have been disproven, continue to weigh it down and hold it back.

    Which brings the smoker to nicotine pouches. These oral products, which contain no tobacco, are new enough not to carry such health-risk baggage and, indeed, it is difficult—but, alas, not impossible—to see where even those with an obsessive interest in stopping people enjoying tobacco or nicotine products could find fault. For instance, Swedish Match’s popular Zyn brand comprises only pharmaceutical-grade nicotine salt along with food-grade ingredients, a type of formulation found in at least some brands made by other manufacturers, according to the company. And whereas the health risk of even food-grade flavors can be brought into question when such flavors are inhaled in smoke or vapor, the consumption of food-grade flavors in nicotine pouches is obviously not open to the same questions.

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    No virgins

    Of course, manufacturers of tobacco/nicotine products can always be accused of adding flavors to attract young people to their products, but a poll by Ipsos Sweden on behalf of Swedish Match seems to indicate that nicotine pouches are adult products, at least in Sweden, to which the poll was confined. According to the results of the poll, 70 percent of nicotine pouch users are between the ages of 26 and 55—or, as a teenager might put it, between old and ancient. Importantly, too, when it comes to gateway issues, the Ipsos poll throws up evidence that nicotine pouches provide a gateway out of traditional tobacco use. While there is a low level of dual cigarette-and-pouch use, there is a high level of previous cigarette use among pouch users. Only 7 percent of nicotine pouch users have never used a nicotine product before taking up pouch use, and most nicotine pouch users consume only pouches while 14 percent use both pouches and snus, and 9 percent use both pouches and cigarettes.

    Dual use often gets bad press, but it can provide an important part in a smoker’s transitioning away from cigarettes or in providing needed relief when she finds herself in a position where she cannot indulge her usual habit. Spokesperson Deborah Perez said that JTI saw its nicotine pouch brand, Nordic Spirit, as responding “to the evolving preferences of adult tobacco and nicotine consumers who are looking for a convenient product that can be used in situations where smoking or vaping is not possible.” And in an email response to TR questions, Imperial Brands, which recently added its nicotine pouch product, ZoneX, to its “asset brands” category, said that it was “assessing opportunities in OND [oral nicotine delivery] as consumers increasingly adopt a multi-category approach to nicotine.”

    To keep up with demand for its Zyn brand, Swedish Match recently expanded its Owensboro, Kentucky, USA, production facility by 16,000 square feet. (Photo: Swedish Match)

    A smaller footprint

    Meanwhile, the Ipsos poll results indicate that 55 percent of pouch users have a university education, and 80 percent are either employed or run their own company. And they also indicated that pouch consumers, who are more likely to live in urban rather than rural areas, consider themselves to be health conscious and believe it is important that the products they buy have only a small impact on the environment.

    Certainly, nicotine pouches seem to be able to lay claim to having a small environmental footprint when compared with other tobacco/nicotine products, and, indeed, some other consumer products. But while their environmental credentials are important, their attraction is also visceral. Perez said that JTI’s pouch brand, Nordic Spirit, provided “a steady, long-lasting nicotine delivery.” Nicotine contents range from 9 mg/g for Nordic Spirit Spearmint Intense to 14 mg/g for Nordic Spirit Elderflower, Nordic Spirit Berry Citrus and Nordic Spirit Smooth Mint and 17mg/g for Nordic Spirit Spearmint Intense Strong.

    In fact, the attraction of nicotine pouches is both visceral and practical. In the U.K. at least, where retail cigarette prices are high, nicotine pouches seem to be well ahead in the price stakes. According to Perez, Nordic Spirit sells there for £6.50 ($8.15) for a pack of 20 whereas, according to U.K. government figures, the average price of a pack of 20 king-size cigarettes is £11.10.

    Given all of the above, it’s not surprising that, just over a year ago in the U.S., Swedish Match went national with Zyn, which it had launched there in 2015; nor that it opened a 16,000-square-foot addition to its production facility in Owensboro, Kentucky, to provide additional capacity to deal with the demand for this brand.

