Author: Marissa Dean

  • Small Packs, Big Problems

    Small Packs, Big Problems

    Tobacco companies may not sell packs containing fewer than 20 cigarettes in Pakistan. | Photo: Taco Tuinstra
    Tobacco companies may not sell packs containing fewer than 20 cigarettes in Pakistan. | Photo: Taco Tuinstra

    Pakistan’s dispute over cigarette exports to Sudan

    By Stefanie Rossel

    No matter the outcome, the situation is unlikely to yield any winners. In April, local news outlets reported that BAT subsidiary Pakistan Tobacco Co. (PTC) had asked Pakistan’s government for permission to fulfill a $20.5 million order from Sudan for cigarettes packed in boxes of 10 sticks each.

    The sale would require a change of law. Under its Prohibition of Sale of Cigarettes to Minors rule, Pakistan bans the manufacture of packs containing fewer than 20 cigarettes. Health activists believe that small packs encourage smoking among lower-income groups, including minors, because such packs are less expensive than packs containing more cigarettes.

    Pakistan Prime Minister Shehbaz Sharif approved PTC’s request on May 28 after a committee comprising members from various ministries argued that the 10-pack prohibition applied only to products intended for sale on the domestic market. The sale could proceed, the committee said, on the conditions that the manufacturer ensured product traceability, printed the text “For export purposes only” on each pack and agreed to submit quarterly export invoices to the health ministry.

    The latter, however, has dragged its feet on giving the required green light. According to local press reports, the ministry has referred the matter to the Ministry of Foreign Affairs. Meanwhile, PTC continues lobbying for a change of law.

    The plans face strong opposition from health groups. Soon after learning about PTC’s plans, the Campaign for Tobacco-Free Kids expressed concern, arguing that the move would not only jeopardize progress made in tobacco control but also directly target those most vulnerable to the harmful effects of tobacco consumption. The group’s country head for Pakistan argued that “kiddie packs” produced for export would inevitably find their way onto the local market, thus directly undermining efforts to discourage smoking among young people.

    In July, representatives of 25 member countries of the African Tobacco Control Alliance wrote a letter urging Pakistan’s prime minister to prevent PTC from exporting small cigarette packs to Sudan. “If a product is too dangerous for one country’s children, it is too dangerous for children anywhere,” the signatories wrote. “Putting other people’s children at risk of tobacco addiction, disease and death is unacceptable—don’t put our African kids at risk by changing your strong tobacco control regulations in Pakistan.”

    Due to the delay in obtaining permission, Sudan started contacting other countries to fulfill its order.

    Both Pakistan and Sudan are parties to the World Health Organization Framework Convention on Tobacco Control (FCTC), which obliges them to prohibit the sale of cigarettes individually or in small packs. However, the treaty does not define what constitutes “small.” Of the more than 180 FCTC signatories, at least 82 member states require cigarettes to be sold in packs containing at least 20 sticks.

    Weak Enforcement

    Daud Malik

    The parties in the dispute now find themselves in a catch-22 situation. For Pakistan, it’s the decision between monetary gain and its tobacco control commitment. Battered by a severe economic crisis characterized by high levels of inflation, dwindling foreign reserves and a depreciating currency, the nation could certainly use the income.

    PTC’s Sudan order, which the company says could be repeated, would bring valuable hard currency into the country. In March, the company was honored as one of Pakistan’s leading taxpayers. In 2023 alone, PTC paid more than PKR229 billion ($821 million) to the national exchequer in taxes and duties. According to Brecorder, the company has been exporting cigarettes to numerous foreign markets since 2019, earning the country $156 million. For the next fiscal year, PTC is targeting $60 million in exports. However, a third of that amount depends on the Sudan order.

    “In the context of Pakistan’s economy, this export order is insignificant,” says Daud Malik from the Alternative Research Initiative, which conducts research in a variety of fields, including tobacco control, health, education, governance and culture, in Pakistan. “However, its consequences are adverse and extremely damaging to the tobacco control efforts in Pakistan. It would send all the wrong messages to everyone working to end smoking in Pakistan. It would raise questions about Pakistan’s commitment to FCTC and the commitment to a smoke-free country.”

    Over the past decade, Pakistan considerably stepped up its tobacco control efforts, for which it was recognized by the WHO in 2021. In recent years, the country introduced a series of significant tax hikes on cigarettes. In February 2023, the government increased the federal excise duty on cigarettes by around 150 percent, resulting in a corresponding increase in cigarette prices.

    However, the tax hike also boosted Pakistan’s already flourishing illegal cigarette market. An Ipsos study in May 2024 revealed a surge in smuggled cigarette brands. With consumers shifting from expensive duty-paid products to duty-avoiding products made at home or smuggled in from abroad, illicit share tobacco sales were expected to exceed half of Pakistan’s total market this year. Most locally manufactured tax-evaded brands, the study found, are available in packs of 25 and 30 cigarettes, encouraging single-stick sales among retailers.

    For PTC, the loss of the Sudan order has other implications. If Pakistan does not allow exporting cigarettes in small packs, the company’s parent company may assign the order to affiliates in Bangladesh or Indonesia, a PTC official said. It would not be the first time that PTC lost export business because of Pakistan’s domestic regulations. In 2019, PTC lost an order for small packs from a customer in the Gulf region after the Ministry of Commerce gave permission but the health ministry did not.

    While struggling to fulfill export orders, the manufacturer has also been coping with increasingly challenging business conditions at home. In May, BAT reportedly threatened to pull out of Pakistan if the government further increased cigarette taxes. According to the company, existing taxation had already caused its sales in Pakistan to plunge by 38 percent. “The past couple of years’ developments on fiscal policies have raised questions about the sustainability of the company’s operations in Pakistan,” Michael Dijanosic, regional director for Asia-Pacific, the Middle East and Africa at BAT, was quoted saying in a meeting with the prime minister.

    Growing Tobacco Market

    Apart from the moral quandary implied by tobacco health activists about prevention of underage smoking in various continents, there is another ethical dilemma: Should a company export a product known for its adverse health effects to a country in the midst of a civil war?

    “Demand for nicotine and tobacco products is bound to go up in war-torn regions and volatile markets as people try to deal with heightened stress, uncertainty and the destruction around them,” says Samrat Chowdhery, journalist and director of the Council for Harm Reduced Alternatives, an Indian registered nonprofit that works on tobacco harm reduction measures. “This was also evident during Covid as smoking rates went up in response to stress despite WHO warnings linking smoking to severe outcomes.”

    With an anticipated cigarette market value of $1.9 billion in 2024 and a projected compound annual growth rate of 16.81 percent by 2029, according to Statista, Sudan is among the few countries still holding potential for tobacco companies. The local cigarette market is dominated by Haggar Cigarette and Tobacco Factory, a subsidiary of Japan Tobacco International, with a share of over 80 percent and BAT subsidiary Blue Nile Cigarette Co. The latter factory is based in Madani, which has been the scene of heavy fighting. The shift of production to Pakistan was meant to ensure the continuity of supply.

    Tobacco taxes are a major source of income for the Sudanese government, with hefty taxes levied on both domestic and imported brands. Recently, nonduty-paid cigarette sales have been a significant issue, which could be acerbated by a shortage in legal supply.

    “Denying people access to nicotine products in war regions in fact contributes more to their hardship than alleviates it, as smuggling takes over, hurting not just their meager resources as prices shoot up, like it is happening currently in Gaza,” says Chowdhery (see “In the Shadow of War,” Tobacco Reporter, October 2024). “But it also affects aid work as cigarette smuggling, due to higher profits to be made, gets prioritized over transporting aid supplies, which also in turn makes these shipments targets of attacks, hurting people in need of aid. In such an environment, ensuring safe, legal supply of nicotine or tobacco products is more humane and the lesser evil.”

    Chowdhery recalls a recent foreign policy podcast describing how loyalties can be bought with cigarettes in Gaza. “So if BAT can ensure a legal, duty-paid supply of cigarettes to Sudan that does not violate the country’s local regulations while Pakistan, which is also struggling financially, can earn some revenue, I don’t see why it is being framed as a negative, especially when the alternative is smuggled cigarettes, which do not earn both countries any revenue, while increasing criminality and increasing stress, withdrawals and the economic hardships of smokers as well as people in need of humanitarian aid,” he says.

    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.
  • The Long Road to Zero

    The Long Road to Zero

    Photo: monticellllo

    Efficiency will be the key to decarbonizing the EU transportation sector by 2050.

    By Stefanie Rossel

    To achieve its Green Deal goal and make the European Union climate-neutral by 2050, the European Commission aims to decarbonize transportation in the common market by that same date. It’s a mammoth task because the transportation sector is the EU’s biggest source of greenhouse gas (GHG), currently accounting for more than 1 billion tons of carbon dioxide (CO2) emissions annually, which is equivalent to the total emissions of Germany and the Netherlands combined.

