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  • A ‘Greenprint’ for Change

    A ‘Greenprint’ for Change

    Photo: ArieStudio

    The environmental challenges presented by disposable vapes can be addressed without banning the category.

    By Stefanie Rossel

    Over the past few years, sales of disposable vapes have skyrocketed in many markets. Future Market Insights valued the global disposable e-cigarette market at $6.34 billion in 2022 and expects demand to increase at a compound annual growth rate of 11.2 percent between 2022 and 2032, reaching $18.32 billion by 2032. In both the U.K. and Germany, the world’s No. 2 and No. 3 vape markets, respectively, the disposable segment now dominates the market with a share of more than 60 percent.

    Disposable e-cigarettes are particularly popular among new users as these products come ready to use. There’s no need to fill up, press buttons or recharge. The single-use products, which can deliver up to 600 puffs—the equivalent of approximately three packs of cigarettes—don’t require any technical knowledge and are activated by drawing on them. They can be purchased almost anywhere where cigarettes are sold, which makes them attractive as an impulse buy. Nicotine salts offer a smooth vaping experience without a harsh throat hit, and sweeteners can be added without worrying about long-term contamination of the device as it is intended for short-term use anyway.

    While disposables play a significant role in weaning smokers off combustible cigarettes, they are also increasingly attracting criticism. There are concerns not only about youth uptake but also about their environmental impact. Several countries, including France, Scotland and Belgium, are considering banning disposable vapes for this reason. In early May, Australia announced the prohibition of single-use e-cigarettes.

    Like refillable devices, disposable vapes consist of a hard plastic shell, a metal heating element, a circuit board and a lithium-ion battery cell. They contain heavy metals and chemicals as well as nicotine-containing pods. In contrast to multiuse products, they are discarded after the last puff, thus posing a significant environmental burden. Some manufacturers and retailers offer takeback and recycling programs, but many vapers are unaware of the schemes. In addition, most users are oblivious to the fact that the products are electronic waste that need to be disposed of at recycling centers or returned to retailers; they simply throw the devices into the household trash.

    Due to their construction, dismantling vapes is a difficult, costly, time-consuming process that involves a lot of manual work. As a result, instead of being recycled, many disposable vapes are incinerated, which is a waste of valuable raw materials. According to a Financial Times calculation conservatively assuming a $5 billion vape market in 2022, the more than 90 million tons of lithium used to manufacture e-cigarettes that year was enough to supply more than 11,000 electric vehicle batteries while the 1,160 tons of copper contained in the devices would suffice to produce more than 16 million home electric vehicle chargers.

    John Dunne, director of the UKVIA

    Without proper regulation, there are obvious dangers that those who see vaping as their only way out of smoking will be forced to either switch back to cigarettes or risk buying products on the black market.

    John Dunne, director general, UKVIA

    Backdoor Prohibition

    While sharing the environmental concerns raised by critics, industry leaders believe there are better ways to address the problem than through bans. “We have seen in other countries that banning products will lead to smokers who were giving up [cigarettes], or planning to, returning to smoking,” says John Dunne, director general of the U.K. Vaping Industry Association (UKVIA). “There is also the risk that you just feed a black market in vaping products; you just have to look to the Australian model, where all vapes are banned except on prescription, which has led to a huge black market problem. Without proper regulation, there are obvious dangers that those who see vaping as their only way out of smoking will be forced to either switch back to cigarettes or risk buying products on the black market—with all the inherent risks involved in an unregulated market.”

    Without spelling it out, EU regulators are preparing for a ban nonetheless. In December, the European Parliament and the council reached a provisional agreement to overhaul EU rules on batteries. The Battery Regulation, set to be passed this year, stipulates that 3.5 years after the rule comes into force, the batteries in portable devices must be removable and replaceable by the user. For disposable vapes, the new rules mean a de facto ban from the end of 2026.

    Dustin Dahlmann, president of the Independent European Vape Alliance, observes that an increasing number of single-use e-cigarettes is already switching to reusable systems. “This doesn’t happen merely for environmental reasons but also because of cost. We are convinced that this trend will continue. Manufacturers of disposable vapes increasingly launch their products as reusable versions. This is welcomed by consumers, not least because it makes vaping more affordable.”

    All retailers, he adds, are obliged to point out the correct disposal of one-way products to consumers. “Our campaigns in the past received positive feedback, and we are convinced that they have had a noteworthy effect. It’s also clear, however, that education of consumers must be continued at all levels.”

    Manufacturers of disposable vapes increasingly launch their products as reusable versions.

    Dustin Dahlmann, president, IEVA

    There’s a Better Way

    In the U.K., a similar review of battery legislation has been delayed twice. The country has successfully embraced vaping as a tool for reducing smoking, but even as many smokers have quit with the help of e-cigarettes, the country has recently witnessed a surge in youth uptake, which in turn has sparked discussion about banning disposables. Such a move, Dunne says, would limit the positive impact of vaping on smoking rates, “and more smokers means more deaths and more cost to society.”

