Blog - Tobacco Reporter

‘Tax Hike Will Kill Jobs and Boost Smuggling’

New York’s cigarette smuggling problem will get even worse if the state implements an additional levy of $1, as Governor Kathy Hochul envisions, according to a Wall Street Journal article.

The WSJ reports that more cigarettes are smoked in New York than are legally bought, suggesting considerable levels of tax evasion and avoidance. New York imposes a statewide pack tax of $4.35 per pack. New York City imposes an additional $1.50 per-pack excise tax.

Union workers have expressed discontent with the planned ban and tax hike. “Our union brothers and sisters in the tobacco industry are at risk of losing their jobs, benefits and pensions due to Governor Hochul’s proposed ban on menthol/flavored tobacco and tax hike,” Mike Smith, president of Local 810 International Brotherhood of Teamsters, said. According to Smith, 500 out of 4,000 drivers, warehouse workers and salespeople represented by Local 810 would lose their jobs if the ban is approved.

“While we understand the intent of the legislation is not to eliminate Teamster jobs or destabilize Teamster pension funds, the unfortunate reality is that those will be certain results,” Thomas Gesualdi, president of the Teamsters’ Joint Council No. 16 representing 25 locals and 120,000 members, said in a letter to Hochul early in February.

“I understand the impetus of the policy is to get people to stop smoking, which is a good thing,” Assembly Majority Leader Crystal Peoples-Stokes said. “But I think it shouldn’t be this selective. It goes way too deep … and would be a mistake, so I will be working to have it excluded.”

March 13, 2023

Kaival Brands Signs Sales Broker Agreement

Kaival Brands Innovations Group, the U.S. distributor of all Bidi Vapor products, has entered into a sales broker agreement with a prominent U.S. broker to expand access to Bidi Vapor products from its current foundation of convenience store distribution into new retail channels, including discount, grocery and mass merchandisers.

“As we look to push distribution into more channels beyond the convenience stores, we are excited to announce a new agreement that gives us potential access to over 40,000 new locations,” said Eric Mosser, president and chief operating officer of Kaival Brands, in a statement. “We believe this agreement, along with our recent announcement of other new distribution agreements, further validates our reputation as a good actor providing adult consumers with the highest quality vape experience possible, and we look forward to working with all of our commercial channel partners to expand our revenue opportunities.”

“We are excited to further increase the reach of Bidi Vapor and its premium vaping device, the Bidi Stick, into potentially more distribution opportunities throughout multiple retail channels,” stated Russell Quick, president of QuikfillRx, the company’s third-party sales and marketing vendor. “With our feet firmly in the convenience store space, it is time not only to grow our existing footprint but to extend into more channels, like dollar and grocery stores, that meet our robust identification verification and youth access prevention requirements.”

March 13, 2023

Juul Settles Chicago Youth Marketing Suit

Juul Labs and the city of Chicago have reached a $23.8 million settlement over claims that the e-cigarette maker deceptively marketed its products and for selling vaping products to underage users, reports Reuters, citing the Chicago mayor’s office.

The vaping company is currently facing thousands of lawsuits filed across the United States over claims on its marketing practices and for contributing to rising tobacco use among youth.

In the settlement, Chicago said Juul has denied and continues to deny any wrongdoing and liability in connection with the design, manufacture, production, advertisement, marketing, distribution, sale, use and performance of its products.

According to the settlement, the company has agreed to pay the city $2.8 million within 30 days of the execution of the agreement.

Chicago would receive an additional $21 million payment later this year under the current schedule and may potentially receive up to $750,000 in additional, court-awarded payments, the Chicago mayor’s office said.

March 13, 2023

Bulgaria to Support Growers Diversification

Bulgaria will provide BGN70.5 million ($38.4 million) to help its tobacco growers diversity into alternative livelihoods, reports SeeNews, citing the State Fund Agriculture.

The financing will be awarded to producers who have grown tobacco during for least one year in the reference period 2007-2009, the fund said in a press release published on March 10.

Tobacco producers who continue to practice agriculture are entitled to receive subsidies under the program. Owners of animal farms or beekeepers are also eligible.

Bulgaria has provided aid to a number of farmers since 2015. The amount of the grants are based on the volume of the purchased tobacco and its plant variety.

Earlier last week, Bulgaria’s government said it approved the disbursement of some BGN213 million in aid for farmers to help offset the rising costs of inputs.

March 13, 2023

Oman Adopts Plain Packaging

The government of Oman will require tobacco companies to sell their products in generic packaging, reports Muscat Daily

The Sultanate has become the second country in the region, after Saudi Arabia, to adopt the measure.

The World Health Organization office for the Eastern Mediterranean welcomed Oman’s action, describing it as “significant and pioneering.”

According to the health body, the step is consistent with the obligations of the states that are party to the WHO Framework Convention on Tobacco Control.

The move is also in line with the sultanate’s plans to achieve a 30 percent reduction in tobacco consumption by 2025.

Under the new rules, health warnings must cover at least 65 percent of tobacco packaging, while the brand name must be printed in a standardized font and color.

March 13, 2023

RLX Takes Hit in 2022

RLX Technology’s 2022 financial performance was heavily impacted by new industry regulations and e-cigarette taxes, along with Covid-related disruptions, in China.

The company reported net revenues of RMB340 million ($49.3 million) in the fourth quarter of 2022, down from RMB1.9 billion in the same period of 2021. Its GAAP net loss was RMB225.1 million, compared with GAAP net income of RMB494.4 million in the comparable 2021 quarter.