    Perez, meanwhile, was able to report that Nordic Spirit, which was developed in Sweden and launched in 2018, has rapidly grown market share and is now available in Austria, the Czech Republic, Denmark, Sweden, Switzerland and the U.K. “While the tobacco-free nicotine pouches category is still in its infancy, we expect that many adult tobacco and nicotine consumers globally will be interested in trying the product, helping the new category to grow significantly over the coming years,” she said.

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    But perhaps one of the strongest indications that manufacturers have confidence in the nicotine pouch category came with the announcement by Altria in the middle of May that it had submitted “premarket tobacco product applications to the U.S. Food and Drug Administration for 35 On! products on behalf of Helix Innovations, an Altria joint venture responsible for manufacturing and selling On! nicotine pouches globally.”

    “On! products, in seven flavors and five nicotine levels, offer the broadest portfolio of choices in the fast-growing nicotine pouch category for adult tobacco consumers seeking alternatives to traditional tobacco products,” Altria said in its May announcement, which quoted Paige Magness, senior vice president of regulatory affairs for Altria Client Services. “On! nicotine pouches are a key part of our vision to responsibly lead the transition of adult smokers to a noncombustible future,” said Magness. “We believe the supporting science is strong and are committed to working with the agency on these important product submissions.”

    It seems reasonable to assume that no manufacturer, no matter how deep its products, would enter the labyrinthine caves of the FDA’s application processes unless it was confident the products it was submitting for review were almost assured of consumer acceptance and market success—or unless it were accompanied by Theseus, of course.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Unidentical Twins

    Unidentical Twins

    Photo: Keechuan | Dreamstime.com

    South Korea and Japan, the world’s leading heat-not-burn markets, have different views on the technology’s potential for tobacco harm reduction.

    By Stefanie Rossel

    Six years after Philip Morris International’s (PMI) IQOS device hit the shelves, Japan and South Korea are the world’s two leading markets for heated-tobacco products (HTP). Euromonitor International valued Japan’s HTP market at $8.59 billion in 2019, up from $7.76 billion in 2018. South Korea’s HTP market totaled $1.61 billion in 2019, up from $1.53 in 2018 and more than $1 billion above third-ranking Italy. In contrast to South Korea’s overall tobacco sector, which is expected to grow only modestly through 2023, the country’s HTP market may increase by 21 percent annually to reach $4.4 billion, according to Euromonitor.

    That South Korea followed in the footsteps of Japan surprised few. Both countries are perfect breeding grounds for high-tech reduced-risk tobacco products. Before the arrival of HTPs, their tobacco markets were dominated by combustible cigarettes. Both nations are health-conscious and tech savvy, sporting a love of gadgets. And both are economic powerhouses. With a population of 51 million, South Korea is the world’s 11th largest economy; Japan (population: 126.5 million) ranks third behind the U.S. and China. Both cultures value discretion and politeness, meaning that smokers are keen to avoid disturbing others, for example with secondhand smoke.

    There are, of course, differences between the two markets. Japan has often been cited as a special case in its rapid adoption of HTPs as there is little competition from other reduced-risk products (RRPs). Nicotine-containing vapor products are banned in Japan.

    Nonetheless, South Korea’s smokers eagerly embraced HTPs when they entered the market in 2017. Three types of electronic nicotine-delivery systems (ENDS) are sold in the country: e-cigarettes, HTPs and a hybrid product combining elements of both. Although e-liquid vapes were introduced earlier, HTPs quickly became much more popular. According to The Korea Herald, HTPs represented 13.5 percent of the country’s tobacco market in 2019 while e-cigarettes had a share of 4 percent. By comparison, the share of HTPs in Japan, where the products have been on the market since 2014, was estimated at 23 percent in 2019.

    In both countries, the HTP market is dominated by first-mover IQOS although other players have joined the race over the past few years. In Japan, IQOS held 17.7 percent of the country’s tobacco market in the first quarter of 2020. Other products include Glo (British American Tobacco) and Ploom (Japan Tobacco).

    In South Korea, HTPs include IQOS, Glo and KT&G’s Lil. With an estimated 50 to 60 percent, IQOS has the largest slice of the market.