    Not only is transportation responsible for more than a quarter of the EU’s total GHG emissions, but it is also the only major economic sector in Europe where GHGs have increased since the 1990s. Demand for transportation continues to grow steadily in the EU. According to the Alliance for Logistics Innovation through Collaboration in Europe (ALICE), demand for transportation in Europe increased by more than 20 percent between 2000 and 2019, with freight transportation growing 22 percent. Although the Covid-19 pandemic disrupted this trend, leading to a drop in GHG emissions from transportation of 13.5 percent between 2019 and 2020, according to the European Environment Agency, emissions quickly resumed their upward trend, growing by 2.7 percent in 2022. International transportation emissions, such as those from ships and airplanes, are also projected to continue increasing.

    Complicating matters, a recent analysis by Transportation and Environment (T&E), a European advocacy group for clean transportation and energy, shows that transportation has been decarbonizing more than three times slower than the rest of the EU economy since peaking in 2007. Under current climate policies, the group says, its share could reach 44 percent of all GHG emissions in the common market by 2030, up from 29 percent today.

    According to the evaluation, the EU’s current climate regulations will reduce transportation emissions by just 25 percent compared to 1990 levels in 2040 and by 62 percent in 2050 as the new CO2 standards fall short on several measures, according to the organization. For starters, T&E argues, the rules lack a 100 percent zero-emission target. Furthermore, they leave 13 percent of heavy-duty vehicle sales unregulated and define trucks running partially on diesel as “zero-emission.” Cars, vans and trucks with combustion engines bought between now and the mid-2030s, the group argues, will still be driving on European roads while shipping operators have little incentive to increase their operational efficiency. Meanwhile, demand for air travel, spurred by increasing airport capacity, will offset any gains from green fuel this decade.

    More Measures Needed

    T&E therefore calls for additional efforts complementing Green Deal policies to fully decarbonize transportation. Next to halting new airport and motorways capacity expansion and introducing binding electric vehicle sales targets for companies owning large fleets, the organization stresses the importance of direct electrification of road transportation, which, the group says, is two times more efficient than hydrogen power and four times more efficient than using e-fuels. Trucks are responsible for 25 percent of climate emissions from road transportation in Europe while accounting for less than 2 percent of the vehicles on the road, the group says.

    A study T&E commissioned in 2022 concluded that it was possible to transition all new freight trucks to zero emission cost-effectively and in time to meet Europe’s climate targets. Long-haul trucks, the study suggested, would initially have a slower increase in uptake potential but grow quickly to 80 percent by 2026 and to 99.5 percent by 2030. Held against the reality of zero-emission truck sales in the EU, this might be wishful thinking: Of the 11,000 new zero-emission heavy-duty vehicles sold in the EU-27 in 2023, only 0.9 percent were heavy trucks and 5 percent light and medium trucks, according to the International Council on Clean Transportation. In the fourth quarter of 2023, the sales share of zero-emission vehicles (ZEVs) in the heavy truck segment exceeded 1 percent for the first time.

    Reducing CO2 emissions by 50 percent will require a minimum of 465,000 ZEVs, the European Automobile Manufacturers’ Association estimates. These vehicles will need to be supported by 53,000 and 65,000 charging points as well as around 2,900 H2 fueling stations.

    Increasing Logistics Efficiency

    Logistics account for 11 percent to 12 percent of Europe’s total CO2 emissions, according to ALICE vice chair Sergio Barbarino. “The problem is that while most industry sectors since the 1980s or 1990s have managed to decrease their carbon footprint, transportation has been completely unbound,” he says. “Transportation has a huge struggle to decarbonize.”

    While thorough electrification of vehicles or use of sustainable aviation fuels are important factors in the journey toward zero emission, ALICE prefers a more holistic approach, leveraging opportunities for increased logistics efficiency.

    ALICE was set up to develop an industry-led strategy for research, innovation and market deployment of logistics and supply chain management, and to provide an overarching view on logistics and supply chain planning and control.

    The not-for-profit association has more than 180 members and represents all logistics key stakeholders as well as retail companies, information and communication technology providers and research and technology centers. ALICE supports, assists and advises the European Commission in the implementation of the EU Programs for research, Horizon 2020 and Horizon Europe.

    The alliance’s defining rationale is the Physical Internet (PI), an open-method approach that maximizes the use of existing data in infrastructure. The PI involves sharing resources with business partners, for instance, transportation means or storing space, which reduces costs, increases efficiency and contributes directly to reducing traffic and therefore emissions. The PI aims to seamlessly connect organizations by means of an overarching network system to external sources and capabilities so that they can collaborate and share transportation routes as well as logistics nodes, such as distribution centers, inland terminals or airports and ports.

    For the future, ALICE has identified several pillars. The first deals with how freight demand growth is managed, focusing on the question of how much stuff really needs to be moved and whether it would be more efficient to manufacture closer to the point of consumption.

    The second pillar stresses that all modes of transportation should be used as efficiently as possible. “Our problem today is that traditionally shaped supply chains are highly individual and diverse,” Barbarino said. “This lack of standardization makes the supply chain inefficient.” Choosing the most efficient energy mix between diesel-powered trucks with 100 g GHG per ton-kilometer, ZEVs (which still emit around 80 g GHG per ton-kilometer), trains (25 g GHG per ton-kilometer) or ships (10 g GHG per ton-kilometer) can make a huge difference.

    Pillar No. 3 calls for managing fleets and assets as efficiently as possible. In Europe, a truck is on average used with 50 percent of capacity. “As long as you only ship single-type products, you can never fill a truck efficiently. To achieve this, you will need combined products of different companies.”

    If enhanced efficiency is achieved in pillars one through three, Barbarino emphasized, this would lead to a 50 percent to 60 percent reduction in emissions. In addition, ALICE expects a $100 million to $300 million cost relief for the European industry.

    Removing Regulatory Barriers

    Several EU directives currently in preparation are expected to significantly facilitate the realization of more sustainable transportation solutions, according to Barbarino. The revised Weights and Dimension Directive will remove barriers for the uptake of ZEVs and energy-saving technologies and harmonize the rules on maximum weight and dimension of heavy-duty vehicles in cross-border operations. Among other things, it will allow for the extra weight of the batteries for ZEVs, enable a European modular system between member states with trucks heavier than 40 tons and will streamline procedures and requirements for indivisible loads.

    The new Combined Transportation Directive will support the shift from road freight to lower emission transportation modes such as inland waterways, maritime transportation and rail. It will entail the obligation on terminals to publish information about available services and facilities.

    Apart from policies, automation could be a revolution for freight transportation, Barbarino pointed out, and also for sustainability. He reported about an experiment in which companies had tried out “silent delivery,” i.e., delivery before six a.m. and thus outside the usual morning rush hour. This way, the companies could save 30 percent of fuel.

    “To decarbonize transportation, it is important to push the boundaries of technology and regulation,” Barbarino concluded. “Often, the most complex part of a project is not the technology or the innovation but the permitting.”

    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.
  • Testing the Waters

    Testing the Waters

    Photo: Adobe Stock

    Tobacco companies are slowly gaining their footing in the cannabis business.

    By Stefanie Rossel

    Eight years after the first tobacco company invested in a cannabis firm, hardly a month passes without news on the progress of cigarette makers’ ventures into this field. On Sept. 5, Organigram Holdings, BAT’s first major investment in the cannabis sector, announced that it had closed the second of three tranches of a CAD124.56 million ($92.2 million) follow-on equity investment by BAT’s BT DE Investments subsidiary.

    As part of the transaction, Organigram in 2023 created a strategic investment pool, Jupiter, to be funded with CAD83.1 million. According to a press release, Jupiter is targeting investments in emerging cannabis opportunities that enable Organigram to apply industry-leading capabilities to new markets, thus expanding its global footprint.

    Organigram’s first Jupiter investment, in March, was in Open Book Extracts, a Roxboro, North Carolina, USA-based manufacturer of legal cannabinoid ingredient production, formulation and finished goods. The $2 million investment was Organigram’s second into the U.S. market. In June, the company invested €17 million ($18.8 million) in Sanity Group, a leading German cannabis company.

    Meanwhile, on Aug. 1, Aurora Cannabis announced a commercial collaboration with Cogent International manufacturing, a subsidiary of inhalation and oral delivery systems provider Vectura Fertin Pharma, which is associated with Philip Morris International. Through the arrangement, Cogent will launch its Luo CBD lozenge on Aurora’s Canadian medical cannabis patient platform, giving it access to patient feedback that will be used for building data for future analysis.

    There is, however, also less upbeat news from the sector. Altria’s Cronos Group, which has been struggling to find its footing in the Canadian recreational market, ended last year with a $168.7 million loss; in mid-2023, Cronos was even reviewing sales options.