    Instead of talking about bans, vaping advocates say regulators should focus on reducing the negative effects of disposable vapes. “On youth access, the UKVIA has been calling on government to police the sale of vapes to under-18s more effectively through a number of simple steps, including on-the-spot fines for rogue resellers of up to £10,000 ($12,660), up from £2,500,” he says. “On environmental impact, the UKVIA recently held a webinar which brought together politicians, regulators, manufacturers and the waste industry to discuss the issue and subsequently published a 22-point action plan for all stakeholders to help meet the challenge. More needs to be done in both areas, and we remain committed to working with all stakeholders to build effective solutions.”

    Dubbed “Greenprint for Sustainable Vaping,” the plan proposes that retail staff receive enhanced training so that they can properly inform customers about recycling options and the greater cost-effectiveness of multiuse devices. Under the plan, shop operators would also be advised to place prominently located collection points in their stores and encourage vapers to use them.

    Manufacturers and retailers should offer incentives to customers for recycling used devices and develop public information campaigns to normalize recycling so that vapers feel peer pressure to recycle and social shame if they don’t.

    The plan calls for packaging to reinforce the message that vape devices must be recycled and for vape manufacturers to be acquainted with waste processing so that they can design their products in a way that will facilitate recycling. According to the action plan, all relevant vape businesses should be compliant with the Waste Electrical and Electronic Equipment Regulations 2013, the Producer Responsibility Obligations (Packaging Waste) Regulations 2007 and other rules.

    Most vape manufacturers are innovating to make their products more environmentally friendly, says Dunne. “For example, one brand I know of is going to be launching a single-use device later this year which is over 50 percent cardboard and uses biodegradable silicon in place of plastic. Another challenge for the waste companies is actually dismantling devices, and this is also an area where manufacturers are working hard to make the process easier. We’re not there yet, but there is lots of focus on this issue, and I am optimistic that the various stakeholders can work together to find workable solutions.”

    Dunne says there is a simpler way of preventing youths from buying disposable vapes and at the same time limiting the waste problem than introducing taxes on single-use e-cigarettes, as has also been debated. “It is smokers from a disadvantaged background—who are generally in the highest smoking rate areas—who will be hit hardest by a tax on vapes, and for every one of them who returns to smoking as a result, that is a step back for all of us,” he says.

    “There is a much better solution staring us in the face. There is currently a maximum fill level of 2 mg of e-liquid in a vape, single-use or otherwise, and this arbitrary number has no logic to it, safety or otherwise. If the government were to introduce a minimum fill level of 10 mg, you instantly achieve a number of things; firstly, the price would rise to around £15 or more, pricing out underage users, and you would reduce the environmental impact by 80 percent overnight.”

    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.
  • Coping with the COP

    Coping with the COP

    Photo: Taco Tuinstra

    Like their counterparts around the world, tobacco growers in Malawi have suffered from the rapidly rising cost of production. In addition to domestic headline inflation of 26 percent, farmers had to contend with a significant increase in the price of fertilizer, which more than tripled over the past three years to four years. According to Nixon Lita, CEO of the TAMA Farmers Trust, this was due more to Covid-19-related shipping disruptions than to the war in Ukraine. Traditionally oriented toward the West, Malawi imports most of its fertilizers from the Middle East rather than eastern Europe, he says—but the result is the same as for countries relying on Russian and Ukrainian fertilizers: substantially higher prices.

    Because virtually all inputs for Malawi tobacco production are imported, there’s little the industry can do about this part of the equation—so it focuses on the factors it can control. Contracted farmers enjoy an advantage over their noncontracted colleagues because they benefit from the tobacco buyers’ scale and global reach. “Due to bulk buying, we can get fertilizer on time in Malawi and price it competitively for farmers,” says Simon Peverelle, managing director of Alliance One Tobacco Malawi. “For auction growers, that is harder.”

    The other way to offset rising production costs is by boosting farmers’ incomes. “We try to negotiate with our buyers, asking them to increase the farmers’ margins based on cost of production,” says Joseph Malunga, chief executive of the Tobacco Commission. “That doesn’t always go well because the buyers, too, are in business and want profit—but we try.”

    Under pressure from their customers to control costs, the merchants prefer to focus on boosting output. The leading leaf dealers employ or contract significant agronomy departments to help their contracted growers maximize both the quality and the yield of their tobacco, which in turn improves the net return on their crops, according to Don McAlpin, managing director of Limbe Leaf Tobacco Co. Size matters in this regard. Peverelle says that scaling up is necessary for farmers because it is increasingly difficult to earn a living income from smaller plots.