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    Japanese success

    South Korea appears to offer even greater potential for lowering the overall smoking rate than Japan. Smoking is predominantly a male habit in South Korea, and although prevalence has slowly fallen over the past decades, it is still high compared with the Organization for Economic Cooperation and Development average of 23 percent. According to statista.com, 40.6 percent of male adults in South Korea smoked in 2018 whereas the figure for female smokers was 6 percent according to the most recent available data, from 2017. In total, the average smoking prevalence stood at 21.7 percent in 2018, down from 26.1 percent 10 years earlier, according to a study by the Korea Centers for Disease Control and Prevention.

    Until it became a testing ground for HTPs, Japan had similar figures. The share of men smoking decreased from 50 percent in 2001 to around 25 percent in 2018, with about 10 percent of Japanese women smoking, according to japan-guide.com. While sluggish at first, the decline accelerated spectacularly after the nationwide introduction of HTPs in late 2015. A study published in May 2020 on behalf of the Coalition of Asia-Pacific Tobacco Harm Reduction Advocates (CAPHRA) based on data from the Tobacco Institute of Japan and PMI confirmed that the remarkable reduction in combustible cigarette sales was triggered by the entry of HTPs.

    David Sweanor, a professor at the Faculty of Law of the University of Ottawa and one of the study’s authors, calls Japan a success story in tobacco harm reduction. The Japanese experience, he says, proves how consumers’ interest and the regulatory environment shape markets. While Japanese regulations precluded alternatives to combustible cigarettes, such as nicotine vapor products, HTPs generated huge interest among smokers in Japan.

    “As more [smokers] adopted the alternative, they helped speed switching by others,” says Sweanor. “I think this gives us an indication of just how much more rapidly countries could reduce cigarette use if there were many different low-risk alternatives available and policies and public education campaigns facilitated a widespread move away from [combustible] cigarettes. We have seen the most rapid decline in cigarette sales ever witnessed in a major market. A third of the cigarette market was gone in a remarkably short period of time, and this was accomplished with a noncoercive measure. People who smoke cigarettes were simply provided with a viable alternative.”

    Sweanor insists there now is evidence that a range of low-risk products could help rapidly achieve the smoking rate targets of the World Health Organization’s (WHO) sustainable development goals. “To seek to ban or limit access to such products protects the cigarette industry rather than public health,” he says.

    RRPs are the most disruptive influence on smoking in decades, according to CAPHRA Executive Director Nancy Loucas. In northern Asia, HTPs are the most popular form of safer nicotine products, she says. “So it is very disheartening that countries in Asia Pacific, like Korea and the Philippines, are looking to either ban and/or reduce access and choice of all forms of tobacco harm-reduced products for their smoking citizens.”

    South Korea’s home-grown heat-not-burn device, Lil by KT&G (Photo: KT&G)

    Different stance

    South Korea’s government, however, turned out to be less receptive to the harm reduction potential of HTPs than Japanese authorities. In June 2018, the country’s ministry of food and drug safety announced the results of its own study of HTPs, claiming that five cancer-causing substances had been found in the products, with the level of tar in some of them exceeding that of conventional cigarettes. The public health agency also ruled out that HTPs could serve as smoking cessation tools if they produced similar levels of nicotine as traditional cigarettes. The announcement sparked a legal battle with PMI and an ongoing conflict between tobacco manufacturers and South Korea’s government over the latter’s attempts to impose stricter regulations on HTPs.

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    The product category also saw a significant tax hike. Unsure about how to treat HTPs, regulators initially taxed them at half the per-pack rate of combustible cigarettes and required them to carry a dedicated health warning featuring a syringe. After category growth and a WHO recommendation, the government increased the tax rate to 90 percent of that of cigarettes and changed the warning labels to match those of traditional cigarettes.

    KT&G in January 2020 announced an agreement with PMI for the distribution of three HTPs and a vapor product outside of South Korea. Although the target markets have yet to be revealed, Japan is likely to be among them as it accounts for more than 90 percent of the global $5 billion HTP market, according to Euromonitor. And the category is expected to grow further in the country. The Japanese Ministry of Health, Labour and Welfare’s 2018 National Health and Nutrition Survey, which was published in January 2020, found that 30.6 percent of Japanese male current adult smoker and 23.6 percent of Japanese female current adult smokers were already using HTPs.

