Blog - Tobacco Reporter

Grants Under Scrutiny

A corporate accountability group is urging Nigeria to investigate the Export Expansion Grant (EEG) awarded to tobacco companies by previous governments, reports the Daily Trust.

The EEG is a post-shipment incentive to encourage indigenous companies to expand the volume and value of their exports.

The Corporate Accountability and Public Participation Africa (CAPPA) made its call on Dec. 1, after the chairman of the Presidential Committee on Tax Reforms and Fiscal policy suggested that Nigeria’s administration of tax waivers fell short in terms of prudence and transparency.

“We demand a full and transparent inquiry into these shady waivers that have ripped the country of its revenues,” CAPPA Executive Director Akinbode Oluwafemi was quoted as saying. “More so, we are concerned about the benefits awarded to the tobacco industry under the Export Expansion Grant Scheme, and other untoward agreements which insult every Nigerian striving for a healthier and more equitable society’.’

December 4, 2023

Kathmandu to Ban Plastic-Pack Products

Kathmandu will ban the sale of tobacco products in all its 32 wards from Dec. 13, 2023, reports myRepublica.

Ram Prasad Poudel, chief of the Kathmandu Metropolitan City’s (KMC) health department, said the measure would apply to the sale, storage and use of all tobacco products packaged in plastic. This includes not only cigarettes and bidis, but also tamakhu, sulfa, kakkad, gutkha and paan parag, among other regional products.

“We are on a campaign of making Kathmandu a healthy city,” said Poudel.

The KMC reportedly plans to apply similar measures to water pipe tobacco at a later stage.

December 1, 2023

On a Roll

Driven by cost considerations and growing environmental awareness, do-it-yourself cigarette papers continue to gain popularity.

By Stefanie Rossel

Traditionally, roll-your-own (RYO) products thrive in difficult economic periods, and for the time being, it appears, the challenges won’t cease. As the Covid-19 pandemic ebbed, the world was shaken by war in Ukraine, worsening inflation and cost-of-living crises in many countries. Since October, global stability and confidence has been further eroded by the war between Israel and Hamas.

The economic slump means that many consumers are coping with lower disposable incomes. Among smokers, such a development often encourages a shift from factory-made cigarettes to more affordable RYO or make-your-own (MYO) products.

Market research companies are hence upbeat about the rolling papers market. Future Market Insights (FMI), for example, expects the value of the global cigarette paper market to grow from $714 million in 2023 to $1.19 billion by 2033, registering a compound annual growth rate (CAGR) of 5.2 percent during that period. “The rising popularity of smoking rolled cigarettes along with an increasing number of states legalizing recreational cannabis are the key factors expected to augment the demand for rolling papers,” the report states. The U.S., where 24 states permit recreational cannabis use, accounts for 16.9 percent of the global rolling papers market.

In emerging economies, meanwhile, growing demand for rolling tobacco is creating opportunities for manufacturers to expand their footprints in untapped markets, FMI writes. In some of these countries, restrictions on reduced-risk products also play a role. India, for instance, which banned vape products in 2019, is predicted to witness a CAGR of 6.9 percent in sales of rolling papers through 2033.

Adult smokers increasingly seek all-in-one packaging solutions, rather than making multiple separate purchases.

Jose Rubiralta, global manager, Rizla

Careful Navigation Needed

The global rolling papers market is dominated by several large players. Lately, however, smaller entrants to the category have been offering niche or novelty products in terms of sizes, colors and ingredients.

“In general, we see an upward trend in the global market for rolling papers being driven by increasing preference for hand-rolled tobacco due to the value offer they provide compared to factory-made cigarettes as well as the rise in prominence for more environmentally friendly and innovative products,” notes Jose Rubiralta, global manager of Rizla, which is part of Imperial Brands. “For Rizla specifically, the more recent negative global developments mentioned bear limited impact. We are actively expanding our presence in different markets to build on our position as the world’s most iconic rolling paper brand.”

Santiago Sanchez, executive president of France-based Republic Technologies Group, which is best known for its OCB, Zig-Zag and JOB brands, says that the Covid-19 pandemic had boosted his company’s sales. The more recent series of crises has made it difficult to find shipping vessels, however. It has also boosted inflation and caused a scarcity of raw materials. “I usually say that our products sell better during a crisis—and this is what is happening—though I personally regret very much the suffering of so many people in the present wars.”

Republic has been doing well in its core markets. “Besides, we see an opportunity in new markets, mainly on the American continent,” says Sanchez. “This is not yet linked very much to the RYO tobacco expansion but the depenalization of certain substances such as cannabis that were prosecuted until recently.”

For Xavier Garcia, commercial director of the RYO division at Miquel y Costas, the geopolitical challenges pose new hurdles that require careful navigation. “While we celebrate the positive impact of changing consumer habits, we must remain vigilant in the face of geopolitical complexities. The challenges are formidable, but they present opportunities for innovation and strategic adaptation.”

Smoking Paper, Miquel y Costas’ rolling paper brand that will celebrate its 100th anniversary in 2024, currently experiences significant growth in various markets. “The growth of the brand is something transversal and not specific to just a few markets,” says Garcia, who attributes its growing popularity of RYO and MYO products to shortages of affordable cigarettes and higher taxation of factory-made products, among other factors.

We see that consumers ask for new products that are more environmentally friendly.

Santiago Sanchez, executive president, Republic Technologies Group

More Regulatory Hurdles

The next challenge for tobacco-related rolling papers will be regulation, according to Sanchez. “We have the intrusion of the politicians with constant new regulations,” he says. “We will see what happens with the revision of the European Union Tobacco Products Directive and new laws trying to overregulate [the industry] such as [those] trying to have tobacco-free generations and forbidding filters.”

Another challenge comes from the EU Single-Use Plastics Directive (SUPD), which entered into force in 2021 and bans the sale of single-use plastic items such as plates, cutlery, straws and plastic/cotton bud sticks as well as food containers and expanded polystyrene cups. The law exempts cigarette filters but will oblige tobacco manufacturers to cover the costs of consumer awareness-raising measures and extended producer responsibility schemes tackling the cleanup of litter and its subsequent transport and treatment and other issues starting this December.