    The Tobacco Commission, meanwhile, is promoting natural solutions to improve farmers’ margins. For example, it encourages flue-cured tobacco farmers to establish woodlots and use “live barns”—curing facilities built using living trees—so they don’t have to buy wood for curing or construction. “This not only reduces costs but also promotes sustainable development,” says Malunga.—T.T.

  • A Gamble on Goobers

    A Gamble on Goobers

    PAM Managing Director Ronald Ngwira (left) examines fuel pellets created with leftover shells from the company’s groundnut operations. | Photo: Taco Tuinstra

    Pyxus has great expectations of its Malawi groundnut business

    Like many of their customers, tobacco merchants in Malawi have been exploring supplemental lines of business—not only to ensure their future as cigarette consumption stagnates but also to help their contracted farmers develop supplemental sources of income.

    Pyxus Agriculture Malawi’s (PAM) contracted tobacco farmers often cultivate nontobacco crops, including groundnuts, maize and sunflowers. Measured by weight, its growers already produce four times more food than tobacco. As part of its efforts to improve farmer livelihoods and the communities in which they live, Pyxus has been working to find markets for some of these crops.

    The company has high expectations, especially for groundnuts, which are nutritious sources of protein, vitamins and dietary fiber. Among other health benefits, groundnuts are credited with preventing heart diseases, lowering bad cholesterol and improving fertility. Common products made from groundnuts include cooking oil, herbal supplements, butter and snack items. Groundnuts are also used as a source for animal fodder. There are three categories of groundnuts: the Hausa groundnut, the Bambara groundnut and the peanut.

    Driven by consumers’ growing appetite for protein-rich and plant-based foods, global demand for groundnuts is increasing by 4 percent per year. Market Research Future projects the value of global peanut sales alone to reach $107.4 billion by 2030. Malawi has grown groundnuts for decades. “In the 1980s, Malawi used to be a big exporter to Europe,” says PAM Managing Director Ronald Ngwira. Currently, however, Africa is a net importer of groundnuts; global supply is dominated by Argentina, India and the United States. Malawi produces 447,421 metric tons of groundnuts—less than 1 percent of global cultivation.

    A Good Match for Malawi

    In addition to enjoying strong global demand, groundnuts are suited to Malawi’s conditions. Due to the country’s landlocked location, agricultural exports must travel long distances to ports in either South Africa or Mozambique. As a semi-perishable product, groundnuts are able to tolerate such journeys without requiring expensive cold storage.

    What’s more, groundnut plants release nitrogen as they decompose, improving soil fertility and allowing farmers to reduce their fertilizer bill. Soil health has been a major concern in Malawi, where farmers struggle with high levels of acidity and insufficient levels of organic matter due in part to deforestation and less-than-optimal agricultural practices.

    Another benefit: Leftover shells from Pyxus groundnut operations can be converted into fuel pellets and green charcoal, reducing the need to cut trees for firewood and potentially saving thousands of hectares of forest. This is a big deal in Malawi, where few people have access to electricity and the majority of the country’s rapidly growing population burns wood as fuel for cooking and energy. Wood is also used by farmers to build barns and cure tobacco. Industry typically relies on coal to fuel its activities. According to Ngwira, the use of groundnut shell-based fuel has already allowed Pyxus to reduce AOTM’s factory reliance on coal by 40 percent.

    One challenge that has been holding back Malawi groundnut production is the quality of its plant varieties, which has constrained quality and productivity. To unlock the potential of groundnuts for Malawi, PAM has been researching better cultivars. Over the past few years, the company examined 1,000 strains from around the world. Looking for varieties that are high in protein, climate-change resilient and resistant to disease, PAM selected four types and presented them to the ministry of agriculture for approval. The company then invested in irrigation, mechanization and multiplication of the improved varieties to boost farmers’ yields and incomes.

    Boosting Volumes and Quality

    Tapping into its large network of tobacco field technicians, Pyxus also started offering extension services to groundnut farmers. “We have more than 150 qualified extension officers training farmers on a daily basis to assist farmers achieve better yields and quality while also ensuring track-and-trace capabilities to export into international markets,” says Ngwira. At 1 metric ton per hectare, average groundnut yields have traditionally been low in Malawi. With better cultivars, inputs and agricultural practices, however, it should be possible to increase those yields to 3 metric tons per hectare, according to PAM. Ngwira says the company will follow the same journey it took when implementing the integrated production system in tobacco, where years of farmer training resulted in substantially improved productivity and loan recovery rates.

    PAM’s investments in groundnuts are paying off already. In 2021, Malawi’s government set the minimum selling price of groundnuts at MKW330 ($0.32) per kilogram. Owing to the quality produced by its contracted farmers, Pyxus was able to offer a minimum price of MKW440 per kilogram, according to Ngwira.