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Two-Stage Tobacco

    Two-Stage Tobacco

    Photos courtesy of Afzal Shisha U.K.

    By separating their product into two components, ASUK and ASI can offer U.K. consumers shisha at a considerably lower price.

    By George Gay

    It’s easy to understand why traditional cigarettes have an enduring appeal for many of those who enjoy consuming nicotine. I don’t want this to sound like an advertisement for smoking, but cigarettes must surely deliver the highest pleasure-to-effort ratio of any tobacco or nicotine product.

    Many snus users—and others—will balk at this, but I would argue that whereas the effort needed to consume snus is less than that needed to smoke a cigarette, this advantage is more than outweighed because the range of pleasures (lighting the cigarette, having something to hold, watching the cloud of smoke … ) enjoyed when smoking a cigarette is wider than that of consuming snus. Of course, the consumption of tobacco as a cigar or in a Western-style pipe reproduces this range of cigarette pleasures, but, assuming the cigar or pipe smoke is not inhaled into the lungs, the level of nicotine satisfaction will probably fall short of that of cigarette smoking.

    Based on this sort of assessment, shisha consumption also fails to match that of cigarettes. The effort needed, from setting up a hookah to cleaning it afterward, is considerable. And somebody in the know told me recently, apropos of something else, that a five-a-day cigarette smoker who enjoyed a two-hour shisha smoking session might, at the end of the session, light a cigarette, apparently to enjoy the nicotine fix not provided by the shisha.

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    Splitting the product

    The problem here, though, is that this sort of assessment is based on a number of assumptions. It assumes, for instance, that putting effort in is a negative, and this is not necessarily the case. Some vapers like the convenience of the pod system where they plug in and go, but others like to treat their habit more as a hobby. In other words, if you want a quick fix, you’ll probably go for a cigarette or a pod vaping system, but if you want to relax and are willing to set aside some time, you’ll probably choose to enjoy a big cigar or an open vaping system, perhaps in the company of like-minded people.

    And this is where shisha’s star starts to shine. As is well known, shisha smoking is more often than not a social activity conducted in lounges where people gather with their friends to relax. For many, especially those who eschew alcohol, a shisha lounge can be the equivalent of a pub. And the act of preparing a hookah and smoking shisha is one in which at least part of this effort morphs into a ritual made pleasurable by the skills required.

    Which is something that Afzal Shisha U.K. (ASUK) has plugged into in the U.K. where, because of a weight-based tobacco tax system, the retail price of shisha can prove to be prohibitively high and where, as a result, illicit products are believed to be widely available and used. ASUK has partnered with Afzal Soex India (ASI), one of the world’s largest shisha tobacco producers, to develop a novel product that, while it requires some additional effort on the part of the user, significantly reduces the excise duty that otherwise applies to shisha in the U.K.

    During an interview in London in March, Faizan Aatif, a scientist (immunology and pharmacology) by profession and one of two partners in ASUK, told me that, whereas 1 kg of standard shisha typically contained as little as 160 grams of tobacco with the rest comprising a blend of casing, sugar syrups, honey, glycerine and flavors, duty was applied to the full 1 kg. This might seem unfair, but from the point of view of HR Revenue, I guess, it is the only way to calculate duty without allowing manufacturers to self-declare the amount of tobacco in their blends, a system that would be open to abuse.

    Mohammed Sheikh (left)and Faizan Aatif

    Aatif said it had taken a year of working with ASI’s R&D department to develop what he described as ASUK’s unique two-stage shisha tobacco, Afzal Ready2Go, which the end user buys as two separate components. One of these comprises the tobacco, which attracts duty, while the other comprises the liquid enhancer, which doesn’t.

    It is not difficult to imagine how such a product reduces the tax payable and, therefore, the retail price. ASUK’s flavor-infused shisha tobacco, which is processed by ASI in India from a blend of neutral European flue-cured Virginia leaf, weighs in at 140 grams, while the liquid enhancer, which is also manufactured by ASI and which can be used with any of the flavored tobaccos, weighs in at 360 grams.