“While personally I have always been a great defender of the environment, I would have preferred a smoother application of the directive,” he points out. “The commission has not fulfilled its own timetable and now, in November, we still do not know about taxes to be paid next year, especially considering that some will be retroactive to 2023. Once again, the pressure for the smaller manufacturers is enormous and disproportionate.”

Whether driven by regulation or other factors, eco-friendliness is a major trend in rolling papers, according to Rubiralta. “In line with key consumer trends in the broader fast-moving consumer goods industry, there is a growing demand for more environmentally sustainable products,” he says. “As part of our ongoing efforts, we are actively exploring strategies to reduce the impact to the environment. This includes different product and packaging initiatives of Rizla products, amongst other contributions.

“This summer, for example, we have introduced our Natura filter tips as well as our plastic-free tips in selected markets, such as Greece. This is our first plastic-free tips range, made with biodegradable paper, which is a milestone that our team takes great pride in. This complements our recent environmentally friendly paper launches of Rizla Classic, which are unbleached papers, Natura hemp papers and our innovative Rizla Bamboo papers offer, which have received favorable consumer responses.”

Sanchez’s experience is similar. “We see that consumers ask for new products that are more environmentally friendly,” he says. “For centuries, our industry has used flax and hemp as fibers to produce rolling cigarette paper. Different fibers are now in demand, such as bamboo and rice. There is a preference of some people for rice paper, a raw material that was used many years ago to produce paper. With the improvement of paper technology, these fibers were abandoned because of their fragility. Many products still claim to be ‘rice paper,’ although they’re not made of rice. Republic has gone back to the origins, and it is now producing a special blend of rice plus organic hemp paper, which is the only product in the market containing real rice.”

Several months ago, Republic Technologies introduced the first bagged filter paper. The company is also reviewing all its packaging to remove plastic wherever possible. “Most of our boxes are no longer plastic-wrapped but they still can guarantee the freshness of the product,” says Sanchez. “We have never been fans of closing devices such as magnets because we feel it goes against the environmental target, so we have developed a new way to close some of our booklets just with a paper flap.”

While we celebrate the positive impact of changing consumer habits, we must remain vigilant in the face of geopolitical complexities. The challenges are formidable, but they present opportunities for innovation and strategic adaptation.

Xavier Garcia, commercial director, RYO division, Miquel y Costas

Seeking Convenience

In addition to natural papers and innovative materials, demand is also shifting toward larger paper formats and more advanced products, such as thinner papers, according to Rubiralta. Convenience is a big driver as well. “Adult smokers increasingly seek all-in-one packaging solutions, rather than making multiple separate purchases,” he says. “In response, we are placing a strong emphasis on our combi-packs, expanding our product offerings, and ensuring that this product is readily available to our key customers where this format is relevant.” The company launched its combi-packs of papers and paper filters in the U.K. this year.

“Customers are steering the industry toward a future marked by sustainability, exploration of materials and a demand for convenient solutions,” confirms Montse Bonjorn, director of marketing of Miquel y Costas’ RYO division. “At Miquel y Costas, we’re not merely observing these trends; we’re actively shaping the future of smoking experiences in alignment with our customers’ evolving preferences.”

The company recently introduced a range of eco-friendly, biodegradable paper filters. “As part of our commitment to setting new industry standards, we are set to launch Smoking Supreme, a product that transcends the ordinary,” she says. “Crafted with meticulous attention to detail, this new rolling paper is characterized by its feather-light weight of 12 grams and an ultra-soft surface texture—a harmonious blend for a supreme smoking experience.”

In 2021, the company launched Smoking Cones, a collection of pre-rolled cones crafted in a unique spiral design, a layout that requires less paper and glue to manufacture.

Potential for Growth

Cannabis is playing an ever more important role for rolling papers manufacturers. As further legalization of recreational cannabis is expected in the U.S. and Europe, Sanchez expects demand for RYO papers to increase. “We have developed a patented system to infuse CBD in the natural gum used in the papers. These new products are now available under the Roor trademark that the group acquired a few years ago. Moreover, we have developed a new slim paper, including tips with a length of 125 mm, for the cannabis market.”

“While global trends indicate a surge in cannabis-related products, our focus remains on identifying markets with the greatest potential,” Bonjorn explains. “Regions where cannabis legalization or cultural acceptance is on the rise are particularly promising. Latin America, North America and parts of Europe are among the regions showing considerable potential for growth.”

Miquel y Costas is actively navigating the evolving dynamics of the cannabis market. The company, says Garcia, is ready to contribute innovative solutions to cater to the evolving needs of cannabis enthusiasts. “As we anticipate developments, our strategic approach includes identifying markets where the potential for growth aligns with our commitment to quality and innovation,” 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.

December 1, 2023

Beyond Face Value

Applied properly, age estimation technology can be a valid tool to discourage youth access.

By George Gay

One of the most effective arguments available to those opposed to tobacco harm reduction (THR) is based on what they describe as the child vaping epidemic because, no matter whether such an epidemic is occurring, there is no rational argument that can overcome the emotional tug of politicians crying “child vaping epidemic!” as they trawl for votes and attempt to reset their flagging careers.

Of course, children—here taken to mean those under the age at which it is legal to buy vaping products—should not be sold vapes because this is against the law in many, perhaps most, countries. But they are sold vapes—so the question arises as to how this is possible. Well, in the U.K. at least, it is possible largely because many of those politicians now fuming about the child vaping epidemic have, with 13 years of austerity, undermined the effectiveness of public services, including those, such as Trading Standards, that are charged with policing retailing.

In the face of these problems, one of the few hopes the vaping industry has is to try to help bolster the policing of what happens in retail outlets, in part by using age estimation technology. Anybody who listened to the video presentation by Robert Burton, group scientific and regulatory director of Plxsur, which was part of the Bonus Content of the September Global Tobacco and Nicotine Forum in Seoul, South Korea, will have heard him make a case for age estimation technology to be used in stores selling vapes. In fact, such technology is currently being tested in two outlets in Italy run by Puff Store, part of Plxsur, before a planned wider rollout. Puff Store is using Innovative Technology’s MyCheckr system, which Puff Store’s CEO, Umberto Roccatti, described as “an excellent example of how vaping businesses can support vital legislation and responsible business practices through innovation.”