    PAM is also tackling the problem of aflatoxins, poisonous carcinogens produced by certain molds that can impact agricultural crops. Historically, Malawi groundnuts have suffered from comparatively high levels of aflatoxins, but with better agricultural practices, such as quick drying to prevent the formation of fungi, it is possible to reduce contamination to below the tolerances prescribed by export markets.

    In March 2022, PAM inaugurated a $3 million processing factory in Lilongwe’s Kanengo, where it not only cleans, shells and sorts the groundnuts but also turns the leftover shells into fuel pellets. Built in a disused tobacco warehouse, the facility employs more than 100 people and has the capacity to process 50,000 tons of groundnuts per annum. It is the largest groundnut shelling plant on the African continent outside of South Africa.

    Addressing Malawi President Lazarus Chakwera and other dignitaries attending the opening ceremony, Ngwira noted that factory was key to unlocking Malawi’s potential for agricultural industrialization—which is in line with the government’s commitment to promote exports through value addition for agricultural crops.

    Ngwira is excited about the prospects for Malawi groundnuts. In addition to growing demand from major markets such as China and India, there is also a huge appetite for the product regionally. “Currently, most Malawi groundnuts are exported to the Lake Victoria region,” he says. Already home to more than half a billion people, the area’s population is projected to grow significantly. “Malawi can help supply the protein to feed those people,” says Ngwira.

    To cater to the anticipated demand, PAM aims to rapidly expand its contacted farmer base from about 7,000 smallholders at the time of the factory opening to about 30,000 in the future. In the process, it will not only create additional sources of incomes for its contracted farmers but also provide Malawi with a welcome supplement to tobacco as a source of much-needed foreign exchange.—T.T.

    Taco Tuinstra is Tobacco Reporter’s editorial director. Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors. On his watch, Tobacco Reporter has won several awards for editorial excellence. Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.
  • Raising the Next Generation

    Raising the Next Generation

    Photo: JTI

    JTI steps up its investment in new nicotine products.

    By George Gay

    Having been asked to write about Japan Tobacco International, I immediately headed for the company’s website, where the following question jumped out at me: Who is JTI? Even though I have become used to the fact that, in some jurisdictions, corporations are, from a legal standpoint, treated as though they are individual people, the word “who” struck me as oddly personal. I would have glided past the question “What is JTI?” a point that probably was in the minds of those who constructed the site.

    There are some advantages in conferring anthropomorphic status on a company, but the idea can raise negative images too. People grow old, they retire, become increasingly feeble (take my word for it) and eventually die. But, on the other hand, they form relationships and produce offspring.

    And, stretching the metaphor toward its breaking point, this, of course, is the direction of travel of JTI. The company still offers, and will for the foreseeable future offer, traditional tobacco products, but a new-generation company is emerging and offering new-generation products (NGPs), including e-cigarettes, heated-tobacco products (HTPs) and nicotine pouches. The relationship between the parent and offspring is still obvious, but the latter will increasingly be making its own way, and the resemblance will gradually fade.

    From Words to Action

    I write that with some confidence—with much more confidence than I would have had a week ago—because a few days back, the U.K. government announced that “1 million smokers will be encouraged to swap cigarettes for vapes under a pioneering ‘swap to stop’ scheme designed to improve the health of the nation [England*] and cut smoking rates.”

    “As part of the world-first national scheme, almost one in five of all smokers in England will be provided with a vape starter kit alongside behavioral support to help them quit the habit as part of a series of new measures to help the government meet its ambition of … [making England] smoke-free by 2030—reducing smoking rates to 5 percent or less,” a government press note said.

    What difference, you might ask, does one jurisdiction make in the grand scheme of things when JTI has a presence in about 130 countries? Good question, especially since the press note, in many respects, left the U.K. government sitting on the same old fence from where it was trying to promote vaping as a method of quitting smoking while suggesting that it was going to make vapes less attractive because of the perceived threat they posed to young people. Nevertheless, I think the announcement represented a sea change. In the past, the authorities in the U.K. have been willing to state categorically that vaping is far less risky than smoking, but this is the first time to my knowledge that they have demonstrated they are so sure of this position that they are willing to take what can only be described as decisive—though admittedly limited—action.

    And if, as most of the people who read this magazine probably believe, such action, properly implemented for as long as necessary, succeeds in reducing smoking rates significantly from what is already a low base, then England can only become an exemplar that other countries interested in reducing smoking rates will be almost bound to follow.

    Even with the World Health Organization raged against NGPs, with the U.S. Food and Drug Administration less than supportive of NGPs and with scientists steeped in conspiracy theories feeling happy to muddy the waters around NGPs, a real-time, real-life, nationwide case study will be hard to ignore, assuming tobacco smoking does, as we’re told, take a toll on economies.

    During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.