    To make a 500 gram batch of shisha, the end user adds the liquid to the tobacco in a supplied, resealable bag and massages the bag to mix the two components thoroughly. The contents of the bag are then left to marinate at room temperature for a minimum of 48 hours, when it is ready to be smoked, though the optimum steeping time is two weeks, by which time all the juice has been absorbed by the leaf.

    The U.K. tobacco duty rate as of February 2020 (before the March budget), was £125.20 ($156.25) per kg for “other smoking tobacco,” the classification applicable to shisha tobacco, so the duty on a traditional 500 gram pack would be £62.60, pushing the retail price to about £125, including VAT. But in the case of the two-component product, duty is applied only to the 140 grams of tobacco, so the duty payable is £17.53, allowing the retail price to be pushed down to £70 for 500 grams, which is enough for about 25 smoking sessions.

    Aatif says that as long as the two-component product is allowed to steep for the required time, it performs as well as ASI’s regular products, which he described as world renowned. In part, this is because, unlike other two-component products, the flavor is applied to ASUK’s tobacco in a process that ensures it is uniformly distributed and absorbed by the tobacco rather than the liquid enhancer when the flavor distribution is dependent in part on the mixing and marinating process performed by the user. Of course, Aatif is aware that future regulations on tobacco and flavors might mean that ASUK will have to rethink the way that it offers its two-component product.

    ASUK, which is the sole distributor of ASI’s shisha in the U.K. but which offers only the two-stage product, is run by Aatif with his business partner and childhood friend, Mohammed Sheikh, who is a healthcare professional—specifically, a dentist. But the word “run” hardly describes things. Aatif and Sheikh are the company’s only two full-time employees, though product dispatch is handled by the same warehouse people who dispatch the parts for Aatif’s core business, performance cars, and they employ social media influencers and shisha industry bloggers for promotions and events such as shisha lounge demonstrations of ASUK’s products.

    Afzal Ready2Go is sold as two separate components. One of these comprises the tobacco, which attracts duty, while the other comprises the liquid enhancer, which doesn’t.

    A passion for tobacco

    One question that arises here is why a scientist and a dentist are involved with shisha, and the answer seems to be a passion for the product and its consumption, something that they did to relax in the evenings during their time at university. “We have a passion for shisha tobacco and have applied an incredible amount of science to the development of our product and making our tobacco the very best that it can be,” Aatif said in a note that he sent to me prior to our meeting. “We pride ourselves on our dedication to perfecting our bespoke blends.”

    Additionally, Aatif says that he became disenchanted with science because Britain did not look after its scientists. But after speaking with him, I came away with the impression that the lure of entrepreneurship would have drawn him away in any case because his performance cars business, something he started as a hobby while still at university, is also a passion as well as a business. To be running one business on the grounds that you have a passion for what you are selling might be seen as the sign of a dilettantish businessman, but to run two on the grounds of passion needs real commitment.

    But despite the passion, ASUK is run as a tight ship from which sales are made only to commercial lounges or through cashless, online retail transactions, e-commerce being another area of interest for Aatif. As well as having only two full-time employees, the company is run not out of some high-rent, big-city location but from of a space carved out of the car parts warehouse, which is based in Dundonald, a village in Ayrshire on the west coast of Scotland, but which is nevertheless only a 30 minutes’ drive from the Glasgow airport.

    Aatif says ASUK’s sales are rising month on month at both lounges and retail, so while the first shipment from India of his two-component product amounted to 60 kg and came by airfreight, shipments are now of 500 kg and arrive by sea. He is confident about the future of his business to the extent that he is currently looking for a bonded warehouse, which will save his company from having to pay duty up front.

    Although ASUK launched with a single paan-flavored product in London in January last year (and followed up with eight more flavors in 2019 and another four by February 2020), this isn’t the blind optimism of a newcomer. Aatif is well aware that shisha is a tobacco product that comes with all of the negative baggage that the category carries. Before ASUK was formed, he owned an architect-designed shisha lounge and is therefore able to act as an unofficial consultant to his lounge-owning customers, not only in respect of issues such as equipment hygiene and tax obligations but also on how to comply with regulations requiring that such lounges are 50 percent permanently open while providing a warm, welcoming environment, even during U.K. winters.