Proper Terminology

But before looking at the MyCheckr system, a little housekeeping is in order. The sorts of technologies in question are sometimes referred to as “facial recognition” or “age verification” systems, but I shall use the phrase “age estimation” because that is how Andrew O’Brien, the product manager at Innovative Technology, referred to it during a conversation with me. I doubt there is much wrong with using the term “age verification,” though, as will become obvious later in this piece, the way the system operates means there is nothing to “verify.” But “facial recognition” I would think is to be avoided, partly because it is misleading in respect of MyCheckr and partly because it would be as well to heed the lesson from the introduction of the electronic cigarette. The word “cigarette” in this phrase established a link in many people’s minds between the new, noncombustible product and the old, combustible product even though there was a world of difference between them; and it is only now, a decade and more later, that the term “vape” is starting to take the edge off this issue. I cannot help thinking that, for the same reason, THR advocates should, from the start, try to avoid the use of the term “facial recognition,” which in many people’s minds is linked, not unfairly, to mass-surveillance—in which Innovative Technology has decided not to become involved—overly intrusive policing, discrimination and human rights abuses.

During a telephone interview on Oct. 23, O’Brien told me that age estimation, as provided by MyCheckr, was different from facial recognition, crucially because the data produced by this device was not capable of identifying a person and therefore was not considered to be “special category” data under the General Data Protection Regulation (GDPR) in force in the EU, the European Economic Area and the U.K. In particular, the U.K.’s Information Commissioner’s Office had clarified that processing biometric data for the purposes of the Age Appropriate Design Code could lawfully be done to meet the “substantial public interest” exception in the U.K. GDPR. In practical terms, this means retailers may operate the MyCheckr system for age estimation and may do so without needing to get permission from those entering their stores.

How it Works

The MyCheckr device is positioned next to a retailer’s till from where it scans the face of anybody who comes within its range, which covers people in wheelchairs and those well over six feet in height—in all, about 98 percent of the U.K.’s adult population. If the system determines the person is more than 25 years of age, a green light shows and the store assistant may sell the customer age-restricted goods, including vapes, while if it determines the person to be under 25 years of age, a red light shows and the assistant is obliged to ask for a form of identification that provides proof that the person is more than 18 years of age.

MyCheckr’s system is based on the use of algorithms that are composed during machine “deep learning” exercises. No, I don’t understand it either, but basically, the machine is presented with millions of facial images of people whose ages are known, and from the particularities of these images it builds a database of age-related facial characteristics. To avoid bias and inefficiency, care is taken during the learning phase to ensure the machine is presented with similar numbers of male and female faces and similar numbers of skin tones, as defined by the Fitzpatrick scale.

Importantly, the machine learning seems to have worked. The MyCheckr was tested in March 2021 under the Age Check Certification Scheme when it was found to have been sufficiently accurate, to be used as part of a “challenge 25” program. The device did not “pass” anybody under 18 as over 25, and, on average, it underestimated the age of 18-year-olds by only 0.19 of a year. Remarkably, perhaps, O’Brien told me his company had improved the system during the year and a half since that test had been carried out. And he also mentioned that the device could now tell the difference between a face and a picture of a face presented either on paper or on a mobile screen.

Privacy Protections

One reason why MyCheckr is not, and could not be, used as a mass-surveillance facial recognition system is that it cannot store the scans it makes of customers’ faces. And since all the processing is done within the device, there is no need for it to be connected to the internet, which means no images leave the device.

Interestingly, the efficacy of MyCheckr in preventing underage customers from obtaining age-restricted products from retail outlets goes beyond its scanning operations. O’Brien said that Innovative Technology had taken part in a trial of an earlier version of the MyCheckr in conjunction with the U.K.’s Home Office, which had wanted to understand how technology could help to ensure people complied with the Licensing Act 2003, covering the sale of alcoholic products. One of the things to come out of the test was that the mere presence in a store of an age estimation system tended to discourage underage visitors from trying to buy age-restricted goods. And another finding was that the device gave confidence to store assistants, especially younger and less experienced ones, to ask customers for forms of identity that provided proof of age because it was less likely that a challenged customer would make a fuss if the assistant pointed to the device and said, “the computer says ‘no.’”

Although the device stores no facial images, it can gather and store analytical data concerning the demographics of a store’s customer base and the times of day that particular types of customers are most likely to visit, but, again, none of this data can be used to identify individuals. And another useful app that can be enabled allows the device to show adverts appropriate to the age and gender profile of a scanned customer.

Finally, there is one area where the MyCheckr could be used in respect of “age verification/facial recognition” but only temporarily and where people agree to their facial images being scanned for the purposes of, for instance, allowing them, customers or members of staff, to gain valid entrance to a frequently visited, restricted and gated area of a store without the need to prove their age each time. And this sort of system has been successfully stood on its head for “self-excluded” gamblers who want to ensure they are challenged when they attempt to use gaming machines.

We’re starting to see that this is a really exciting product for us.

Andrew O’Brien, product manager, Innovative Technology

Collecting Feedback

The MyCheckr device, which sells for about $500, is said to be easy to install and operate and uses about the same power as a low-powered laptop. It was released only a matter of months ago and so has not yet gone into commercial distribution, but it is in stores from where Innovative Technology is receiving feedback. Initial interest has been from smaller retailers, especially vape stores, but larger retailers are showing interest. “We’re starting to see that this is a really exciting product for us,” said O’Brien.

I have no expertise in either retailing or technology, but it seems to me that, if used extensively and diligently, this device could be an exciting product too for the vaping industry and THR at a time when child access to vaping products is at the top of the agenda. But how much difference could it make and how quickly? One obvious problem is likely to be that those retailers who are less fussy about challenging customers in respect of age—those causing most of the problem—are less likely than others to take up the technology. Why should they when they are doing alright the way things are? Why should they buy into this new technology when they don’t want the fuss of challenging their customers?