    In June this year, Imperial Brands’ Oxford Cannabinoid Technologies (OCT) delisted from the London Stock Exchange, where it had been one of the first cannabis companies to start trading in 2021. Since its listing, the company’s share price had fallen by 97 percent, with its market capitalization plunging to £1.5 million ($1.96 million). OCT stressed that it had no immediate cash flow concerns but said that, as an unlisted company, it expected to have access to a larger pool of capital.

    Room for Experimenting

    Deepak Anand

    Deepak Anand, principal of Vancouver-based ASDA Consultancy Services, describes the challenges tobacco companies are encountering in the cannabis sector as part of the natural progression for businesses entering a new industry. “For most tobacco companies, these early-stage investments are not particularly significant from a financial standpoint; this is certainly true for Altria,” he says. “Their involvement in cannabis is more about gathering intelligence. By holding stakes in cannabis companies, tobacco firms gain insights into the market, including product trends and production methods, in case they decide to scale up their operations in the future.”

    According to Anand, Organigram is a prime example of this approach. “What’s notable about Organigram is their product development collaboration—a center of excellence focused on next-generation cannabis products,” he says. “As a result, we see many personnel from BAT actively involved at Organigram’s Moncton, New Brunswick facility. They are conducting extensive R&D on cannabinoid products, immersing themselves in different sectors of the cannabis industry, leveraging the federally legal market to experiment and innovate.”

    In August 2024, Organigram announced preliminary results from its clinical pharmacokinetic study on nano-emulsion technology. Branded as FAST (fast-acting soluble technology), this patent-pending innovation aims to offer faster onset, improved bioavailability and a more predictable duration of cannabis effects. Organigram expects to launch FAST in the fall, starting with gummies.

    Anand explains why many tobacco companies are zeroing in on CBD, pharmaceutical or medical cannabis segments. “Tobacco firms have realized they must prioritize consumer safety and navigate complex legal frameworks. For instance, the U.K.’s Proceeds of Crime Act presents a unique challenge. Since nonmedical cannabis remains illegal in the U.K., investing in cannabis companies—even in jurisdictions where it is legal—can be legally complicated.”

    Potential New Market

    Cannabis continues to be legalized for medical and recreational use in more jurisdictions, albeit at a slower pace than in recent years. On April 1, Germany became the third country in the European Union after Malta and Luxemburg to authorize recreational cannabis, although under EU pressure it stopped short of the originally envisioned full legalization. The first phase allows consumers to cultivate cannabis for personal consumption in social clubs; in a second step, Germany will test legalization in selected regions.

    Six months into partial legalization, recreational cannabis is hardly flourishing: The social clubs are just getting going while Bavaria continues to fight cannabis consumption with new local laws. Nevertheless, Anand sees opportunity in Germany. The country’s 2017 legalization of medical cannabis coincided with the introduction of telemedicine. Telemedicine providers specialized in prescriptions for cannabis have mushroomed since. “Cannabis is now regarded as any other medical product,” says Anand. “That shift alone has created very strong market forces. Most people who want cannabis can get a prescription and obtain it.”

    He expects the cannabis landscape to experience another shift once the pilot projects under the second pillar of Germany’s cannabis law become operational. “Once consumers are able to access cannabis products in pharmacies or licensed stores, we’ll see a new phase in the market,” says Anand. In April, lawmakers released draft legislation to implement the second pillar of Germany’s cannabis law.

    Japan is another market worth watching. In 2023, the country passed a bill to amend its Cannabis Control Law for the first time in 75 years. The proposed revisions, expected to take effect as soon as this year, will bring much-needed clarity to CBD regulations and may accelerate legal use in areas like medicine, health, beauty, beverages and edibles. Citing Euromonitor International, The Japan Times noted that sales of CBD products in Japan have grown sixfold over the past four years, reaching ¥24 billion ($154 million) in 2023.

    “I believe this amendment will open up the CBD category, although the restrictions on THC content are strict compared to other markets,” says Anand. “That poses a challenge, but it’s significant that the Japanese government is moving away from its previous stance, where CBD was only allowed if derived from the seed and stalk of the cannabis plant, rather than the flowers, where the most active cannabinoids are found.”

    As for Japan Tobacco, the only major international tobacco company without a stake in the cannabis sector, Anand expects them to enter the space “sooner rather than later.” “The amendment of Japan’s Cannabis Control Law, along with increased activity from JT’s global peers, will likely prompt the company to explore opportunities in this field more aggressively,” he says. However, since JT is partially owned by government, any major business decision would require the approval of Japan’s minister of finance.

    Shifting Sector

    Statista expects the global cannabis market to generate $64.73 billion in 2024 and then grow at a compound annual growth rate of 3.01 percent until it reaches a value of $75.09 billion by 2029. With an anticipated revenue of $42.98 billion in 2024, the United States will continue to be the world’s largest market for cannabis, although the substance remains illegal on the federal level.

    Currently, medical cannabis is legal in 38 states and various U.S. territories while recreational use is permitted in 24 states and Washington, D.C. In April, the Drug Enforcement Administration (DEA) announced that it would reclassify the drug from the strictest Schedule I, which refers to drugs with no accepted medical use and a high potential for abuse, to the less stringent Schedule III.

    By rescheduling cannabis, the drug would be studied and researched to identify concrete medical benefits, opening the door for pharmaceutical companies to get involved with the sale and distribution of medical cannabis in states where it is legal. Reclassifying cannabis would also represent a first step toward narrowing the policy chasm between state and federal cannabis laws.

    On Aug. 27, however, the DEA postponed its cannabis reclassification hearing to Dec. 2, after the U.S. presidential election. The announcement sent cannabis stocks plunging. Asked to take a position on a ballot measure seeking to legalize recreational cannabis in Florida, Republican presidential contender Donald Trump on Sept. 9 said that if he wins in November, his administration would “focus on research to unlock the medical uses of marijuana.”

    The Democratic presidential candidate, Kamala Harris, too appears receptive. “Both sides supporting the cause is certainly good news for the cannabis industry,” says Anand. “But at this point, it is still uncertain what U.S. legalization might look like. What we have seen so far is the DEA comment on rescheduling, which will still involve cannabis to be considered like a pharmaceutical product. But then what happens on a state-by-state basis—will there be a Department of Justice memo forcing the government to leave the states alone because of the states’ rights?”

    The cannabis sector is undergoing a significant transition, according to Anand. “In North America, there was a surge of early interest and substantial investment in the sector, but much of that capital was misallocated or even wasted. Some early-stage founders mismanaged their companies, leading to inefficiencies. The challenge with cannabis legislation is that it often moves more slowly than anticipated, which leads to disappointment when milestones aren’t met, such as the DEA delaying hearings or Germany adopting a phased approach to legalization.”

    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.
  • Smokeless Coup

    Smokeless Coup

    Marlboro remains the world’s most valuable tobacco brand, but cigarette alternatives are gaining ground.

    Contributed

    The total value of the world’s top 10 most valuable tobacco brands has decreased by 6 percent, with eight out of 10 brands experiencing a decline in brand value this year, according to the latest ranking by Brand Finance, a leading brand valuation consultancy. The ranking reveals a significant shift in the industry toward smokeless alternatives, driven by changing consumer preferences and increasing regulatory pressures. Despite these changes, traditional combustible tobacco brands remain the most valuable, supported by loyal customer bases and effective pricing strategies.

    IQOS (brand value up 8 percent to $3.5 billion) is the fastest-growing tobacco brand, driven by rising revenue from smoke-free products. Philip Morris International reported smoke-free products reached nearly 40 percent of total net revenues in the fourth quarter of 2023. This was driven by the continued growth of IQOS, which has now surpassed Marlboro in net revenues, solidifying its position as the leading premium nicotine brand less than 10 years after its launch.

    Despite a 6 percent drop in brand value to $32.6 billion, Marlboro retains its position as the world’s most valuable tobacco brand for the 10th consecutive year. It leads the sector by a significant margin, with a brand value more than five times that of L&M, which holds the second spot.

    Altria Group, which owns Marlboro in the United States, and PMI, which owns the brand elsewhere, have both faced declining revenue from combustible products. Altria has struggled with lower shipment volumes and increased promotional investments, including a recent $0.17 per pack price increase on Marlboro and other brands in the U.S. Similarly, PMI has reported a drop in revenue from combustible tobacco. Nevertheless, Marlboro retains its top position due to its loyal customer base and strong promotional strategies.

    L&M (brand value $6.2 billion) has climbed to second in the ranking, despite recording a 2 percent decline in brand value. It has overtaken Pall Mall, which now sits in third following a 9 percent loss in brand value to $5.9 billion. L&M’s brand value has taken a hit as shipment volumes have declined. L&M is the sector’s strongest brand with a Brand Strength Index score of 77 out of 100.

    “While Marlboro continues to lead as the most valuable tobacco brand for the 10th consecutive year, the industry is undergoing significant transformation,” said Richard Haigh, global managing director at Brand Finance.