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    Health concerns into perspective

    This shisha lounge requirement points to an issue that I ignored at the start of this piece when talking about the pleasure-to-effort ratio of various tobacco products. In saying that cigarettes delivered the highest pleasure-to-effort ratio, I took no notice of the fact that, for a lot of smokers, health concerns will be taking the edge off the pleasures associated with cigarettes. And this raises the question of how shisha smoking shapes up within the risk debate, a question that has a slightly different focus in the U.K. where, apparently, smokers prefer a lighter smoke—one that delivers flavors with few, if any, tobacco notes.

    In writing the above, I have used the phrase “shisha smoking,” and in doing so, I have done only what Aatif did during our interview. But at one point, he said that shisha consumption was vaping rather than smoking. And there is truth in this because shisha tobacco is not ignited but heated—to a temperature of about 250 degrees Celsius in the case where modern charcoals are used. And this is useful in putting into perspective a widely circulated story that a one-hour shisha smoking session is the equivalent of smoking 100 cigarettes. The equivalence, Aatif said, was in the volume of smoke not in the constituents of the smoke. And this is a perfectly reasonable assumption to make even though there is little scientific evidence to support it. Those constituents cannot possibly be the same as anybody who has smoked a cigarette would realize when trying to imagine the effect of smoking 100 cigarettes in an hour, even if such were possible.

    But there is a wider health issue at the moment—the coronavirus. If fear of Covid-19 reduces the footfall in U.K. shisha lounges significantly, that could cause a problem for a distributor of shisha, especially since shisha smoking is largely a social activity. Then again, perhaps people will merely switch to smoking shisha at home, and ASUK does also sell the wherewithal for that—hookah pipes, mouthpieces, charcoal …. And there are other opportunities that might present themselves. The Afzal Ready2Go product is at the moment exclusive to the U.K., but Aatif says that inquiries are coming from elsewhere. One door closes and another opens.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Up and Coming

    Up and Coming

    KT&G CEO Baek Bok-in (left) and PMI CEO Andre Calantzopoulos celebrate their companies’ agreement to commercialize KT&G’s next-generation products internationally. (Photos courtesy of KT&G)

    KT&G prepares to join the world’s premier league of tobacco companies.

    By Stefanie Rossel

    From No. 5 to No. 4 in only five years: KT&G has set an ambitious goal. Currently the world’s fifth-largest cigarette manufacturer, South Korea’s leading tobacco firm aims to become part of the Big Four by 2025—a quantum leap, as the company described it in a recent exchange with Tobacco Reporter. To achieve that target, KT&G has devised a comprehensive strategy: It plans to solidify its position in its domestic tobacco market, expand its international tobacco business, diversify its operations and maximize both financial and nonfinancial values.

    Originally a government-owned monopoly, KT&G faced fierce competition when South Korea’s tobacco market liberalized in 1988 and foreign cigarette manufacturers entered the country. Yet despite the challenge presented by new players, KT&G managed to maintain its leading position. In 2019, the company accounted for 64.1 percent of its domestic market, generating annual sales of more than $4 billion.

    By turning its focus outward, embracing change and building a competitive edge, the company has grown significantly. A Korea CXO Institute survey published in February 2020 rated KT&G as the most profitable company among South Korea’s 30 biggest conglomerates. At 24.3 percent, the company had the highest average net income margin between 2008 and 2018.

    But KT&G’s achievements weren’t limited to the balance sheet. Last year, the company received the top corporate governance award in the Korea Corporate Governance Service evaluation of environmental, social and governance (ESG) performance. Recognizing its high level of sustainable management, KT&G received top A+ grades in overall ESG for two consecutive years (2018 and 2019).

    The cigarette manufacturer currently exports to more than 80 countries, a number that is supposed to increase to 200 within five years. The company, which outside South Korea is best known for its Esse super slims brand, started selling cigarettes overseas in 1988. In 2008, it established its first international plant in Turkey followed by a factory in Russia in 2010. In 2011, KT&G acquired Indonesia’s sixth-largest tobacco manufacturer.