At this point, you realize that to encourage these retailers to change their ways, it is also necessary to have an adequately funded Trading Standards with the time and skills to challenge retailers who might be less than eager to be compliant. The government could consider making the use of such technology compulsory in all retail outlets where age-restricted products are on sale, but without the watchful eye of Trading Standards, there would be no guarantee that retailers would take any notice of the devices; they might not switch them on. The licensing of all retailers selling age-restricted goods might also help, but I’m certain this debate has been had by people far more in tune with these issues than I am.

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.

December 1, 2023

Filling the Gaps

As it seeks to reduce its reliance on tobacco, Zimbabwe is investing in cannabis research.

By Daisy Jeremani

In a bid to bridge the knowledge gap in Zimbabwe’s burgeoning cannabis industry, the Zimbabwe Industrial Hemp Trust (ZIHT) has identified 63 medical doctors for training to equip them with skills to conduct medical and clinical research on cannabis.

They are in a flexible 12-month online program that was designed in Australia by the International College of Cannabinoid Medicine. Students can study at their own pace but are expected to finish the course within 12 months.

Nesisa Ncube, a junior resident medical officer at Mpilo Central Hospital in Bulawayo, Zimbabwe’s second biggest city, views her selection to participate in the course as an honor and an opportunity to learn more about the new medicinal cannabis sector.

She hailed the training as “insightful” as it delves, among other modules, into pharmacokinetics of medicinal cannabis and also what to consider when planning to prescribe medicinal cannabis to a patient.

“It has been interesting to learn how some conditions which don’t have clear and effective treatments are now being treated with medicinal cannabis, and there have been some good outcomes,” she said in an interview with Tobacco Reporter.

The southern African nation, which is also the continent’s biggest tobacco producer, has been working to diversify that sector amid the intensifying campaign against the golden leaf over environmental and health concerns. Zimbabwe identified cannabis production as among the possible pathways to diversification.

In April 2018, it became Africa’s second country (after Lesotho) to issue licenses for production of cannabis for medicinal and scientific use. Thereafter, the government created a licensing and enforcement desk to administer the relevant statutory instrument on behalf of the health ministry. The desk’s mandate covers applications for licenses of sites, applications for renewal, variation or amendment of licenses for sites or persons, the production, handling, import and exportation of controlled substances and all compliance issues relating to controlled substances.

Locally produced cannabis is largely for export purposes only, with domestic use restricted to research and development purposes.

In its 2022 annual report, The Medicines Control Authority of Zimbabwe (MCAZ) says that it has issued 59 licenses for production of cannabis for medicinal and scientific use. Fifty-eight licenses were active with 56 of them being for cultivation and production and two for cultivation and research.

Last year,, the MCAZ received two applications for production of hemp-based cannabidiol products as complementary medicines. It issued one of the applicants with a pharmaceutical manufacturer’s license restricted to complementary medicines manufacture.

Among the major licensees is Swiss Bioceuticals, which launched a $27 million medicinal cannabis farm just outside Harare in May 2022.

ZIHT CEO Zorodzai Maroveke said most of the ZIHT’s activities are to fill gaps and needs in the hemp industry, and one of the gaps it has identified is the lack of knowledge among local medical health professionals. It is against this background that the ZIHT has facilitated the year-long training program.

“It is the study of a very huge biological system called the endocannabinoid system,” she said.

The local medicinal cannabis industry has not developed as fast as expected since the first license was issued five years ago due to what Maroveke describes as tight compliance requirements by the regulator and failure to comply by most players. The enormity of resources required for entry is the biggest hurdle, she observed.

ZIHT is worried over these challenges, which are frustrating more effective participation into this specialized area by local investors.

“The industry remains capital-intensive, the market dynamics present a market access challenge, [and] lack of localized expertise have all affected the participation of local investors,” said Maroveke.

Although ZIHT’s primary area of interest is industrial hemp, she said, their support for medicinal cannabis is because there was no active representation of the sector by its major stakeholders.

Ncube is optimistic that the training she is undergoing will advance her career as it covers an area that is not yet part of the curriculum at local medical schools. The increase in the number of health professionals who are conversant with this novel treatment system, she observed, will add diversity to the medical fraternity.

“The training will help advance my career by educating me on the mechanisms of action and prescribing considerations for medicinal cannabis, which is not really a subject that was covered in med school, and this will benefit the medicinal cannabis sector because this increases the number of health professionals who have knowledge on the subject, which enables expansion of the sector into other countries like mine,” Ncube said.

“I see expansion of the industry with distribution centers all over the world with safe prescription and monitoring of patients by properly trained health care professionals on the subject.”

Zimbabwe is battling an increase in psychiatric cases due to abuse of various illicit substances, cannabis included. Up to 80 percent of all admissions to Ingutsheni Psychiatric Hospital in Bulawayo are due to drug and substance abuse, including marijuana, officials say.

Percy Mukwacha, who is also training in psychiatry at the University of Zimbabwe and is also undergoing training under the ZIHT scheme, said he was mostly impressed by the potential of cannabinoid not only to treat a number of illnesses but to also ease the burden on local healthcare.

“In mental health, we get a lot of morbidity from cannabis use. That’s what interested me to join this training where cannabis can have positive effects on the society,” he told Tobacco Reporter.

“I guess an understanding of this ubiquitous substance with problematic consequences has to be helpful in my career.”

Treatments derived from cannabis, said Admire Machongwe, a medical doctor in private practice in Harare, have potential to revolutionize patient care in the country.

“We were notified of the scholarship but were already intrigued by the way cannabinoid medicines were being used to treat chronic pain and other ailments,” he said.

“It [training] will be quite beneficial,” he added. “We expect cannabinoid medicines to be licensed in Zimbabwe in the near future. Treatment of otherwise difficult-to-treat conditions like chronic pain and depression might be achievable.”

December 1, 2023

A Shot in the Arm

Boosted by a significant private equity investment, CME Automation Systems is strengthening its offerings to the tobacco industry and other sectors.