    Masamichi Terabatake, president and CEO, JTI

    Riding the Wave

    Although JTI, as the tobacco market leader in the U.K., will be negatively affected by any reduction in sales of traditional products, it is, at the same time, in a good position to take advantage of any transition that might occur to NGPs in England. There it sells Logic Compact, a closed-tank e-cigarette, and last year it launched in London its Ploom X HTP, an updated version of Ploom S. And it offers, too, Nordic Spirit nicotine pouches, which were launched in the U.K. in 2019.

    Looking further afield, in October, Japan Tobacco and Altria signed a joint venture agreement to market HTPs in the U.S. with Ploom-branded devices and Marlboro-branded consumables, for which, according to a Nikkei Asia report in the middle of April, they plan to have FDA marketing approval by early 2025. They also signed a long-term, nonbinding global memorandum of understanding to explore commercial opportunities for a wide range of reduced-risk products (RRPs).

    Meanwhile, in introducing JT’s 2022 earnings report, Masamichi Terabatake, president and CEO of the JT Group, made much of the company’s ambitions in respect of NGPs. “We continued to make progress in the … RRPs category, with Ploom X increasing share in the HTS … segment in Japan and the launch of Ploom X in London,” he said.

    “2022 marked the first year of the newly combined tobacco business structure, which has successfully strengthened our business fundamentals and capabilities through various initiatives. More is to come, especially regarding HTS—our RRP investment priority over the 2023–2025 business plan—with the acceleration of Ploom X market launches. This will support our 2028 ambition to reach break-even in the RRP category, by achieving an HTS segment share in the mid-teens across key HTS markets. During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.”

    Increased RRP investments are seen as the route to building a future of profit growth. And investments are set to be significant. According to the Nikkei Asia report, JT is aiming to spend $2.25 billion during the next three years on its heated-tobacco operations, two-thirds of it on marketing beyond its core Japan market. It is understood to be planning to launch this year Ploom X on more than 10 markets where HTPs are already established and at least 20 markets by the end of 2024.

    Terabatake told Nikkei Asia that the company’s ambitions for expanding its heated-tobacco investments overseas had been held up by a semiconductor shortage, which meant there were not enough heated-tobacco devices. But, he added, “For 2023, we are back on track for procurements, and we are able to secure more than twice Japan’s supply volume compared to last year.”

    It is worth noting, however, that JTI has not been neglecting its traditional tobacco operations, and, indeed, in the second biennial report on the Tobacco Transformation Index, which, published last year, detailed the findings of two further years of research into the efforts made by the world’s 15 largest tobacco companies to reduce the harm caused by the consumption of their products, the JT Group’s “Product Sales category score was … negatively impacted by the company’s increasing (CAGR 2019–2021: plus-0.8 percent) HRP [high-risk products] volume sales.”

    And JTI, unsurprisingly, is not happy when those volume sales are put under threat, as can be seen from the considerable space it devotes on its website to the illegal trade in cigarettes.

    Calling a Spade a Spade

    Up to a point, I find it encouraging how JTI is willing to call out bad policies for what they are. In one section of its website, it is blunt in pointing out that in imposing extreme regulations on the sale of tobacco products, many countries are creating more problems than they are “supposedly solving.”

    While some try to deny the obvious by saying that sales of illicit cigarettes are not boosted by high levels of cigarette taxes, JTI says on its website that the introduction of ever-steeper tax increases has criminal gangs “rubbing their hands with glee.” It makes the point that consumers who are suddenly priced out of the legitimate market are driven toward the cheaper illicit tobacco options available on the black market.

    JTI does not say this, but, to me, it is self-evident that if a government raises the price of a product to which it says consumers are “addicted,” knowing those consumers are aware of a cheaper source of that product, that government is not making a serious attempt at reducing smoking, just an attempt at reducing recorded, tax-paid consumption.

    It is important to note that JTI is not against regulation of the tobacco and nicotine industries. Indeed, it says at one point that it “supports regulation that conforms to the Organization for Economic Co-operation and Development’s principles of Better Regulation.”

    “These principles can be summarized as openness, participation, accountability, effectiveness, coherence and proportionality,” it says.

    Nevertheless, it calls out, too, the “misguided” moves toward display bans and “plain packaging” despite a lack of evidence that these policies achieve their stated health goals.

    Again, JTI does not say this, but the idea of a government’s ordering graphic health warnings on cigarette packs as a means of putting people off smoking, and then requiring those packs to be placed behind closed doors, seems incoherent. The only people likely to see those graphic warnings on a regular basis are those who are already committed to smoking, so the policy of requiring display bans seems largely aimed at making the life of retailers more difficult.

