Author: Taco Tuinstra

Brexit Boosted Illicit Trade Conditions

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The United Kingdom’s departure from the European Union has increased the risk of illegal tobacco trade, reports Wales Online, citing a new report by Public Health Wales (PHW).
For starters, Brexit had reduced the U.K.’s access to EU databases for identifying criminals and illicit activity across Europe, potentially reducing its ability to detect and prevent illicit trade. And while being outside the EU allows the U.K. to implement additional checks at its borders, this advantage could be undermined by the government’s proposed freeports in Wales. Featuring fewer checks and regulations, these facilities are designed to boost international trade but can also be exploited by criminals, according to PHW.
In addition, international trade agreements currently under negotiation have the potential to create new supply routes and opportunities for criminal exploitation, according to the report. Brexit also has the potential to shape the demand for illicit tobacco by increasing risk of unemployment in sectors highly exposed to trade and poorer mental health due to uncertainty. Stress and poverty are associated with higher rates of smoking.
“To effectively reduce the illicit trade of alcohol, tobacco and drugs in the U.K. and Wales and benefit population health and well-being, strategies will need to reduce both the supply and demand of these goods, and this will mean taking account of the potential impact of Brexit on both factors,” said Louisa Petchey, senior policy specialist at the World Health Organization Collaborating Centre at Public Health Wales.
“This includes understanding its impact on supply chains, border controls and law enforcement cooperation. It also means responding to the ways in which Brexit may have negatively impacted on health and well-being in Wales to decrease demand for these goods in the first place.”
June 15, 2023
Putin Signs Tobacco Law

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Russian President Vladimir Putin has signed a new tobacco law, reports Interfax.
The legislation requires the licensing of production, tobacco imports, nicotine-containing products and raw materials. It also compels manufacturers to register their machinery and mothball any unused equipment.
While the law does not require retailers to obtain licenses, it bans the retail sale of tobacco products and nicotine-containing products not in consumer packaging and imposes restrictions on the movement of products.
Titled “On the State Regulation of Production and Turnover of Tobacco Products, Nicotine-Containing Products and Raw Materials for Their Production,” the law is modeled on Russia’s regulatory framework for the tobacco industry. Observers expect Russia to extend the Federal Service for Alcohol Market Regulation’s remit to include tobacco and nicotine-containing products.
Prepared by the Ministry of Finance, the legislation passed the State Duma on June 1 and the Federation Council on June 7. The law will come into force on Sept. 1, 2023, and the articles introducing licensing will take effect March 1, 2024.
June 15, 2023
FDA Urged to Wrap Up E-Cigarette Reviews

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U.S. lawmakers are urging the Food and Drug Administration to wrap up its review of pending e-cigarette premarket tobacco product applications, reports Law360.
In a letter to FDA Commissioner Robert Califf, 50 members of Congress requested the agency finalize its review of pending applications for e-cigarette products; deny applications for all nontobacco-flavored e-cigarette products, including menthol; and utilize the enforcement tools that have been given to the agency to remove all synthetic nicotine products from the market, including those with pending applications.
The lawmakers’ call comes after the FDA failed to meet a court-ordered deadline of Sept. 9, 2021, to complete its review of all pending e-cigarette applications submitted to the agency. In its most recent filings with the court, the FDA has indicated that it will not be able to finalize its review of products with the largest market share until December 2023.
“FDA’s repeated delays in removing flavored e-cigarettes from the market is putting children’s health at risk,” said Colorado Representative Diana DeGette in a statement. “FDA needs to step up its enforcement of these harmful products and get them off our store shelves now. Every day that these products remain on the market, the more harm they cause to young people’s health.”
While the FDA has completed its review of many e-cigarette products, it has not yet completed its review of thousands of pending applications—including those for popular products manufactured by Juul Labs, Reynolds Vapor Co. and Smok.
The lawmakers urged the agency to complete its review of all its pending applications no later than Dec. 31, 2023.
June 15, 2023
Shipper Responsible for Tax on Stolen Cigarettes

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JTI Polska is responsible for hundreds of thousands of pounds in excise duties on cigarettes stolen during transport, the U.K. Supreme Court ruled June 14, reports Law360.
Thieves took 289 cases from a JTI Polska vehicle parked at a U.K. service station during a trip from Poland to Jakubowski in the U.K.
Jakubowski sought to recover from JTI the excise tax of about £450,000 ($570 million) owed on the stolen goods.
The ruling in a similar case that determined which party pays the tax in the event goods are stolen remains valid, and there is no pressing reason to overturn it, the court said.
June 15, 2023
Kaival Reports Flat Quarterly Revenues