    “The rise of smokeless alternatives like IQOS highlights shifting consumer preferences and changing market dynamics. Earlier this year, BAT’s announcement of a $31.5 billion impairment on the value of some of its U.S. cigarette brands marked the first significant write-down in a major market.

    “Acknowledging the reality that the market for traditional cigarettes is shrinking and taking action should be seen both as a bold and an important step in addressing an existential problem for the company. With eight out of the top 10 brands experiencing declines in value, tobacco giants must be brave in admitting market shifts and strategically planning their next moves to sustain global dominance and relevance.”

    Chesterfield (brand value $3.1 billion) has maintained its brand value year-on-year and advanced one position to seventh place. The brand has seen a rise in shipment volume, with an 8 percent increase in the fourth quarter of 2022 and a 14 percent increase for the full year, which has contributed to its stable brand value this year.

    The latest rankings highlight the dominance of U.S. tobacco brands, which make up a remarkable 92 percent of the total brand value in the ranking, totaling $61 billion. Only two brands in the ranking are from outside the U.S., the U.K.’s Rothmans (brand value down 8 percent to $2.9 billion) and Indonesia’s Sampoerna (brand value down 12 percent to $2.7 billion).

  • Global Synergy

    Global Synergy

    Photos: KTI

    Stuart Buchanan discusses KT International’s partnership with KT&G.

    By Marissa Dean

    As the tobacco industry changes and evolves, companies are adapting in different ways. Recently, KT International (KTI) and KT&G entered into a manufacturing license agreement, allowing KTI to manufacture and distribute KT&G’s products in Europe.

    KT&G is a leading tobacco manufacturer in South Korea and the fifth largest in the world by sales volume, with an annual sales revenue of approximately KRW6 trillion ($4.5 billion). KTI, established in 2008, has built its reputation as one of Europe’s fastest-growing independent tobacco companies. The company has also earned recognition for its strong and credible footprint across Europe along with world-class production facilities within the European Union.

    The agreement between the two companies was signed on Oct. 20, 2023. Under the terms of the deal, KTI received exclusive rights to manufacture and distribute KT&G’s products within the EU region for three years. The two companies have agreed to a market entry plan aimed at expanding into strategic markets within the Western European region, with a specific focus on KT&G’s Esse products. Esse, a flagship brand of KT&G, is renowned for its premium quality and holds the distinction of being the world’s bestselling super-slim cigarette brand. While the two companies will initially focus on Esse products, the product range expansion will be discussed and announced in due course.

    Tobacco Reporter recently discussed the arrangement with Stuart Buchanan, chief commercial officer of KTI.

    KTI is one of only a few companies that uses a single facility for all its production needs.

    Tobacco Reporter: Your company, KTI, entered into a partnership agreement with KT&G, one of the world’s largest cigarette producers. Why was KTI chosen as a partner of KT&G?

    Stuart Buchanan

    Stuart Buchanan: After three years of collaborative efforts leading to the signing of this agreement, we have developed a strong cultural fit between our two companies in terms of people and commercial objectives. We expect the synergy between our complementary brand portfolios to strengthen the market position of both companies. A significant amount of time has been taken to structure a competitive business model and to develop an innovative and consumer-relevant product portfolio that is consistent to the global objectives and standards of KT&G.

    What necessitated this synergy?

    The KT&G partnership is certainly our most significant and strategic partnership; however, we have other partnerships with large global players, and in most cases, these synergistic partnerships have developed through taking time upfront to understand each other’s strengths and weaknesses. This in itself is a process as it takes time to develop trust and a collaborative working environment that is open and transparent, particularly in cases where we are competitors in other parts of the world.

    Why do you think more global players are forming partnerships with KTI?

    When we started our international expansion, we were an unknown company, and we found it very difficult to find importers and distributors in strategic markets. From the outset in our first three proper international markets, Spain, France and the Czech Republic, we committed to working with credible world-class importers and giving them the level of service they would expect from a major multinational. By maintaining our business standards and building our corporate reputation, we now work with some of the world’s best partners, like KT&G, and new business is self-generating as we are the first point of call for credible, reliable partners.

    Our corporate reputation extends beyond just how we operate externally in our markets but also how we operate internally through things like properly vetting our supplier base, health and safety for our employees and most recently our environmental and sustainability strategy where we have installed a 5 MW photovoltaic solar park to be sustainably self-sufficient for over 40 percent of our energy needs.

    This is probably also our biggest learning; in building our corporate reputation by doing things properly from how we manage our business partners, our brand and product development, our people development, through to our investment strategy, sometimes takes longer, but the payback is significantly higher.

    What is most important in your business? What is the strategic potential of your company and the key to your success?

    First and foremost, our people. In both our production and commercial business units, we have prided ourselves on building a world-class organization with locally developed talent.

    Operating across 70 countries, our commercial teams have developed not only the commercial acumen to compete with the world’s best, but we have embedded a culture where we understand and respect cultural differences. This applies not only to the professionalism with which our teams engage with many different countries and cultures but also in how we deploy our brand portfolio by being flexible to the consumer needs of different markets and consumer segments.

    Secondly, our production capabilities. We have one of the world’s most modern factories and service these 70 countries from one factory. We are one of the few global companies across any category that services their total demand from one production facility. Whilst creating a highly complex production environment, it provides for global brand consistency and quality standards and a single point of business contact, which is seen as a significant benefit to our partners.

    This is particularly relevant to European partnerships as we have a core production strength in being able to operate across this highly complex environment with multiple EU-driven product registration processes. This applies not only to physical production but also to logistics, product development, commercial contracts and market implementation.

    What is your outlook for the future of the tobacco industry?

    As a company, we fully respect and support sensible regulation for what is an adult category of choice. We do, however, recognize the role and growth of next-generation products (NGPs) and reduced-risk products and believe these will continue to become an integral part of a broadening category. We also support the recent moves across Europe to regulate these products along similar lines to traditional tobacco with regards to excise, legal age and product registration as it will provide higher levels of consumer protection against cheap, low-quality imports, particularly in the disposable vaping category.

    Now that, in general, across Europe there is a much clearer regulatory outlook, we have recently launched our own NGP range under our brand in Spain and Bulgaria and aim to follow across major European markets, including Germany, the U.K., France, Czech and Italy, where we have a strong presence in our traditional cigarette brands.

    Looking at the longer term horizon on the future of the category, I personally believe a natural consumer-driven balance will develop between cigars, pipe tobacco, rolling products, traditional cigarettes and NGPs, where each will have a place in the consumer repertoire.

    How is KTI adapting to changing markets and consumer needs?

    Tobacco and nicotine alternatives are a highly regulated category, and as such, it is difficult to provide the same level of consumer interaction as other categories, and to a large extent, price and brand value provide the key consumer drivers. That being said, in our traditional business, we have always believed in providing different and innovative formats that go beyond the traditional brand, price, value equation in driving purchase. It is one of the key reasons for our growth.

    Does KTI have any plans to expand into reduced-risk products or other types of tobacco products aside from cigarettes and traditional leaf tobacco?

    2023 saw the launch of our LIV brand, which is our noncombustible brand. We have launched a range of travel-friendly nicotine pouches as our first step into the noncombustible category.  

    Marissa Dean joined Tobacco Reporter in the summer of 2018 as a copy editor.Since that time, she has taken on additional responsibilities, including feature writing.Her skills span the publishing industry from layout and design to copy editing to content creation.
  • Get Packing

    Get Packing

    Once the EU Packaging and Packaging Waste Regulations come into force, tobacco companies will have around 18 months to ensure all their packaging in the market is compliant. | Photos: Parkside

    Preparing for Europe’s new waste regulations

    By George Gay

    In July, Parkside issued a press note describing some of the ways in which flexible packaging might be used to help manufacturers in responding to the EU’s nascent Packaging and Packaging Waste Regulations (PPWR), ideas that Tobacco Reporter followed up on in a conversation with the company’s sales account manager of tobacco, Laura Haggerty.

    Parkside’s Recoflex range includes plastic and paper-based materials that are suitable for recycling.

    Tobacco Reporter: Would you please explain to those not entirely familiar with the world of packaging how you define the term “flexible packaging?”

    Laura Haggerty: Flexible packaging refers to any item of packaging that is made from a nonrigid material. In the tobacco industry, it’s most commonly seen in the form of loose-tobacco pouches, the shrink-wrap film that we use to protect cigarette cartons, and cigarette carton liners.

    However, flexible packaging can be made of almost any material, including plastic, bioplastic, paper and aluminum foil. Each material has its own pros and cons, which is why they are often combined in the form of laminates. A tobacco packaging will often contain several laminate materials to help keep its contents fresh by protecting against moisture and oxygen.

    Your press note says a preliminary deal on the PPWR was reached in April. Do you know when the regulations will be finalized?

    The provisional text of the deal has been finalized and will come into force at the end of 2024, but some key details will not be decided for several years.