    “KT&G will expand its overseas tobacco business by region and by actively pioneering new markets it has not entered yet,” a spokesperson told Tobacco Reporter. “In order to successfully enter new markets, KT&G will strengthen the distribution network and marketing infrastructure of the major continental regions. KT&G will also focus on developing brands that meet the needs of local consumers. In fact, exports to new markets in Africa, South and Central America, and Asia-Pacific regions have sharply increased over the past few years, resulting in the diversification of the markets and shifting from dependence on the Middle East to frontier markets. KT&G will continuously strive to diversify its markets to various regions.”

    Currently, KT&G has subsidiaries in Turkey, Russia, Indonesia and the U.S. In China, KT&G operates a local branch office. Subsidiaries in the U.S. and Indonesia are experiencing exceptional sales growth, according to the company. KT&G says it will expand distribution channels in the U.S. and Indonesia and initiate more proactive marketing activities in the two countries to ensure continuous sales growth.

    In February of this year, the company signed a KRW2.2 trillion ($1.82 billion) contract with Alokozay of Dubai, one of the largest FMCG brands in the Middle East, for a period of seven years and four months. Industry officials said the deal would help KT&G avoid the huge costs required to set up an independent sales network in the region. The deal also brings predictability to the South Korean company’s business because it requires Alokozay to purchase certain volumes of KT&G products for the duration of the agreement.

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    New technologies

    In its home market, KT&G plans to reinforce its leadership position by expanding its portfolio of low-tar and low-nicotine products along with low-odor products, which are known as “smell-down” products in South Korea. “The biggest trend that shaped the domestic tobacco market during the past few years can be defined as smell-down tobacco,” says KT&G’s spokesperson. “In 2017, heated-tobacco products [HTPs] were first introduced in the domestic market, and the consumers showed interest in the smell-down feature of the heat-not-burn products. KT&G discovered this consumer trend and concentrated its efforts in incorporating smell-down technology in traditional tobacco products.”

    Last year, the company established a dedicated Smell-Care Research Center, which enabled KT&G to successfully developed various smell-down solutions, such as a cigarette-breath reduction technology, a finger zone that reduces cigarette smell on fingers and the “triple care” system, which minimizes cigarette breath and cigarette smell on fingers and cigarette smell on clothes. Since last year, KT&G has launched five smell-down products in South Korea. “All five products have received highly positive feedback from consumers and have helped KT&G reach the highest domestic market share in the past 10 years,” the spokesperson said.

    However, the domestic operating environment has become increasingly unfavorable to KT&G. At the time of liberalization, South Korea was the world’s 12th-largest tobacco market, with cigarette consumption of 80 billion to 85 billion sticks annually. Amid increasing tobacco control measures, the country’s cigarette market has declined continuously over the past decade. In 2019, smokers consumed 3.45 billion 20-cigarette packs, down from 3.47 billion in 2018, according to a Korea Herald report. The figure represents a 20.9 percent decline from 2014, which is largely attributed to an 80 percent tax-driven cigarette price hike in January 2015. In 2016, the government started requiring tobacco companies to print graphic health warnings on the upper part of their cigarette packs.

    Despite ever stricter regulations, South Korea still has a relatively high smoking prevalence of 21.7 percent, according to a 2018 Statista survey. It’s predominantly men who smoke (40.6 percent). After HTPs hit the market in late 2017, however, the smoking rate declined markedly. Within a year, South Korea became the second-largest market for HTPs behind Japan. In 2019, HTPs accounted for 10.5 percent of the country’s cigarette market, according to the Ministry of Economy and Finance. Sales of traditional cigarettes fell 2.4 percent to 3.06 billion packs in 2019 while sales of HTPs rose 9.3 percent to 360 million packs, according to The Korea Herald.

    KT&G cigarettes sold in the domestic market
    One of KT&G’s bestselling brands is Esse. The picture rights shows Esse variants sold in South Korea and the picture left shows Esse variants sold abroad.

    Investing in the future

    KT&G believes it held on to its No. 1 position in South Korea because it built a well-balanced portfolio of both traditional tobacco products and next-generation products (NGPs). The company has stepped up research and development in both categories. Its R&D investments reached KRW23 billion in 2019, having continuously grown every year from KRW12.6 billion in 2015. KT&G also recently established a task force focused solely on developing NGP technology and doubled its number of researchers. As a result, KT&G’s patent filings have increased tenfold over the past three years to 431 cases in 2019.