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Kaival Brands Innovations Group reported revenues of $3 million in the second quarter of fiscal 2023, down from $3.1 million in the comparable 2022 quarter. Gross loss was $100,000 compared with a gross profit of $400,000 in the prior-year period.
While sales were slightly down versus the prior year quarter due to customer credits, discounts and rebates, Kaival believes that continued U.S. Food and Drug Administration enforcement of noncompliant electronic nicotine-delivery system products has allowed the company to position its Bidi Stick as a compliant alternative subject to FDA enforcement discretion. The company believes this should also help in securing new orders for the Bidi Stick.
“We remain excited and confident in the future of Kaival Brands,” said Eric Mosser, president and CEO of Kaival Brands, in a statement. “Over the past four months, we signed new broker and distribution agreements for our core Bidi Stick distribution business, focusing on partners that share our vision of regulatory compliance and youth access prevention. We believe we have positioned ourselves for increased sales in the second half of the year.”
In addition to its quarterly results, Kaival announced the renewed distribution of its Bidi Stick in Circle K convenience stores. “As of this week, we have activated over 1,000 new Circle K locations, with the goal of ramping up to 5,000 this year,” said Mosser.
The company also announced the initial shipment of Bidi Sticks to over 900 Kwik Trip and Mapco locations.
June 15, 2023
Sampoerna Sales Up 12.5 Percent

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Sampoerna reported net sales of IDR111.2 trillion ($7.38 billion) in 2022, up 12.5 percent from the previous year. Sales volume at the Indonesian cigarette manufacturer increased 4.8 percent to 86.8 billion units, bolstered by the performance of premium brands such as Sampoerna A, Dji Sam Soe and Marlboro.
“The combination of Covid-19 with the impact of the double-digit excise tax increases and widening excise tax gaps has resulted in major challenges for the tobacco industry but Sampoerna remained focused on creating values for its stakeholders, Sampoerna President Director Vassilis Gkatzelis told shareholders at the company’s annual general meeting.
“We evolved our strategy in a forward-looking way and delivered a robust topline performance in 2022 with year-on-year volume growth and stabilization of market share despite the headwinds and accelerated downtrading to the lower-taxed Below Volume Tier 1 segment.
“We also reached a critical strategic milestone with our smoke-free products manufacturing facility in Karawang with an investment valued at more than $186 million, which started operations in the fourth quarter of 2022 to fulfill demands both for the domestic market and Asia Pacific.”
Gkatzelis attributed Sampoerna’s 2022 performance to solid business fundamentals, robust route to market and resilient organization. Although the company’s profitability decreased on a yearly basis and is still significantly lower versus the pre-pandemic levels, key profitability metrics improved during the second half of 2022, both sequentially versus the first half and the year before, driven by returning to net positive pricing as of the third quarter of 2022.
The positive momentum continued in the first quarter of 2023 with IDR27 trillion in net revenues and IDR2.2 trillion in net profit, up by 3.1 percent and by 12.8 percent, respectively, compared to the same period last year. In this first quarter of 2023, Sampoerna grew its market share to 28.5 percent, up 0.2 percentage points compared to the comparable 2022 quarter.
Vassilis praised the Indonesian government for providing business certainty through the issuance of a multi-year tobacco products excise policy for 2023-2024. “We certainly wish the government issues future policies that can support the sustainability of the tobacco industry and enable economic recovery to pre-pandemic levels,” he said in a statement.
According to Vassilis, a predictable environment is key when it comes to delivering sustainable value creation for the broader ecosystem, especially for long-standing investors in Indonesia.
“I am proud to share that early this year Sampoerna completed its investment in building a production facility for the innovative smoke-free tobacco products in Karawang, West Java,” he said.
“Additionally, we recently launched the latest technology and innovation of smoke-free tobacco products, namely IQOS ILUMA, through the continuation of IQOS Club with a limited launch in 10 major cities in Indonesia. These are key milestones to mark Sampoerna’s 110 years of presence in the country.”
Indonesia’s facility for heated tobacco sticks is PMI’s first in Southeast Asia and the seventh globally. “Sampoerna’s investment is a vote of confidence in the investment climate of Indonesia,” said Vassilis. “The new factory in Karawang entails further value creation by increasing research capacity, absorbing high-skilled workers, purchasing local tobacco supplies, operating digital service centers, improving export performance and empowering MSMEs [micro, small and medium-sized enterprises] which includes digitalization support and increasing the capacity of traditional retailers,” said Vassilis.
June 12, 2023
Imperial Suggests Steps to Tackle Youth Vaping

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The United Kingdom should establish a new retailer licensing scheme to improve compliance, review flavor naming conventions to limit youth appeal and strengthen the regulations for online advertising and promotion, according to Imperial Brands.
The company made its suggestions in response to the Office for Health Improvement and Disparities’ (OHID) call on stakeholders to identify opportunities to reduce underage vaping while keeping e-cigarettes available as a quit aid for adult smokers.
In its consultation response, Imperial also suggested raising product quality and safety standards to ensure adult smokers can feel confident about transitioning to vape products, and working with industry to increase support to local authorities to tackle noncompliance.
“We welcome the opportunity to contribute to OHID’s call for evidence on youth vaping. Vape products should be used by existing adult smokers and adult vapers only—they should never be used by children,” said Oliver Kutz, general manager U.K. and Ireland at Imperial Brands, in a statement.
“Government, industry and enforcement authorities must work together to create a regulatory framework which both supports the important role vapes can play in helping adult smokers quit and prevents the appeal and access of these products to under 18s. We are proposing a series of measures to address product standards, flavor and naming regulations, and the retail environment. An integrated, multi-pronged approach is needed in order to drive out irresponsible actors and improve trust in this important product category.”
June 7, 2023
Sampoerna Commits to Value Creation