    The EU will investigate the viability of bio-based materials in 2027 while the design for recycling guidelines will not be set until 2028. This means PPWR will not take its final form until the end of the decade at the earliest.

    When will the regulations be enforced?

    While PPWR comes into force at the end of this year, businesses have 18 months to ensure they comply with the new rules. That means, in practice, they will be enforced from mid-2026.

    What will be the main differences between the packaging regulations under PPWR and those under the Packaging and Packaging Waste Directive (PPWD) already in force?

    The main difference is that PPWR is a regulation whereas PPWD is a directive. In EU law, directives set a goal that is legally binding, but member states have a degree of freedom in how they reach that goal. Regulations are entirely legally binding, setting out policies that member states must follow in full, even if that means rewriting that country’s laws. This will also harmonize regulations across the EU, which should help with implementation.

    This is important as it will see extended producer responsibility (EPR) rollout across the EU. EPR is a policy approach that makes packaging producers responsible for the cost of packaging waste management. These costs are meant to encourage producers to design out unnecessary packaging while also incorporating recyclable materials where possible.

    PPWR also introduces new, more ambitious targets for waste reduction that each country must meet. These targets are to reduce packaging waste per capita by 5 percent by 2030, 10 percent by 2035 and 15 percent by 2040 compared to 2018 levels. It includes mandatory reuse and refill targets for certain packaging types, more restrictions on single-use plastics and PFAS [perfluorinated and polyfluorinated alkyl substances] chemicals, and new labeling requirements, among many other things.

    What are the main ways in which the new regulations will affect the tobacco/nicotine industry?

    The introduction of EPR will have a major effect. Tobacco companies operating in the EU will have to cover the costs of waste disposal, so they will find margins squeezed unless they can redesign packaging to be easier to recycle—or use less packaging altogether. When the design for recycling guidelines is finalized, this may become mandatory.

    This will affect the use of materials like shrink-film, which is currently problematic to recycle in existing infrastructure, so tobacco companies may have to look at other barrier materials to protect their products through the supply chain.

    Part of PPWR also includes new labeling requirements, which tobacco companies will have to incorporate alongside their existing strict labeling obligations.

    At this stage, can and should tobacco/nicotine product businesses start considering their options and even taking steps to change at least some of their packaging?

    Tobacco companies should absolutely look at ways they can change their packaging. Once PPWR comes into force, they will have around 18 months to ensure all their packaging in the EU market is compliant. This does not leave much time to evaluate, redesign and produce new packaging. Remember that as tobacco packaging is already highly regulated in the EU, any changes must also comply with existing legislation.

    Looking at the wider tobacco industry, including its new-generation nicotine products, which of its packaging materials will be affected by the likely changes brought in by the PPWR?

    Flexible packaging like pouches will likely be affected as they rely heavily on soft plastics, which are difficult to recycle. As mentioned, this will also affect the shrink-wraps and the inner liners commonly used in flip-top cartons and other rigid packaging, so it will likely have wide-reaching consequences for all tobacco packaging.

    Should the industry try to eliminate all “plastic materials” from its packaging, however that term is defined, or should it aim to eliminate only those plastics that do not break down in an environmentally friendly manner and become “forever” particles?

    Plastic is often painted as a villain, but the truth is much more nuanced than that. Unnecessary plastic use is a problem, but solving it needs a holistic, considered approach. Simply eliminating all plastics would have a disastrous effect on the environment in the form of increased product waste.

    Compostable materials are a possible solution and an area where we are a market leader. We produce accredited compostable pouches that can break down in domestic compost heaps and industrial organic recycling facilities. These materials are commonly used for pouches, but they also have applications as wraps for cigars and liners for cartons.

    Which of the Parkside packaging innovations mentioned in your press note would be appropriate for tobacco industry application?

    We work closely with our customers in the tobacco sector, so many of our solutions are ideal for tobacco packaging applications. Our Recoflex range includes plastic and paper-based materials that are suitable for recycling and can be tailored with high barrier coatings, metallization and more. We produce pack wraps, individual wraps for cigars, inner liners, resealable lock-and-peel pouches, and compostable pouches, all of which are suited to many applications within tobacco packaging.

    Will the arrival of the PPWR regulations provide an opportunity for the tobacco/nicotine industry to make radical changes to its packaging, or do tobacco/nicotine industry-specific regulations make such moves impossible or unlikely?

    The strict industry-specific regulations do pose some challenges when it comes to labeling. Packaging will need to contain labeling that describes its material composition and recyclability, so incorporating these new labels in a way that complies with existing restrictions may require some redesigning.

    Restrictions on pack shape, such as restrictions on slimline cartons, mean it is difficult to radically rethink many tobacco packaging formats. However, it may be possible to reduce the weight of packs using lighter weight materials combined with water-based barrier coatings to ensure performance.

    Presumably, there will be a cost associated with tobacco industry players changing their packaging. How can they minimize such costs while remaining compliant?

    We recommend working closely with a trusted packaging partner. At Parkside, we have worked closely with many tobacco companies for many years. That means we have developed the expertise needed to tailor packaging solutions to ensure they meet the needs of our customers in terms of both pack performance and compliance. This ensures packs can be designed and produced efficiently, which is always the best way to minimize costs.

    Progressive businesses are generally not opposed to reasonable regulations provided they are evenly applied and competition remains on a level playing field. Do you have any insights, based on your experience with the PPWD, of how strictly and how evenly the new regulations are likely to be applied?

    Part of the idea of PPWR is to harmonize regulations across the EU, so that would indicate the intention is to create a level playing field. However, it could still be subject to some variations as different member states have differing infrastructures. A country that already has robust recycling and waste management infrastructure in place will find it much easier to adapt.

    As a result, we anticipate PPWR will be applied more evenly than PPWD was—but there may still be some divergence in places.

    Finally, while the EU is hugely important to your business, does Parkside focus on other parts of the world?

    Certainly. We have invested heavily in our Malaysian site in recent years, meaning we now offer a comprehensive suite of services and solutions to tobacco companies across APAC [Asia-Pacific] countries as well as Europe. This gives us a greater level of agility and flexibility to operate on a global scale.

    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.
  • At the Crossroads, Again

    At the Crossroads, Again

    Photo: jorisvo

    There are still more unknowns than knowns about the shape of future European regulation for novel nicotine products.

    By Barnaby Page

    Europe’s relationship with novel nicotine products has always been a mixed one. On the one hand, the more extreme forms of hysteria about youth vaping or supposed health risks have been relatively absent from the European scene; the U.K. in particular has been regarded as perhaps the most pro-vaping major economy in the world. And regulation—in most countries, heavily shaped by the European Union’s Tobacco Products Directive (TPD)—is in some respects light-touch.

    Most notably, rather than following the U.S. model, which in theory requires marketing authorization by the Food and Drug Administration before products can be sold, the EU has eschewed the premarket approval approach and simply asks for products and businesses to be compliant with the TPD’s requirements.

    But if Europe (which for the rest of this article mostly means the EU and its member states) has been looser in its regulatory approach than the U.S. in some ways, many of the requirements that it does make are quite onerous: the 20 mg per milliliter limit on nicotine strength, for example. It is also well known that the TPD as originally conceived was going to be far more restrictive and was only scaled back after pressure.

    And there have been distinct signs lately of Europe becoming more cautious. Most flavors were banned EU-wide in heated-tobacco products; several countries have enacted, or will enact, disposable e-cigarette bans; the Netherlands, usually famed for its tolerance, is an example of a country that has started showing a lot of skepticism toward novel nicotine products; even in the U.K.—no longer an EU member—government support for tobacco harm reduction seems to be ebbing away a little, though it certainly hasn’t turned into outright opposition yet.

    Set against this background, there is concern that the next version of the TPD may make major changes to the EU’s regulatory framework for novel tobacco products, reflecting conservative positions.

    So far, nothing is known for sure about the actual content of the next TPD or about any updates to the lesser-known Tobacco Advertising Directive and Tobacco Excise Directive—though a European Commission spokesperson did confirm to Tamarind Intelligence, late last year, that vaping would be a focus of the TPD. The commission’s job with the TPD is essentially to formulate the legislation, which representatives from all the EU member states, in the European Parliament and the Council of the European Union, then vote on.

    However, looking at what is already happening across Europe gives some indicators of what’s possible—action against disposable vapes in France and Belgium, for example, or against flavored products in Finland and Hungary. Though it’s true that EU policy certainly does not derive directly from localized policy in member states, there are trends visible that are bound to be reflected in Brussels. It’s also worth noting that the much-anticipated swing to the populist right in the most recent European elections failed to fully materialize, which may well mean that the EU will continue to favor tight, precise regulation and not care too much whether it is seen as “business-friendly.”