    I don’t agree with everything JTI has to say about the illegal trade, and there is something that appears on its website that, like the “who is JTI?” question, jumped out at me. I point it out only because I believe it is worth thinking about. The following is part of what appears below a heading that reads, “Illegal tobacco helps organized crime infiltrate local communities”: “In March 2021, an enforcement operation conducted by Russian Law Enforcements resulted in the seizure of one illegal cigarette factory in the Krasnodar area; 10 tons of raw tobacco used in the illegal production; 7.3 million counterfeit cigarettes; and 428,000 cigarette pack blanks.”

    A lot of what appears on the website concerns the claim that the purchase of illicit cigarettes supports organized criminals and terrorists. The question arises, however, as to whether, in an increasing number of countries, the purchase of licit cigarettes does much the same.

    *The reason why this initiative by the U.K. government applies to England only is that responsibility for health matters is largely devolved to the “parliaments” of Northern Ireland (the Assembly), Scotland and Wales (the Senedd).

    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.
  • Changing Gear

    Changing Gear

    Photo: Taco Tuinstra

    How the tobacco industry can accelerate transformation

    By Clive Bates

    In the unlikely event that I am appointed CEO of a large tobacco firm, this is what I would do to accelerate the transformation of the business.

    First, I would ask if we really do want to transform the business and, if so, why. Until the board, thousands of staff, investors and stakeholders understand our rationale, what chance is there of bringing them on the journey? This is a more vexing question than it might appear at first sight. Perhaps we would be better off as we are? After all, we make terrific margins on cigarettes; we have tremendous pricing power courtesy of the tax authorities; we are embedded in a comfortable oligopoly that knows how to make money; and, of course, it helps that the product is addictive, and the customers are loyal to our brands.

    In contrast, the transformation is toward a volatile and diverse market, intense competition holding down margins, the ever-present danger of being caught flat-footed by rival innovation, fickle customers pursuing the next new thing and the potential for illicit entrants flooding the market. Why would we want that? The answer is that we don’t get to choose. Even if we could join forces with all other tobacco companies, we cannot individually or collectively hold back this transformation and restore the situation as it was before 2010. This is because consumer preferences and competition from nontobacco companies drive it. The ship has sailed. Our only viable strategy is to compete ferociously for market leadership in the new product categories. We need to deepen our explanation of the drivers of transformation and set out our transformation rationale clearly and rigorously. For inspiration, we will look to the scholars of creative destruction, diffusion of innovation and corporate strategy: a little more Harvard Business Review and a little less New England Journal of Medicine.

    Second, we need to sell high-quality, compliant products that people want to buy as alternatives to cigarettes and make good money by doing it. Apologies if this is a statement of the obvious, but it is the core function of businesses undergoing a market transformation. Everything else is froth. Fortunately, the impetus for this is all too clear: competition and the threat of rivals converting our cigarette smokers to their smoke-free products and, equally, the opportunity to convert their customers to become ours. Some in public health suspect that Big Tobacco would like to hold back innovation and slow down the rate of transformation. However, Big Tobacco is an imaginary construct comprising companies that compete intensely. A company that tries to hold back innovation will not fare well at the hands of its innovative rivals. The aggregate effect of all the companies pursuing competitive advantage in new product categories will be the primary driver of transformation. Ironically, the primary drag on transformation will be legislators, regulators and tobacco control activists intervening to throttle innovation and uptake of new technologies. Yet, it would be a mistake to rely on “useful idiots” to protect the cigarette business. Their attitudes and ideas could change with as little as the stroke of a philanthropist’s pen.

    Third, we should engage with the environmental, social and governance (ESG) investing community. ESG is the new language for “ethical investment.” There are really three types of ESG investing: (1) taking stakes in virtuous companies that do not trigger exclusion criteria, of which “tobacco” would always be one. This route is closed. (2) To back emerging world-changing companies, though these are difficult to spot in advance and few in number. (3) So-called “engagement investing,” where ESG investors buy into companies with a significant problematic health, social or environmental burden and pursue improvements. By reducing negative footprints, this form of investing has the potential to do more material good for society than the other two. For tobacco companies, ESG engagement would endorse a transformation strategy with external validation and accountability.

    Fourth, we must master the future of nicotine and its place in society. Nicotine is a popular recreational stimulant for a reason and not just because it is “addictive.” Tobacco companies have been understandably shy about discussing nicotine and why there is a demand for it. But companies are in the consumer nicotine business—it is the reason they exist and why they have a future. As consumer nicotine products are becoming smoke-free and far less harmful, the main deterrent to nicotine use—the health risks of smoking—is becoming weaker. The decades-long controversy about tobacco is shifting its focus from severe smoking-related diseases, such as cancer and chronic obstructive pulmonary disease, to concern about nicotine use and addiction. Most people understand and accept why there is a demand for alcohol and caffeine, and many understand the demand for cannabis. But who really understands the demand function for nicotine once this is no longer conflated with smoking? People use nicotine for pleasure and stimulation, to modulate mood, stress and anxiety, and for a range of cognitive improvements. Nicotine may interact beneficially with various health conditions, including attention-deficit/hyperactivity disorder and Parkinson’s disease. As a society, we should not be recommending or endorsing nicotine use, but we should surely have a better understanding of why people use it.