    In 2017, the company entered the HTP market with its Lil brand of which it has launched several variants and updates since. The name Lil stands for “a little is a lot,” according to KT&G. The concept is meant to capture product qualities such as minimalism, simplicity, user-friendliness and sophistication.

    The Lil family includes products such as Lil Plus, Lil Mini and Lil Hybrid. The latter product is the culmination of KT&G’s independent technology and has been widely recognized for innovation, according to KT&G. Lil Hybrid simultaneously uses tobacco sticks and liquid cartridges, allowing consumers to experience reduced cigarette smell and increased vapor production at the same time. The product was introduced at many international exhibitions last year in which it received great acclaim from international buyers around the world.

    Unprecedented move

    The brand is likely to become even more popular soon. In January, KT&G and Philip Morris International (PMI) signed a three-year agreement to commercialize Lil overseas. According to KT&G, the deal presents an opportunity for KT&G to introduce its NGP portfolio worldwide through PMI’s massive global sales network, which spans 180 markets.

    In addition to the company’s current NGP product line, the contract also encompasses the products’ future versions. It also includes consumables, such as Fiit and Miix tobacco sticks, which are designed to be compatible only with Lil devices. KT&G and PMI are discussing the potential for a parallel brand association between Lil and PMI’s HTP, IQOS. The international expansion through PMI’s network is expected to start later this year in several yet-to-be identified markets.

    The deal comes at a time when NGPs in South Korea are increasingly under pressure. In 2018, a controversial study by the country’s Ministry of Food and Drug Safety concluded that HTPs emitted even more tar than conventional cigarettes. The authors added that the products were not suitable as smoking cessation tools. Following the outbreak of vaping-related illnesses last year in the U.S., the South Korean government in October 2019 issued a “strong warning” against e-cigarettes.

    KT&G’s Lil heating tobacco device has been widely recognized for its innovative technology. The name “Lil” captures product qualities such as minimalism, simplicity, user-friendliness and sophistication.

    A market with potential

    In its pursuit of new growth engines for a sustainable future, KT&G has successfully diversified its business into various nontobacco sectors, including health and beauty, bio and pharmaceuticals and real estate. The company has been especially committed to strengthening its ginseng and health functional food business through its wholly owned subsidiary, Korea Ginseng Corp. (KGC). It’s a compelling strategy; Future Market Insights valued the global ginseng market at $622.9 million in 2019. With demand for plant-based products rising at a steady pace, the research firm expects the ginseng market to reach $903.8 million by the end of 2027.

    KGC has been continuing the tradition of Korean ginseng for more than 120 years, according to KT&G. During that time, KGC has not only maintained its leadership position in the domestic market but also evolved into a global company supplying ginseng and health functional food products to more than 60 countries. To establish a solid foundation for a long-term and sustainable future, KT&G says it will continue to expand its ginseng and health functional food business and its other business sectors.

    In the ongoing Covid-19 pandemic, KT&G has fared well so far. By implementing preventive measures against infection, the company has managed to avoid disruption to its operations and supply chain. Of course, some of the company’s export markets have imposed national lockdowns, potentially altering the business outlook depending on the levels of supply chain disruption and lockdowns in those countries.

    In the important Middle East market, however, KT&G has seen no significant disruption to logistics and retail sales. In the markets where the company has subsidiaries, the impact has been limited because it runs its own manufacturing facilities. While it is impossible to predict when the pandemic will cease, KT&G says it will minimize the impact by continuing to closely monitor the developments around Covid-19 and adjusting its strategy as necessary.

    Tobacco Reporter’s spelling of brand names

    Tobacco Reporter’s editorial style guide calls for product names to be capitalized even when trademark owners use different cases as part of their branding. The chart below shows the differences between our spelling and that used by KT&G for the brands mentioned in this article.

    Tobacco Reporter’s spelling

    KT&G’s official brand names

    Lil

    lil

    Lil Mini

    lil mini

    Lil Hybrid

    lil HYBRID

    Miix

    MIIX

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.