By George Gay

In October, Tobacco Reporter had the opportunity of speaking with Paul Knight, the CEO of CME Automation Systems, which, two months earlier, following the receipt of what it described as “significant backing from private equity,” had announced in a press note that it would be looking to invest in strengthening its offering to its international customers in the pharmaceuticals, cannabis, tobacco and other fast-moving consumer goods (FMCG) sectors. Following are excerpts from our conversation.

Tobacco Reporter: Is there overlap as far as you are concerned in the concepts underlying the technologies and performances of the machines used by the pharmaceuticals, cannabis, tobacco and other FMCG sectors, if not in the machines themselves?

Paul Knight: The overlap is in some of the underpinning technology, not in the specific machine platforms. Some of the technology overlap is in our concepts for product handling, filling and packing. Our passion is for helping drive industries forward by improving production optimization.

Will the investments specifically in tobacco machinery technologies form a significant part of the overall investment?

We will definitely be expanding our offerings to the tobacco sector as part of our investment program, much of which will be around life extension and aftermarket support products.

Does this mean that you have confidence in the longevity of the tobacco industry? Or do you think that with the right developments CME can increase its share of a decreasing market for tobacco packaging equipment?

Yes, we do have confidence in the longevity of the tobacco industry, and we have confidence in our ability to increase our share of the marketplace with our new investments in mind.

When you talk of the FMCG sector, do you include vaping products, or do they comprise a sector that you do not serve or intend to serve?

Yes, we do work in both vaping and heat-not-burn sectors and anticipate strong growth as consumers move in bigger numbers toward these products from combustibles.

Where will the overall investment be targeted mainly—at taking on more engineers, perhaps, obtaining new design tools, or investing in artificial intelligence (AI)?

The investment is being targeted in several areas, particularly marketing, sales channels, new product development and existing product enhancement.

In what areas, if any, does AI play a part in your overall operations or will play a part in the future?

AI is starting to make an impact in the administrative areas of our business, and over the next several years, we will see it start to make its way onto machine platforms for predictive maintenance and self-diagnosis.

Will you be investing in new facilities, perhaps outside the U.K., given the challenges thrown up by Brexit?

Yes, we will be looking to move elsewhere within the U.K. over the next one [year] to two years. But in all honesty, Brexit has not been an issue for CME outside of customs-related administrative changes.

Is this a brave time for an international player to be looking to expand, what with the various challenges facing manufacturing, including raw materials supply chain difficulties, inflation and rumblings about the demise of globalization?

Yes, it is; there are many risks in the macroeconomic and global political environment, but we believe counter cyclic investment is a good play for CME at our current stage of development.

In the August press note, CME said the new investor had identified “the potential to build on CME’s expertise and reputation for innovation, especially given the company’s recent success in developing new solutions for growth markets such as cannabis and clinical trials.” Could you describe briefly what form these successes took?

For clinical trials, we have developed a system called PACE, which is designed to automate clinical trial provisioning for multinational pharma companies. Our first customer is a consortium including Astra Zeneca and GSK. This is a huge opportunity for CME’s future. In the cannabis market, we now have our widest product portfolio and plans to put a footprint in North America.

Would you describe CME as a medium-sized player in the tobacco packaging field?

Yes.

How else would you describe CME?

CME is a business that is passionate about innovation, solving problems for our customers and markets, adding value to their businesses and ensuring their future success.

The press note mentions bespoke machinery. Do you regard this as one of your main strengths in the tobacco packaging field?

Bespoke machinery design and build is a strength of CME’s, but we do relatively little of this in the tobacco packaging sector.

What are your other strengths in this field?

A broad range of high-quality standard and flexible machinery products that cover the range of needs from small independent producers to multinationals up to 400 packs per minute.

Do you see change coming in the environment in which tobacco packaging machinery companies compete?

Change in our sector is already well underway! I think in terms of new packaging machinery, demand is moving toward higher speed equipment, particularly in the multinationals. We are not in the high-speed segment, so this leaves us to explore lower speed packaging in mid-size and small tobacco companies globally and in areas like format changes, spare parts and mechanical and electrical upgrades with larger tobacco players. There is also clearly a geographical demand shift away from developed economies to developing economies for combustible tobacco products and a shift toward vape/HEBB-style products in developed economies.

The press note does not mention who is providing the investment funding. Is there a reason for this?

The funder wishes to remain anonymous.

The press note does not mention the level of the funding either. Are you able to provide a rough figure?

It is a seven-figure number.

Is there anything else you would like to say about the new investment funding and how it will affect CME’s future?

The investment represents a new dawn for CME and our ability to focus significant investment capital on our target markets via new product development and product enhancement. We could not be more excited to have a committed investor that believes in our ability to grow into the future.

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.

December 1, 2023

PCA Debuts Advocacy Grant Program

The Premium Cigar Association (PCA) of the United States announced a new state advocacy grant program aimed at investing in state associations and their boots-on-the-ground lobbying capacity for the 2024 legislative cycle.

The resources in the program approved by the PCA board of directors will be spent much like a match grant program where the state association agrees to match funding by the PCA, going toward hiring contract lobbyists to advance positive legislation or fight back against erroneous regulations. State associations must have a basic infrastructure in place and must meet certain criteria to be eligible for funding, including having an incorporated state association and agree to accountability and transparency with the PCA about where the funds will be spent.

“This is not only a way for us to support existing state associations and their advocacy capacity, but it also establishes a baseline for starting a brand new state association with the prospective of seed funding. This criterion is a blueprint to get started and to receive funding. Our staff will continue to support individual associations and retailers with strategy and logistics, and this is a new tool to help maximize that effectiveness,” says Scott Pearce, executive director of the PCA.

Grant criteria include: having an incorporated and active state association; having an elected board of directors; having a designated treasurer with authority over accounts; agreeing to comply with PCA reporting requirements; agreeing to PCA involvement in consulting lobbyist selection process; agreeing to disclose any and all issues for which funds are used and for which lobbyist is engaged; and providing the PCA with the operating budget and amount and source of funds raised by the state association.