    Fifth, to the extent possible, we should agree with other transformation-minded businesses on the optimal regulatory and fiscal approach. We routinely state that excise and regulation should be “risk-proportionate,” but what do we mean by that in more detail? How should we approach contentious issues, such as youth uptake? We should be (and be seen to be) leading the thinking and marshalling of the evidence base for risk-proportionate regulation. This requires some careful judgements: we must avoid erecting excessive barriers to entry to smaller players, or we risk looking (and being) predatory, and our approach will be dismissed as cynical and expedient and generate opposition among potential allies. The regulatory environment may evolve over time and may contain dependencies. For example, some of the stricter measures to address cigarettes must be accompanied by readily available and well-understood pathways to smoke-free products.     

    Sixth, we must be more assertive scientifically. Just as the industry’s science provides high-quality insights into tobacco harm reduction and reduced-risk products, it is increasingly excluded from conventional publishing platforms and scientific fora. The exclusion is not accidental or merely a misunderstanding based on historical industry malpractice. Nor is it likely to change. It is because a significant share of the academic community rejects the strategy of harm reduction and, therefore, the science that supports it. For many, it is seen as “the nicotine maintenance survival strategy of Big Tobacco” and thus to be opposed, whatever its benefits to health and welfare. The way to address this is to fully embrace the ideas and principles of the open science* movement. The industry could produce or sponsor publicly accessible scientific resources that are category-wide, such as living reviews of biomarker or toxicology studies or informative behavioral research. We should engage credibly, respectfully and systematically to challenge poor-quality science, misleading interpretations and policy recommendations that go far beyond the science that supposedly justifies them. The lack of accountability and redress in tobacco control science has created cavalier attitudes to scientific rigour that would not be acceptable within the industry. Consistent with an open science approach, we should acquire and release all relevant market data to the independent research community and allow them to interpret it. If substitution effects are real and a transformation is proceeding, this is the best form of validation.

    Seventh, we may need an organizational vehicle to advance the transformation agenda for the industry as a whole. The tobacco industry is not homogenous. Many companies, notably the state-owned monopolies, are not interested in transformation and profit mightily, at least in the short term, from the prohibitions promoted by the World Health Organization and its fellow travelers. Yet, all the tobacco multinationals generally recognize the transformation imperative and decline to be seduced by the Bootlegger and Baptist implicit bargain with tobacco control activists. This group must find its voice—not as a conventional trade association but as a cross-industry body dedicated to an idea. It would delineate the territory of common category-wide interests (e.g., greater public understanding, a common regulatory agenda, marketing standards, environmental issues, scientific engagement, etc.) from inter-company competitive interests (pricing, product launches, etc.).

    Finally, something we should not do. We should resist the temptation to use regulation for short-term gain by supporting regulation that helps us and hinders our competitors. Over the longer term, our opponents will selectively adopt the restrictive and reject the permissive measures we back. What appears to help us today may harm us a couple of years from now as we develop new products or acquire new businesses. Our goal should be an enduring fiscal, regulatory and communications environment that works for smoke-free categories as a whole. That will create a rules-based context for competition between companies and an attractive alternative to illicit trade.

    Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).
  • McKinney Hires Fearon as Chief Scientific Officer

    McKinney Hires Fearon as Chief Scientific Officer

    McKinney Regulatory Science Advisors stated today that it has appointed Ian Fearon as its new Chief Scientific Officer.

    Fearon will play a pivotal role in enhancing the regulatory science consulting firm’s capabilities and expanding its range of services to clients, according to a press release.

    “Fearon brings over 15 years of invaluable experience in the field of Tobacco Harm Reduction, with a specific focus on clinical and behavioral studies of these products,” the release states. “His deep understanding of regulatory submissions in the United States and Europe will enable McKinney Regulatory Science Advisors to provide unparalleled support and guidance to clients navigating the complex regulatory landscape.”

    Prior to joining McKinney, Fearon held key leadership positions at several industry organizations such as senior director of Clinical and Regulatory Affairs EMEA at Juul Labs, where he helped advance the scientific understanding of tobacco and nicotine products and supported the company’s premarket tobacco product application (PMTA) submission to the U.S. Food and Drug Administration.

    Fearon also served as the director of Tobacco Research at Celerion, where he contributed to the development of clinical evidence to support regulatory filings, and as principal scientist and head of Clinical Research at British American Tobacco.

    Fearon has published more than 60 papers, including more than 20 on tobacco/nicotine product assessment, which generated more than 3,200 citations, according to the release.