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Sampoerna has reiterated its commitment to creating value and contributing to a sustainable future as the company celebrates its 110th anniversary, reports The Jakarta Post.
Speaking to reporters on May 26, President Director Vassilis Gkatzelis highlighted Sampoerna’s investments in Indonesia.
Since its sale to Philip Morris International in 2005, Sampoerna has invested $6.3 billion in the country. Recently, it constructed a $186 million factory in Karawang, West Java, dedicated to the production of smoke-free tobacco products, such as PMI’s successful IQOS heat-not-burn device.
The facility started operations in the fourth quarter of 2022 and supplies both the domestic market and Asia Pacific.
Sampoerna also has two cutting-edge laboratories—one in Pasuruan, East Java, and one in Karawang. Directly and indirectly, the company operates 45 manufacturing facilities and employs more than 66,000 people in Indonesia. In addition, it works with 22,000 farmers who grow either tobacco or the cloves required to manufacture kretek cigarettes.
Sampoerna also partners with third-party operators owned by local entrepreneurs or cooperatives specializing in hand-rolled manufacturing.
Gkatzelis, who took charge of Sampoerna last year, also touched on the importance of sustainability. “Every time we act, we try to create sustainable value for the long term,” he was quoted as saying. “So, 110 years of Sampoerna’s presence is important, but we need to create values for the next 110 years.”

June 7, 2023
U.S. Combustibles Hamper BAT

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British American Tobacco (BAT) reaffirmed its annual revenue and profit forecasts on June 6, but acknowledged that its performance in the United States has been hampered by weaker cigarette demand.
“I am pleased with our performance in a number of key areas,” said BAT recently appointed CEO Tadeu Marroco in his first trading update. “We increased the number of consumers of non-combustible products by a further 900,000 in Q1, driving good revenue growth and further reducing losses of New Categories means we are on track to deliver our £5 billion [$6.2 billion] revenue ambition in 2025, with profitability in 2024, irrespective of the timing of the transfer of our Russian and Belarusian businesses.
“Outside the U.S., combustible brands have been performing well as we address portfolio gaps and optimize pricing. Consistently driving value from our combustibles brands is critical, as they deliver substantial cash returns and generate value to fund New Categories and our transformation.
“We are also making good progress towards de-leveraging our balance sheet, supporting our ambition to sustainably return excess cash to shareholders.

Returning combustibles to consistent value creation is critical to our multi-category strategy in the U.S.
Tadeu Marroco, CEO, BAT
“That said, there are operational issues that will have my focus. Our performance in U.S. combustibles has been disappointing. Returning combustibles to consistent value creation is critical to our multi-category strategy in the U.S. We are taking action, and while it will take some time to carefully and thoroughly implement our plans, our volume share has grown sequentially since the start of the year.”
BAT has been affected by a voter-approved ban on flavored tobacco products in California, but reported increased sales of flavored products in neighboring states.
BAT has been investing in e-cigarettes and heat-not-burn devices as consumers transition to tobacco-free alternatives. While its Glo tobacco heating product’s volume share decreased, sales of Vuse vapes grew.
However, government regulations and the risk of illicit sales pose challenges to these alternatives, according to BAT.
The company maintains its outlook for a 3 percent to 5 percent rise in 2023 organic revenue at constant currency rates and mid-single digit growth in adjusted earnings per share.
June 6, 2023
Pyxus Exceeds Guidance for 2023

Pieter Sikkel | Photo: Pyxus International
Pyxus International reported sales and other operating revenues of $1.91 billion in 2023, up 16.8 percent from the prior fiscal year. Average gross profit per kilo increased 13 percent primarily due to product mix in Asia and customer mix in North America. Operating income increased $52.1 million to $93.8 million from the prior year. Net loss attributable to Pyxus International was $39.1 million, improving 52.4 percent from the prior fiscal year.
“Our teams achieved strong results for the fiscal year as we exceeded our most-recent adjusted EBITDA guidance, improved our leverage ratios, and aggressively managed our working capital to improve both our operating and free cash flow,” said Pyxus President and CEO Pieter Sikkel in a statement.
“We experienced the third consecutive year of La Nina weather patterns, which limited tobacco supplies and increased tobacco costs by as much as 50 percent in some of our markets. Inflationary tobacco costs, increasing interest rates, and lingering geopolitical issues added to a complicated crop year. We successfully overcame these challenges.”
“We offset reduced production in certain markets by sourcing tobacco from our global network of farmers around the world to meet our customers’ demand for sustainably grown compliant leaf in a short crop year. Uncommitted inventory at year-end was $19 million, which reflects the short-supply and high-demand environment we operated in during fiscal 2023.
Pyxus said it expects the momentum created this year to continue through fiscal year 2024. Current projections reflect a partial recovery of the tobacco supply compared to last year and continued strength in demand and pricing. For the full 2024 fiscal year, Pyxus expects sales to be between $1.9 billion and $2.1 billion and adjusted EBITDA to be between $155 million and $180 million.
June 6, 2023