“This year, our team has been extremely effective in the states and is reflective of retailers stepping up to defend their businesses. This state grant program is aimed at spurring this level of activity and, frankly, success moving forward. Each year, our team must evaluate our priority area, and in the past, our Vision 50 strategic plan focused on litigation or international outreach. Make no mistake, this is the year of the states,” says Joshua Habursky, the PCA’s head of government affairs.

Applications can be submitted to the PCA online portal and will be reviewed by appropriate advocacy staff and the PCA Legislative Affairs Committee. Applications will be reviewed on a rolling basis and will reflect legislative/regulatory necessity in the state.

December 1, 2023

Shifting Sands

Under pressure from the IMF, Egypt’s government reduces its share in Eastern Co.

By Stefanie Rossel

On Oct. 29, 2023, Egypt’s House of Representatives approved a long-expected tax hike on tobacco products. The amendment to the 2016 VAT law will expand the price ranges of taxed cigarettes by raising the minimum and maximum limits of each segment by 12 percent annually for five years. In addition, the draft law will increase the fixed tax by EGP0.50 ($0.02) on the three segments of cigarette prices, resulting in EGP4.5 for cigarettes retailing at less than EGP31, EGP7 for the mid-price cigarette range (those costing between GDP31 and GBP45) and EGP7.5 for cigarettes priced above EGP45.

The bill also increases the tax on tobacco products by 75 percent, raising the minimum from the present EGP30 to EGP60 per kilogram. Imported and local molasses products will see a 25 percent tax hike whereas the tax on heated-tobacco products will rise from EGP1,400 per kilogram to EGP1,800 per kilogram. Under the new law, e-liquids will be taxed at EGP4 per milliliter instead of the current EGP2 per milliliter.

The amendment will allow cigarette manufacturers, who have been facing increasing production costs and a plummeting Egyptian pound, to adjust prices without moving into higher tax brackets. The tax hike is expected to generate up to EGP8 billion annually in additional revenues for the state budget.

According to the head of the House’s Planning and Budget Committee, the move is also designed to encourage tobacco companies to increase production in a way that will stem the rise in cigarette prices, thus putting an end to the country’s cigarette crisis. Since May, the Egyptian cigarette market has been in turmoil. According to observers, the problem emerged after the minister of finance called for an amendment to the 2023–2024 budget to increase its tax revenue from EGP81 billion to EGP87 billion. The government, however, was slow to implement the tax hike. What followed was a shortage of tobacco products, particularly cigarettes, and the rise of an informal, parallel market in which a pack of the country’s most popular brand, Cleopatra, sold at EGP50 instead of EGP24.

As soon as they got wind of the tax increase, tobacco traders seized the opportunity to make additional profits by hoarding cigarettes. The artificial scarcity caused cigarette prices to soar, forcing smokers to buy unknown, adulterated or smuggled cigarettes, which in turn reduced tax revenues. After Egypt’s tobacco monopoly, Eastern Company, increased production by 40 percent and stepped up vigilance against illicit sales, cigarette prices decreased to EGP40 in September.

In the short term, [the deal] is clearly positive,” says Vorster, “but the potential for more adverse excise and regulatory regimes could detract from that significantly.”

Pieter Vorster, managing director, Idwala Research

Foreign Currency Crisis

“Other than for the traders exploiting the situation, it is clearly an unfavorable environment, albeit one caused by tax increases telegraphed well ahead of their implementation, exacerbated by weak enforcement and currency shortages,” says Pieter Vorster, managing director of Idwala Research. “The tax hike helps to reduce margins in the parallel market, but stockpiling will likely continue if potential disruptions to production owing to currency shortages are viewed as possible.”

Egypt was hit hard by Russia’s invasion of Ukraine in February 2022, which caused many foreign investors to abandon emerging markets. Consequently, the country has been struggling with rising global wheat and energy prices. According to a report by the U.S. Department of State, Egypt’s external debt reached $164.7 billion in June 2023.

In December 2022, the International Monetary Fund (IMF) approved a 46-month $3 billion loan for Egypt to overcome its economic crisis under the condition that the government undertake several structural reforms. It insisted that Egypt adopt a flexible exchange rate, lift of import restrictions and privatize state-owned companies.

Despite the government’s efforts to create a more favorable business environment, foreign investors continue to face challenges such as bureaucracy, lack of transparency, uneven enforcement, corruption, intellectual property issues and a shortage of skilled labor.

Egypt’s sale of a major stake of Eastern Co. on Sept. 3, 2023, was part of its commitment to sell shares in 35 state-owned firms. Global Investment Holding (GIH) of the United Arab Emirates paid EGP19.3 billion for a 30 percent stake of the 50.9 percent stake that the state-owned firm Chemical Industries Holding Co. had previously held—a price that Vorster deems steep. “It seems a high multiple for a noncontrolling stake without the synergies that a tobacco company might have been able to extract,” he says. According to Daily News Egypt, both Japan Tobacco International and United Tobacco Co., in which Philip Morris International controls most shares, also submitted offers for a stake in Eastern Co.

Following the deal, 20.9 percent of Eastern Co. remains with Chemical Industries Holding Co., 35 percent is freely traded on the Egyptian Stock Exchange, and the remaining 15 percent is owned by various private stakeholders. GIH announced that it would invest $150 million to rejuvenate Eastern Co.’s raw material supplies. Whether it will be allowed to use its funds to import tobacco, however, remains unclear. Egypt prohibits tobacco cultivation and taxes leaf imports at 75 percent. According to Mada, an Egyptian media organization, the Emirati firm will work with banks to facilitate Eastern Co.’s access to foreign currency for imports. “In the short term, [the deal] is clearly positive,” says Vorster, “but the potential for more adverse excise and regulatory regimes could detract from that significantly.”

A Growing Market

The deal might still prove to be a win-win for both parties. Egypt is in dire need of U.S. dollars to pay for imports. Eastern Co. accounts for 70 percent of tobacco sales in Egypt, which is one of the world’s few remaining growth markets for cigarettes. Statista anticipates the market to generate $6.3 billion in 2023 and projects it to enjoy an annual growth rate of 9.65 percent by 2028. According to Alternative Policy Solutions, a public policy research project at the American University in Cairo, around 18 million Egyptians over the age of 15 are smokers. Overall cigarette consumption increased 7 percent in 2022. Smoking is a male habit: The World Health Organization projects that by 2025, 63 percent of the country’s male population will be smokers, up from presently 41.8 percent. Only 0.3 percent of women currently smoke.