    “We are thrilled to welcome Ian as our Chief Scientific Officer,” said company CEO Willie McKinney. “His extensive experience and deep knowledge of tobacco and nicotine science and worldwide regulations make him an invaluable asset to our team. With Ian’s guidance, we will continue to provide exceptional scientific and regulatory consulting services to our clients, facilitating their success in bringing innovative consumer products to market.”

    As the Chief Scientific Officer at McKinney Regulatory Science Advisors, Fearon will oversee the company’s scientific operations, lead strategic initiatives, and drive innovation in the regulatory science domain, according to the release.

  • KT&G Appoints Junior Board

    KT&G Appoints Junior Board

    Photo: KT&G

    KT&G has appointed members for the third term of its Sangsang Junior Board.

    The Sangsang Junior Board is a collaborative body for improving corporate culture, aiming to facilitate communication between young members and management.

    To help meet this objective, the board appointed KT&G CEO Baek Bok-in as an honorary member.

    For the third term of the Sangsang Junior Board, KT&G selected eight individuals through an internal recruitment process. The selected members will serve for 10 months.

    In this third term, the board plans to drive corporate culture innovation to help KT&G achieve its vision of becoming a “global top-tier” leader. Furthermore, the board will promote vision alignment and implement improvements in working methods through meetings with management.

    “Improving corporate culture and innovating work methods from a fresh perspective will be the fundamental competitiveness for realizing our ‘global top-tier’ vision,” said Baek Bok-in. “Together with the third term of the Sangsang Junior Board, we will strive to establish a corporate culture where all members are respected and work passionately toward creating a company where everyone wants to work.”

  • Swisher Pledges $1 Million in Philanthropy

    Swisher Pledges $1 Million in Philanthropy

    Image: Tobacco Reporter archive

    Swisher, a family-owned company headquartered in Jacksonville, Florida, USA, pledged $1 million in donations in 2023, reports GlobeNewswire.

    With a refreshed strategy led by Marisa Brighton, Swisher’s senior director of community engagement, the 162-year-old company is placing a renewed emphasis on supporting community causes that tie directly to its core values and shared priorities with employees.

    Swisher’s philanthropic efforts will focus on four key areas, including supporting the nation’s heroes and families, community health and well-being, community revitalization, and higher education through strategic partnerships and programs.

    “Swisher has long been recognized for its dedication to community service and philanthropy in Jacksonville and beyond,” stated Brighton. “We are reigniting our legacy by forging deeper connections and cultivating enduring partnerships that enhance the quality of life for our community.”

    This revitalized focus on community engagement aligns closely with the vision of Swisher President and CEO Neil Kiely.

    “As a family-owned company, we carry a profound sense of responsibility to make meaningful investments in the communities where we live and operate,” said Kiely. “Marisa shares this passion and is already establishing key partnerships with esteemed and trustworthy community service providers.”

    Swisher commits to investing a minimum of $1 million in community causes and philanthropic initiatives throughout 2023, with a primary focus on Jacksonville.

    This investment will be channeled through partnerships with local and national organizations that align with Swisher’s core values and strategic focus areas.

  • FDA Commissioner Laments Lawsuits

    FDA Commissioner Laments Lawsuits

    Image: Tobacco Reporter archive

    U.S. Food and Drug Administration Commissioner Robert Califf has lamented the FDA’s ongoing tobacco industry litigation following the agency’s attempt to regulate e-cigarettes, according to Politico. The FDA is facing over 40 lawsuits from companies whose premarket tobacco product applications have been denied.

    “We are in a legal battle every single day, and it’s draining on the agency,” Califf said at the annual public meeting of the Reagan-Udall Foundation. “It has a big impact and a much bigger impact than I thought.”

    “None of us expected 27 million applications for vaping,” he said.

    Califf also noted that enforcement is difficult when it comes to illegal product. “I find myself in the midst of really an epic struggle … when I think of how to enforce when you have an industry that is amazingly creative.”

    Califf hinted that the FDA would meet with the Department of Justice soon to discuss enforcement but declined to say more: “Stay tuned on that one.”

  • TMA to Host TPMP Workshop

    TMA to Host TPMP Workshop

    Image: Tobacco Reporter archive

    TMA is collaborating with EAS Consulting Group to host a one-day workshop on tobacco product manufacturing practices (TPMPs) on Tuesday, June 13, 2023, from 9 a.m. to 3:30 p.m. at the Hyatt Regency Crystal City at Reagan National Airport.

    The workshop will include expert speakers from manufacturers, suppliers and law firms to give a balanced and comprehensive analysis of the proposed regulation, its impact on business and the ability to hear shared experiences.

    The event is open to all industry stakeholders interested in attending, though space is limited.

    Registration is currently open.