    First, disposable bans: There have been debates or even legislation in most major European countries over banning disposables, partly because of youth usage but also because of environmental impacts. Even if not all of these come to pass, the fact that an outright prohibition on disposable vapes is so widely seen as a reasonable, proportionate regulatory response—not an unrealistic or extremist one—must make an EU-wide ban a possibility.

    Second, flavors: There is a precedent for some kind of vape flavor ban in the existing EU ban on flavors in heated tobacco, and a number of EU health ministers have given such a measure their support. This would be a greater blow to the industry than a disposables ban, though a crucial question would be exactly what is outlawed and what is permitted.

    The most draconian position would be a reduction of the market to tobacco and perhaps menthol/mint flavors. There could, however, be a middle ground with some other flavors allowed that still removed the more outre and (supposedly) youth-tempting ones from the market; there have also been suggestions that a ban on extreme flavor descriptions, rather than the actual flavors, could achieve the same end. So there are quite a lot of options on the table when it comes to regulation of flavors, and this is perhaps the area to watch most closely.

    Other major areas likely to come under consideration include taxation, and an extension of the existing EU ban on snus (from which only Sweden is exempt) to tobacco-free nicotine pouches.

    An equally big question, however, is when any of this will happen. The process of revising the TPD has been underway for more than two years now, suffering several delays and changes in its schedule.

    For example, the European Commission’s Directorate-General for Health and Food Safety (DG Sante) had originally promised to finalize its evaluation report on tobacco policy last year, but when the commission published its work program for 2024, it made no mention of revising tobacco policy. Therefore, it seems unlikely that there will be major announcements on the TPD or other Europe-wide tobacco regulation in 2024.

    When it eventually does happen, it will be the culmination of a process that started more than two years ago, when the commission launched a call for evidence, which ran from May 2022 to June 2022. This was then followed by a public consultation from February 2023 to May 2023. Eventually, the results of these consultations should be taken into account by the commission when it drafts a directive to be discussed by the Parliament, but so far … nothing.

    So it’s been a long period of near silence even though many expected action—and debate—much sooner. The delays may be partly down to divergence in member states’ positions on tobacco control—it’s going to be hard to come up with Europe-wide policies that at least partially satisfy enough member states and enough competing principles.

    Although the European Commission will be the one to propose the new policies, it is the legislators in the Parliament (and the Council of the European Union, the other “house” of the European legislature) who ultimately vote for or against it. So, while the commission may well be likely to maintain a conservative or even quasi-prohibitionist stance, it’s very possible that Members of Parliament (MEPs) may disagree. Some MEPs who spoke with ECigIntelligence said that they were prepared to fight conservative approaches to novel nicotine products that may be counterproductive for harm reduction, and the influx of new MEPs after this year’s election adds a further level of uncertainty.

    Moreover, positions on novel nicotine products cannot easily be predicted from political affiliation. Generally, the more right-wing a party is, the more easygoing toward novel nicotine products it tends to be (and this would in theory make the broadly rightward trend in politics a positive one for harm reduction’s proponents), but this is far from consistent and there are many exceptions (as indeed there are to that rightward trend).

    For example, arguments prioritizing consumer education and freedom of choice over strict policies, historically usually attributed to right-wing parties, are often also shared by left-wing parties. The national origin of a politician may be just as significant as their nominal position on the left-right spectrum—a left-winger from a country with very strict regulation of tobacco products is often likely, we find, to be more sympathetic to that kind of legal regime than a left-winger from a country with a much lighter touch.

    So there are plenty of unknowns, and of course the unusual position of the U.K.—the biggest market for novel nicotine products in Europe—is another one. When the last TPD appeared, the U.K. was still a member of the EU, and so it adopted the TPD’s measures into its own domestic legislation (as all EU member states must do with European directives). But it has since left the union, via Brexit. The current British government certainly seems to have a hardline attitude on disposables, but there are also indications that it remains supportive of harm reduction, so how aligned the U.K. will remain with the rest of the EU in the future is very much an open question. One distinct possibility is that even if Britain starts to tighten regulation on some aspects of novel nicotine products, it remains more liberal than an EU that gets even tougher.

    Barnaby Page has been covering the tobacco harm reduction business as a journalist for more than 10 years as editorial director at Tamarind Intelligence, a pioneering data intelligence and strategic insight provider offering global market and regulatory data analysis for businesses operating in fast-growing industries. Tamarind currently covers the vapor sector with ECigIntelligence, other tobacco and nicotine alternatives with TobaccoIntelligence, and cannabis with CannIntelligence. This article also incorporates research from other Tamarind staffers.
  • All-Rounder

    All-Rounder

    Due to its versatility, homogenized tobacco remains key to tobacco companies’ operations.

    By Stefanie Rossel

    For reconstituted tobacco leaf (RTL), the only way seems to be up. Valuates Reports estimated the global RTL market at $305.47 billion in 2023 and expects it to reach $370.85 billion by 2030, which corresponds to a compound annual growth rate (CAGR) of 2.7 percent between 2024 and 2030.

    Also known as homogenized tobacco or recon, RTL was developed by Schweitzer-Mauduit International (SWM) in the 1930s. Initially, RTL was designed to reduce waste. By recovering “leftovers” such as tobacco dust, scraps and stems, and reintegrating them into the production process, manufacturers can save valuable raw materials.

    Today, homogenized tobacco has a wide variety of applications. Apart from its use as a material to reduce tobacco product filling cost, it is an essential ingredient in cigarette blend design, offering cigarette manufacturers a convenient tool to lower the nicotine content of their products. The advent of heated-tobacco products (HTPs) has created new opportunities for the product. RTL allows tobacco companies to develop blends that deliver the desired taste and nicotine when heated to a comparatively low temperature.

    According to SWM, the recon market is driven by several trends. For starters, the cigarette market is expected to exhibit a CAGR of minus 3.5 percent between 2023 and 2028. The trend, the company points out, is obviously not the same in every country, with the U.S. and Japan leading the decline and Africa and the Middle East enjoying slight growth. At the same time, the HTP market is projected to witness a 15 percent CAGR between 2023 and 2028. SWM anticipates global sales of HTP consumables to reach over 300 billion sticks by 2027.

    The traditional cigarette market and the HTP market are influenced by the same factors. Cigarette or stick designs have an impact due to their recon inclusion rate per stick while there is also customer capacity to self-source the recon, as for example Philip Morris International does. In addition, the availability and price of leaf tobacco can also drive interest in RTL. SWM stresses that the drivers are not the same for recon used in conventional cigarettes and recon used in HTPs.

    A Product With Many Benefits

    Tapuwa Pswarayi

    In traditional RTL, SWM works closely with its customers to develop materials for innovative applications, says SWM’s product manager, Tapuwa Pswarayi. “In addition, our ancillary services allow us to perform in-depth analysis of materials to ensure that recipes meet all regulatory specifications. We firmly contribute toward reconstituted tobacco having been a key part of the tobacco blender’s toolkit for decades. In recent years, more major tobacco players have been innovating with SWM recon solutions in an increasing number of applications—from cigarette blends [to] roll-your-own to shisha. The many benefits of recon span across operational efficiency, regulatory compliance and cost stability.”

    With increasing volatility in tobacco markets globally, the relative price stability of recon presents a great opportunity to mitigate the impact of fluctuating costs. “The past growing season was challenging for many tobacco farmers, resulting in reduced quantities produced and sharp price increases in the majority of the tobacco-producing world,” he says. “Reconstituted tobacco is therefore a valuable tool for creative blenders—performing complementary roles in blend segments while offering a more competitive price.”

    The functional advantages of recon produced with SWM’s papermaking process are also an important factor, according to Pswarayi. “It’s made from tobacco by-products, such as stems, scraps, fines and dust, which are mixed with water before undergoing a two-step papermaking process to produce a uniform sheet, known as a ‘web.’ The web closely mimics the aesthetic and physical properties of tobacco leaf. This means it can be processed in the same way as tobacco leaf—whether it’s intended for cigarettes, cut rag or roll-your-own—with several additional benefits for the manufacturer.”

    Moreover, the product fits in well with current efforts to make production processes more sustainable. RTL allows for waste reduction through optimized utilization. “While the standard process typically generates waste during leaf-processing to packing and manufacturing, recon degrades less during production,” Pswarayi says. “This allows manufacturers to retain more material in the finished product, resulting in greater efficiency and reduced costs.”

    Almost any combination of tobacco by-products can be used to create high-quality recon, he says. SWM uses two main supply models—buying recon from its established portfolio of taste and performance characteristics, and developing unique recon blends. “To achieve this, we take the raw materials supplied by the customer and convert them into recon at our state-of-the-art facilities, with the customer owning exclusive rights to use the recipe that you create.”

    Beyond Tobacco

    Bruno Stefani

    SWM started to work on reduced-risk products in 2014. In 2017, it set up a dedicated reduced-risk products (RRPs) team, which today employs about 50 people, 20 of whom work in dedicated laboratories. “Our heat-not-burn recon solutions are designed to be easily used in existing cigarette-manufacturing assets,” explains Bruno Stefani, SWM’s HTP product manager of RRPs. “This allows our customers to go fast.