According to Forbes Middle East, Eastern Co. is worth $1.2 billion. The company reported a net profit of EGP5.29 billion in the first nine months of fiscal year 2022–2023– 24 percent higher than in the comparable prior-year period. Its revenues rose to EGP14.6 billion from July 2022 to March 2023 compared to EGP12.78 billion in the comparative period of the previous fiscal year. The company supplied 88 billion cigarettes to the Egyptian market in 2022–2023.

With the acquisition of its stake in Eastern Co., GIH will have effectively established control over 40 percent of the Egyptian tobacco market as the investment firm’s founders also hold shares in UTC, according to Mada. How their acquisition will impact on the overall market remains to be seen. Citing Turkiye as an example, Vorster points out that there are several examples where the excise tax and regulatory environments became significantly less favorable when the state exited former monopolies. “It also seems plausible that the market could become significantly more competitive with PMI now manufacturing themselves, and others potentially following in future,” he says.

PMI Starts Local Production

In its domestic market, Eastern Co. is rivaled by only JTI and UTC. BAT exited the Egyptian market last year, claiming a lack of economic viability. Its withdrawal came shortly after PMI in April 2022 had reached a licensing agreement with Eastern Co. to manufacture cigarettes in Egypt. More than a year earlier, Egypt’s Industrial Development Authority had invited companies to bid to become the country’s second tobacco company. However, the agency was forced to relaunch the tender after bidders complained that its conditions gave unjust advantages to Eastern Co. In the renewed tender, UTC was the only company to bid. Under the agreement, Eastern Co. acquired a 24 percent stake in UTC.

Although meant as a first step toward privatization of the tobacco monopoly, the agreement stipulates that UTC manufactures only products owned by PMI, thus protecting Eastern Co.’s market share by preventing the newcomer from producing cigarettes in the same price category as Eastern Co.’s bestseller, Cleopatra.

In September 2022, UTC started producing cigarettes at the manufacturing site of its predecessor Philip Morris Misr, the licensee for PMI products in Egypt established in 2013. PMI’s flagship brand Marlboro has been manufactured by Eastern Co. since 1985. Following the agreement, PMI products in Egypt are marketed under the label “Made by UTC.”

UTC also has permission to manufacture e-cigarettes. In April 2022, Egypt legalized the import and commercialization of vape products. Statista estimates that the revenue generated in the country’s e-cigarette market will reach $400 million in 2023.

The recent sale of the stake in Eastern Co. could also pave the way for more ambitious tobacco harm reduction in Egypt. To date, Eastern Co.’s portfolio has offered only high-risk products, such as cigarettes, shisha and cigars. Vorster is less optimistic. “In theory, it is slightly positive, but with cigarette prices below $2 per pack, it is hard to see reduced-risk products gaining significant traction,” 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.

December 1, 2023

Canada Targets Zonnic Marketing ‘Loopholes’

Canadian Health Minister Mark Holland announced that the health department will address “loopholes” surrounding Zonnic, a flavored nicotine pouch product from Imperial Tobacco Canada, reports the Canadian Broadcasting Corp.

Health Canada previously approved the sale of Zonnic without any advertising or sales method restrictions.

According to Holland, “the behavior and intentions of the tobacco industry have raised serious concerns as they appear to want to addict new young people to nicotine, which is appalling, and we want to address this issue.”

In November, six national health organizations called on the government to immediately regulate the advertising and sale of flavored nicotine products; Zonnic is not included in any existing federal or provincial tobacco or e-cigarette legislation as it does not contain tobacco, contains less than 4 mg of nicotine and is not inhaled.

Holland reportedly takes responsibility for the oversight and plans to review the approval process for nicotine products.

Imperial Tobacco Canada must conduct annual self-reports and “identify any appeal or abuse of their products among young people,” Health Canada stated.

“Marketing targeted at young people will be considered deceptive advertising and may trigger post-listing compliance action,” the Canadian Ministry of Health stated. Decisions regarding product sales locations and age restrictions are determined by individual provinces and territories, according to Health Canada.

In response to earlier criticism, Imperial Tobacco Canada said that it has already taken measures to prevent youth access to its products.

December 1, 2023

Taming the Cowboys

Altria has declared war on the illicit disposable devices that are impacting its bottom line.

By Timothy S. Donahue

The illicit e-cigarette market is soaring. Illicit products are estimated to account for more than 60 percent of the $8.3 billion U.S. vaping industry. Statista expects the U.S. electronic nicotine-delivery system (ENDS) market to grow at a compound annual growth rate of 3.93 percent from 2023 to 2028. If the illicit market continues to go unchecked, however, companies that market legal vaping products fear many consumers will simply switch back to combustible products.

“It is very much worth noting that this rapid apparent substitution is happening in an environment where half the vapor market is illicit; the FDA [U.S Food and Drug Administration] has hugely hampered vaping products making it onto the legal market, and consumers are hugely misled on relative risks,” said David Sweanor, an adjunct law professor at the University of Ottawa and a longtime tobacco harm reduction advocate. “As with other markets seeing similarly historic drops in cigarette use as alternative sales soar, it raises the question of just how rapidly cigarette sales could fall if policies were aimed at facilitating that rather than doing things to stymie it.”

Altria, parent to Njoy, a leading brand of legal vaping products in the U.S., according to Nielsen, told investors during a recent conference call that the current state of the market is “intolerable” for both legitimate manufacturers and consumers. Altria CEO Billy Gifford said the regulated market is being overrun by illegal flavored disposable products manufactured and distributed by companies violating the rules and guidance laid out by the FDA. He said that regulation not enforced is indistinguishable from no regulation at all.