    “In that spirit, one of our pillars is to identify and select interesting tobacco grades for HTP application within tobacco material portfolio already sourced by customers for their cigarette production, which simplifies and secures the tobacco material sourcing. Every HTP is an inseparable combination of an aerosol-generating material—i.e., our recon, a consumable and a heating device. To create a unique consumer experience, we master the understanding of these three elements and their interactions.”

    The fact that SWM also manufactures cigarette paper allows the company to supply HTP wrapping papers and paper-filtering media to help customers reduce the plastic content of their products, according to Stefani. “We also invest a lot in securing freedom to operate to facilitate the access of this HTP market. Our role is also to identify potential reliable partners which can contribute to the final solution, covering all aspects of customers’ need and expectation.”

    SWM also benefits from its long-time experience in botanical fiber production. Botanical reconstituted with or without nicotine is another driver for growth in the HTP sector, says Stefani. “There is a strong interest for such tobacco-free products,” he says. “The big tobacco companies have really started to be active in this market since last year with the launch of Veo by BAT and then Levia by PMI and iSenzia by Imperial Brands. As we can process very different kinds of material shapes, leaves, nuts, roots, fruits, flowers and so on, reconstitution offers a very interesting solution to get an industrial product made with natural ingredients with well-mastered specifications and which is designed to smoothly run in an existing customer’s primary department. We also tightly master the addition of nicotine or other active ingredients to be added to the botanical on customers’ request.”

    Stefani says that SWM continuously scouts the market for new trends and needs, as well as the manufacturing technology offer, in order to be ready to develop and supply new materials and comply with its customers’ new developments. Judging from recent innovations in the HTP sphere, there’s certainly more to come.

    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.
  • Lifting the Veil

    Lifting the Veil

    A peek at the future of vaping technologies

    By Stefanie Rossel

    David Newns

    As sales of combustible cigarettes continue their downward spiral, reduced-risk products (RRPs) keep gaining ground. Euromonitor International estimated the retail value of the worldwide RRP market at $19.34 billion in 2023 and expects further growth.

    Plxsur, the world’s largest group of independent vaping companies, reckons that the 12 markets it operates in are together worth $20.8 billion and will grow to $59 billion by 2033. The company expects RRPs to overtake cigarettes over the next 10 years. “Looking at the U.K. alone, the number of cigarette users is currently at parity with RRP users at around 12 percent of the population, with the latter expected to become the dominant format this year,” says Plxsur’s chairperson and co-founder, David Newns.

    In terms of technology trends, a decade is a long time. In the past 10 years, vapers have moved from “cigalikes” to pods then to disposables and now back to reusables again. However, many current vape products still have shortcomings, particularly in areas such as user-friendliness, nicotine delivery and sustainability. Going forward, Newns sees two main considerations driving people to RRPs. “The first is cost-effectiveness, with reusables more cost effective than disposable vapes and certain cigarettes,” he says. “The second is user experience. Technology is constantly evolving, and the category continues to advance RRPs to replicate the delivery of nicotine in a cigarette in terms of speed of delivery and satisfaction.”

    Innovation in the category, Newns points out, will depend on two key factors: the delivery of nicotine in a reduced-risk format that satisfies users to a point that they don’t feel compelled to return to cigarettes and the behavioral aspect of smoking. “In order to ensure RRPs are attractive to smokers, the behavioral patterns must not differ dramatically,” observes Newns. This, he says, explains why nicotine patches or gum alone often aren’t successful in helping smokers quit. “Smokers are most successful at quitting when using vapes, either on their own or in combination with other products,” says Newns. “Given the ritualistic elements that vapes provide, which [are] similar to smoking, they are often seen as a natural next step for those looking to quit.”

    According to Newns, devices will likely also feature more connectivity functionality in the future.

    Enhancing Nicotine Delivery

    Michael Wang

    Optimizing nicotine delivery has been front and center in recent innovations. The German startup Splash, for example, has developed a product that generates a foam instead of vapor (see “Bubbles of Bliss,” Tobacco Reporter, December 2023) while U.K.-based Qnovia has designed an inhaler that works without heating (see “High Tech Quitting,” Tobacco Reporter, March 2023).

    Ispire Technology Co-CEO Michael Wang expects constant introductions of novel and unique entries into the nicotine-delivery space going forward. “However, the key factor to consider is efficacy—the actual effectiveness of nicotine delivery, its impact on the body and its absorbency,” he says. “Methods like Splash, which deliver nicotine through a foam in the mouth, or pouches like Zyn result in a different neurological uptake of nicotine. These methods take longer to be absorbed into the bloodstream, delaying the time it takes to reach peak effect. Research supports [the idea] that aerosolization is the most efficient and optimized way to deliver nicotine into the bloodstream for immediate absorption. This efficiency is largely due to particle size and how it is distributed in the body. Aerosolized nicotine, delivered to the lungs, ensures rapid absorption and immediate effect, unlike oral or sublingual methods, which take longer to act.”

    Both Wang and Newns anticipate the development of better heating systems that eliminate the metal emissions associated with nichrome wire-based heating systems. “The performance and safety of the core vaporizer technology are critical concerns,” says Wang. “Many devices rely on ceramic heating elements, which, while cost-effective and easy to manufacture, present risks. If the manufacturers do not hold themselves to the highest standard in their manufacturing process, then over time and with repeated heating cycles, ceramics can become brittle and potentially release harmful particles into the vapor. This underscores the need for the industry to move away from ceramics and adopt safer alternatives.”

    Wang views the introduction of heating chip technology, as recently launched by Greentank (see “Heated Breakthrough,” Tobacco Reporter, June 2024), as a significant step forward as it performs better on key safety metrics, including the reduction of harmful and potentially harmful constituents. “By using biocompatible materials and moving away from ceramics and heavy metal-producing heating elements, we can improve the safety and performance of vape devices. These innovations aim to minimize health risks and enhance user experience by providing cleaner and more efficient vaporization.”

    Precision dosing and dosing control, Wang stresses, are essential yet often inadequately addressed aspects of vaping technology. “Accurate nicotine delivery is crucial for both consumer satisfaction and regulatory compliance,” he says. “There is a growing demand for solutions that help users manage and reduce their nicotine intake effectively.”

    Age-Gating is Key

    Progress will be driven not only by hardware developments but also by the characteristics of nicotine. “Certain clean technologies such as synthetic nicotine could further reduce risk and improve delivery,” says Newns. “We are already seeing this rolled out in markets across the world. We believe that such development can only be a positive thing if the developments are carried out from a scientific point of view. That is, keeping in mind the nicotine user’s journey from cigarettes to safer alternatives, complying with regulation and placing responsibility to the customer and environment front of mind.”

    Wang expects novel nicotine particulates to enhance the speed and efficiency of nicotine delivery, building on the foundation laid by innovations like nicotine salts. “Nicotine salts improved the speed of delivery and provided a stronger throat hit, closely mimicking the experience of smoking combustible cigarettes,” he says. “This similarity, along with the availability of various flavors, greatly contributed to the success and adoption of reduced-risk products.”

    According to Wang, the success of flavors in helping smokers transition to e-cigarettes underscores the importance of continuing to develop advanced nicotine-delivery systems that provide a satisfying and effective alternative to traditional tobacco products.

    Preventing underage access to nicotine products will remain an important objective for manufacturers. To ensure its products never get into the hands of minors, Puff Store rolled out MyChekr, a technology that uses artificial intelligence to estimate the ages of would-be buyers (see “Beyond Face Value,” Tobacco Reporter, December 2023). The system is being adopted by a growing number of companies.

    Ispire Technologies offers an age-verification system that uses a combination of Bluetooth and blockchain technology. “This system employs biometric verification, ensuring that only authorized users can access the devices, thus preventing underage usage effectively,” says Wang. “The integration of blockchain technology sets our solution apart from the competition by offering an unparalleled level of security and transparency. Blockchain’s immutable nature ensures that all age-verification data is securely stored and cannot be tampered with, providing a trustworthy system for both consumers and regulators. The use of Bluetooth enables a seamless and efficient user experience, making our age-gating technology not only secure but also highly accessible and convenient for users.”

    Transitioning to Reusables

    Meanwhile, disposable e-cigarettes face an uncertain future due to environmental concerns, with some markets banning the entire category and others considering restrictions. “Although the U.S. may not see immediate FDA [Food and Drug Administration] mandates on disposables, the long-term trend will likely favor pod systems and reusable products, significantly reducing e-waste and aligning with environmental sustainability goals,” says Wang. “We are confident that disposable vapes will either disappear altogether or become a smaller player in the market over time. While disposables are incredibly convenient, their environmental impact is prompting a shift toward more sustainable options. Moving forward, we anticipate a greater emphasis on devices with removable batteries and the adoption of pod systems to reduce waste.”

    Newns believes that vaping companies have a responsibility to ensure that new regulatory restrictions, such as a ban of disposable vapes, do not prevent adult smokers from transitioning to safer alternatives. “We also know that disposable vapes, given the products’ convenience and price point, are vital for many adult smokers in the initial phase of the switch from cigarettes,” he says. “We hope to see regulation as a driving force for new technology and innovation to allow safer products to be developed with better inhalation techniques and quality.”

    With this in mind, he says, Plxsur remains focused on supporting customers to migrate from disposables to pod-based systems. “We have worked closely with our partner companies to put commercial strategies in place to achieve this,” says Newns. “For example, in Q4 last year, Puff, the number one vaping company in Italy and part of Plxsur, successfully migrated many of its customers to pod and open devices, with these alternative products now outperforming disposable devices by volume for the company. As we remain focused on our responsibility to reduce our environmental impact, we continue to see such efforts on migration across the group.”

    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.
  • Rewriting the Rules

    Rewriting the Rules

    Will the next EU Tobacco Products Directive embrace harm reduction?

    By Stefanie Rossel

    Things may take a bit longer in Brussels. The European Commission (EC) started preparations in 2021 to revise its Tobacco Products Directive (TPD), but the process remains in its evaluation phase, with an impact assessment expected in 2025.

    The commission’s draft proposal is anticipated in late 2025. By 2027 or 2028, member states are expected to implement the new legislation. Shaping the new policy will be the job of the next commission. In June 2024, the common market elected a new European Parliament for the next five years.

    The TPD currently under evaluation was issued in 2014. While already covering vape and heated-tobacco products in addition to traditional cigarettes, it does not include products that emerged after the legislation was adopted, such as nicotine pouches. How these and other novel nicotine products will be regulated in TPD3 remains the subject of speculation.

    “We know only that the evaluation phase should have long been concluded,” says Jan Muecke, managing director of the German Association of the Tobacco Industry and New Products. One reason for the delay, he suggests, could be the EU ombudsman’s investigation of the commissioning of the European Network for Smoking and Tobacco Prevention (ENSP), which advises the EU Commission in the evaluation process. As a network of anti-tobacco nongovernmental organizations, the ENSP can’t be objective, according to Muecke.

    Muecke expects the new commission, which will take up its official duties this autumn, to close the evaluation and push for far-reaching changes to the directive. The question, he says, is whether these changes will include a recognition of tobacco harm reduction (THR). While proponents claim novel nicotine products are significantly less harmful than combustible cigarettes and should therefore be treated differently, the EU, which has ratified the World Health Organization Framework Convention on Tobacco Control, insists that “less harmful” means “still harmful” and worries about yet-unknown long-term health effects and the protection of youth.

    Jan Muecke | Photo: German Association of the Tobacco Industry and Novel Products

    Missing Its Target

    However, critics contend that continuing the existing approach or adopting an even more hostile stance toward novel nicotine products may prevent the EU from achieving its goal of a “‘tobacco-free generation” (defined as a smoking prevalence of less than 5 percent) by 2040.

    According to the most recent Eurobarometer survey, the EU smoking rate decreased by only 1 percent between 2020 and 2023. At 24 percent, nearly a quarter of EU adults still smoke cigarettes. Since the TPD took force in 2016, EU smoking prevalence has fallen 3 percent. At this pace, the advocacy group Clearing the Air calculated, the EU will reach its tobacco-free goal 70 years after the target date.

    “So far, EU tobacco policy has been focusing on paternalism against consumers, manufacturers and retailers,” says Muecke. “As this approach has not led to any relevant results, a real strategy change is needed. Instead of plain packaging and high taxes, politics should actively promote smokers’ switching to less hazardous products such as vapes, THPs [tobacco-heating products] or pouches. By having chosen such an approach, Sweden will soon have reached the status of a smoke-free nation. For such a reorientation of politics, however, a lot of persuasive efforts in Brussels will be required. But recently, there were very few signals from the EC that it might dare turn away from its regulatory approach of ‘quit or die.’ The civil servants in Brussels still consider e-cigarettes and the likes as a problem and not as part of the solution.”

    “The big takeaway point from Eurobarometer is that there isn’t a hope of the EU achieving its smoke-free or tobacco-free targets, particularly when they continue to demonize safer nicotine products, which actually help people quit smoking,” echoes Damian Sweeney, a partner in the European Tobacco Harm Reduction Advocates (ETHRA), a consumer advocacy group. “It’s important to keep in mind that policymakers may not be aware of the detail in reports like Eurobarometer and certainly not success stories like Sweden and the U.K. This is why advocacy is so vital to educate policymakers and make them aware of what can and does work in reducing the burden on health from smoking.”

    Nevertheless, Sweeney is cautiously optimistic about TPD3 as there seems to be a growing number of Members of Parliament (MEPs) that understand the concept of tobacco harm reduction. In a February 2022 report, for example, the European Parliament’s Special Committee on Beating Cancer (BECA) acknowledged the concept of harm reduction.

    “Of course, the BECA report and the more recent report from the subcommittee on noncommunicable diseases, which adopted the same language as BECA in relation to safer nicotine products, is a positive in that respect,” says Sweeney. “Both reports are useful tools that advocates can utilize when speaking to MEPs about the role of SNPs in reducing smoking. It is important to note that we do not see these positive signs replicated in the European Commission.”

    At this pace, the advocacy group Clearing the Air calculated, the EU will reach its tobacco-free goal 70 years after the target date.

    More Stringent Rules Anticipated

    If common sense does not prevail, the EC’s draft proposal will likely contain considerably stricter regulations for all product categories, according to Muecke. “Brussels could try to introduce standardized rules that completely ignore product-specific characteristics,” he says. “The regulation of nicotine products according to their harm potential, as it was partly introduced for e-cigarettes in the current TPD, is also likely to be put to the test. Furthermore, the EC will try to anticipate the development of new products in their regulations. Tobacco-free nicotine pouches don’t fall into the scope of the TPD, which is why many member states in recent years felt obliged to pass their own regulations. The EC will try to prevent such a development for future innovations. This is something we must pay particular attention to because innovation should always be possible.”

    With vape flavors increasingly under scrutiny, Sweeney thinks it’s possible that the commission will propose a flavor ban. “This is where advocacy and building relationships with members of the European Parliament will be key, as proposals will have to be debated and voted on in committee and in the European Parliament as a whole,” he says.

    In June, EU health ministers discussed proposals by Latvia and Denmark to restrict flavors in vapes and nicotine pouches. The current TPD allows member states to set their own rules for flavors. Denmark, Estonia, Finland, Hungary, Lithuania, the Netherlands and Slovenia already ban vape flavors. Spain recently completed a public consultation on the topic; Latvia reportedly is in the process of introducing flavor restrictions.

    “It’s very concerning that member states would attempt to pressurize the commission to bypass the ongoing review of the TPD, but I don’t expect to see any actions at an EU level before the TPD,” says Sweeney. “Ahead of the June meeting, ETHRA wrote to all EU health ministers to highlight the serious unintended consequences of banning flavors: increase in smoking through reduced adult switching and increased relapse from vaping to smoking, a growing black market for flavored products, and potentially dangerous consumer workarounds, such as DIY [do-it-yourself] mixing, which can carry some risks.”  

    “Tobacco harm reduction shouldn’t be a right/left issue—it’s a people issue.”

    Damian Sweeney, partner in the European Tobacco Harm Reduction Advocates

    Pouches in Peril

    According to a commission spokesperson, snus will be part of the directive’s evaluation, but neither Muecke nor Sweeney expect the EU to legalize the product, which has been banned throughout the EU, except in Sweden, since 1992. “Sweden is on the verge of becoming smoke-free, 16 years ahead of the EU’s target, and snus has played a key role in that,” says Sweeney. “This success story could be emulated across the EU if the ban on snus was lifted; unfortunately, I can’t see that happening, and there’s a possibility the ban could be extended to nicotine pouches.”

    Prohibiting the latter would be difficult, however, according to Muecke, as nicotine pouches are already available in 16 member states.

    Despite increasing calls to ban disposable vapes, Sweeney expects single-use e-cigarettes to remain legal in the next TPD. However, the products are likely to disappear from the market anyway due to the EU Battery Directive, which will ban single-use batteries. “Manufacturers are already adapting and moving toward disposable-style devices that are rechargeable.”

    Whether the recent EU election, in which the center-right European People’s Party (EPP) gained seats, will impact TPD3 remains to be seen. “As far as tobacco harm reduction and the availability of safer nicotine products is concerned, this is a positive move as the EPP have been supportive of THR,” says Sweeney. “But I think it’s important to remember that THR isn’t and shouldn’t be a right/left issue—it’s a people issue. As advocates, we need to bring as many people as possible on board—no matter what their political leanings are.”

    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.