“Illegal e-vapor products circumvent the actions of regulators, responsible manufacturers and retailers by evading scientific review, quality manufacturing controls, marketing oversight and legal aids or purchase restrictions. Despite recent actions by the FDA, enforcement has been inadequate and ineffective,” explained Gifford. “We believe the FDA has good tools necessary to bring order to the market. For our part, we are actively engaged with regulators, state and federal lawmakers, and trade partners and other stakeholders to build awareness of these serious issues and drive marketplace enforcement.”

According to Gifford, the lack of enforcement has forced Altria to take a “targeted but necessary action.” The company filed a lawsuit in the District Court for the Central District of California against 34 organizations. Njoy alleges that the defendants are manufacturing, marketing, distributing, selling and/or marketing their flavored disposable ENDS unlawfully for three primary reasons:

They are not authorized pursuant to FDA marketing granted orders as part of the premarket tobacco product application process.
California bans the retail sale of flavored ENDS.
The defendants do not comply with the Prevent All Cigarette Trafficking Act’s delivery sale age verification, registration and filing, record keeping, tax payment and labeling requirements.

Altria is asking for the court to provide appropriate restitution for harm suffered by Njoy due to the defendants’ unfair competition.

“We want to protect harm reduction and the opportunity for the 30 million smokers in the U.S.,” said Gifford. “We really need to have enforcement where the smokers can make informed choices as they are moving across categories. I think that there’s an underlying positive is that we see adult smokers moving over, so they’re ready to have potentially reduced harm products. We just need them to be regulated and based on science to be in the marketplace.”

Sal Mancuso, Altria’s chief financial officer, said that traditional cigarette volumes continued to decline in the third quarter of 2023. He said that the decline is impacted by the number of illegal products on the market; however, because illicit products are largely distributed through nontraditional untracked channels, the company has had to refine its ability to estimate the illicit product impacts on the legal vaping industry.

“With the information we have today, we believe that there is more cross-category movement than previously assumed. And we now estimate that growth of illegal flavor[ed] disposable e-vapor products contributed to industry, cigarette industry declines in the range of 1.5 percent to 2.5 percent and over the last 12 months,” said Mancuso. “We will continue to monitor this dynamic trend and are actively pursuing better data sources to enhance our estimates in this space.”

“We believe the FDA has good tools necessary to bring order to the market.”

Billy Gifford, CEO, Altria Group

Amplifying Actions

Altria Group completed its acquisition of Njoy Holdings in May. In 2022, Njoy Holdings received marketing orders for its Njoy Ace device along with several tobacco-flavored pods. At the time of writing, Njoy Holdings had received six of the 23 marketing orders granted by the FDA for the entire vaping product category, including pods, disposables and open systems. The regulatory agency is still reviewing Njoy’s premarket tobacco product applications for several Njoy menthol-flavored e-vapor products.

Gifford said that the company executed Njoy’s business plans with “speed and focus,” adding that the goal is to grow the Njoy brand responsibly and sustainably. To set the foundation for success, Altria first strengthened Njoy’s supply chain. He said the company successfully solidified the entire Njoy supply chain from sourcing direct materials through the shipment to retail.

“As a result, we do not anticipate capacity constraints as we execute our initial expansion plan. Next, during the third quarter, our teams prioritized closing inventory gaps at retail and expanding distribution of ACE,” said Gifford. “Prior to the acquisition, Njoy had a small-scale sales force, which resulted in inventory volatility and significant distribution gaps at retail …. Upon completion of the Njoy transaction, we immediately unleashed our sales force to focus on closing the inventory gaps in stores that already had distribution. We improved inventory conditions in stores and are actively working to close remaining gaps at retail.”

Pamala Kaufman, a financial analyst with Morgan Stanley, asked Gifford if he believed Njoy could be successful and grow in a marketplace dominated by illegal products. Gifford said that the FDA still needs to get through its authorization process, and the agency’s actions will translate to the marketplace.

Since its acquisition by Altria, distribution grew to approximately 42,000 stores during the third quarter of 2023 for the Njoy Ace, the company’s flagship device. The product is now distributed in all the top 25 U.S. convenience store chains by vaping product volume, according to Gifford. The company has also started to amplify visibility with new point-of-sale and fixture signage at retail.

“During the fourth quarter, we continue to expect ACE expansion to reach a total of 70,000 stores by year end, representing approximately 70 percent of e-vapor volume and 55 percent of cigarette volume sold in the U.S. multi-outlet and convenience scanner,” said Gifford. “As we continue to expand distribution and close inventory gaps, we expect to further enhance visibility and product fixture space at retail.”

Last month, Njoy unveiled its first retail trade program. The program allows retail partners to sign up for the program at various levels with merchandising options designed to position Njoy “strategically and responsibly” to current combustible tobacco consumers while boosting the awareness of the Njoy brand. Gifford said the company is beginning to test various promotional plans and anticipates more disruptive execution at retail in the fourth quarter. Moving into 2024.

“We will continue to refine our promotional plans, implement Njoy’s retail trade program, further expand distribution and evolve our consumer engagement strategy. Our strategies will focus on informing adult vapors and smokers of the attributes of ACE, such as battery capacity and pod size, relative to other leading brands, generating trial and growing brand loyalty,” said Gifford. “In addition, plans for a new brand equity campaign are well underway. We expect the equity campaign to further amplify the brand’s presence at retail and drive consumer engagement.”

Jacob de Klerk, an analyst for Redburn Atlantic, asked Gifford what the impact would be on Njoy’s projected market growth if the FDA doesn’t approve any flavors other than tobacco. Would only allowing tobacco flavors create enough demand for Njoy to remain profitable? Gifford said he believes there is room, and he wouldn’t rule out the potential for an authorized menthol product.

“I wouldn’t rule out menthol. We feel good about the application—the current application in front of the FDA from a menthol standpoint. I think if you look at some of the recent marketing denial orders, it was related to ‘new following,’” he replied. “When we made the Njoy transaction, there was virtually no new following. As far as additional flavors are concerned, we’re excited and currently looking forward to being able to file [marketing applications] in the near future. We believe that [flavor] allows for adult consumers to have it as an offramp but not an on-ramp for underage users. So, we still see the potential for flavors.”

Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.

December 1, 2023