For the full fiscal year, net revenues declined to RMB5.33 billion in 2022 from RMB8.52 billion in 2021. U.S. GAAP net income was RMB1.41 billion, down from RMB2.03 billion in the prior year.

“2022 was a year full of unprecedented challenges,” said RLX Technology co-founder, chairperson and CEO Ying Wang in a statement. “A combination of Covid-related disruptions and the introduction of a substantial package of industry regulations and policy updates throughout the year impacted the e-vapor sector and our operations.

“We retained our core strategy in this volatile operating environment while proactively adapting our business to the new regulations. In the fourth quarter, we continued to invest in R&D and product innovation and development, offering superior products to adult smokers. We believe our core competencies will enable us to attract continued support from users.

“Looking ahead, given the benefits of the clearer regulatory framework and China’s reopening, we remain confident in the long-term growth of our industry. We are well-positioned to adapt to these shifting market forces and capture new opportunities while further deepening our commitment to honoring our social responsibilities.”

RLX Technology was particularly affected by the vast wave of coronavirus infections as China suddenly relaxed its zero-Covid policy toward the end of 2022. In addition, its gross margin in the fourth quarter suffered as a result of the imposition on Nov. 1, 2022, of a 36 percent excise tax on e-cigarettes in China.

“Despite the headwinds, we strove to improve operational efficiency to mitigate the adverse impact on our business,” said RLX Technology Chief Financial Officer Chao Lu. “As a result, we maintained a healthy level of profitability during 2022. We believe our company’s resilience will enable us to overcome near-term obstacles, and we remain dedicated to creating long-term sustainable value for our stakeholders.”

March 13, 2023

Vietnam: Teen e-cig use rising

E-cigarette use among teens in Vietnam is rising, reports The Star. In 2022, 3.5 percent of 13 year-olds to 15 year-olds were reported to use e-cigarettes compared to 2.6 percent in 2019.

Vietnam is ranked third among Southeast Asian countries with the highest smoking prevalence, behind Indonesia and the Philippines.

Low cost has been cited as a motivator; Angela Pratt, a World Health Organization representative, said that prices are so low they do not create a barrier for teens starting to smoke. Pratt suggested raising taxes to help curb smoking.

Vietnam’s tobacco tax rate is 35.6 percent of retail price compared to the world average of 56 percent and the WHO’s recommended 70 percent.

The Ministry of Finance is seeking a public consensus to raise the special consumption tax on tobacco, beer, alcohol and sweetened drinks.

March 10, 2023

Star Agritech Expands

Star Agritech is expanding its global operations.

Headquartered in Istanbul, the company has begun constructing a reconstituted tobacco factory in Bizerte, Tunisia. The new facility will be the company’s fourth such operation worldwide.

Comprising two plants with an annual capacity of 1.2 million kg each, the factory is the first of its kind in the region. The facility will serve the domestic market and may expand its business to serve customers in Morocco and Algeria, depending on the success of the operation.

Star Agritech expects the new factory to be operational by the middle of 2023. Prior to announcing the new recon facility, Star Agritech established offices in Tunisia, Egypt and South Africa. The Tunisian office will assume responsibility for Star’s business in north Africa, the Sahel and west Africa.

In November 2022, Star Agritech established Star Agritech Commodities Trading in Yaounde, Cameroon, to strengthen its cigar leaf growing and sourcing operations in Bartouri and Bertoua. The Cameroonian facility will also implement sourcing at the farm gate for Cameroonian cacao and coffee.

In December, Star Agritech set up shop in New Delhi to further develop its sourcing of Indian tobacco. In the same month it incorporated Star Agritech Zimbabwe to enter the domestic market for flue-cured Virginia tobaccos. Star Zimbabwe will participate in the 2023 marketing season, which kicked off March 8.

Meanwhile, Star Agritech has set up a company in Norfolk, Virginia, USA to supply the North American market with tobacco and tobacco derivatives.

The company believes its nano fiber reconstituted tobacco, which can help cigarette manufacturers reduce their products’ tar and nicotine levels, has considerable potential in the United States, given the Food and Drug Administration’s intention to mandate reduced levels of nicotine in tobacco products.

March 9, 2023

Cuba Recovers from Hurricane Ian

Cuban tobacco farmers are working to recover after Hurricane Ian hit the region six months ago, destroying 80 percent of the country’s tobacco infrastructure, reports AP.

When Hurricane Ian his last September, it destroyed almost everything: “Not a single tobacco house was left standing,” said Hirochi Robaina, one of the most recognized tobacco producers in Cuba. “There were no warehouses; there was no tree left. Everything broke, and at that moment, I did not believe it was possible to plant.”

After the tragedy, Robaina was resigned to planting beans and vegetables instead of tobacco, but he changed his mind “to maintain the family tradition of a century,” and he was able to plant and grow about 2 hectares, which accounts for about 30 percent of what he had in 2022.

Private tobacco producers have been meeting with Cuban authorities since the hurricane to secure commitments for the state to help settle debts and pay for materials to rebuild tobacco drying houses, according to AP. Nicaragua and the Dominican Republic as well as other producers have also stepped in to help Cuba recuperate.

The planned area for tobacco planting this year is down to 9,500 ha from an initial plan of 15,000 ha, according to Enrique Blanco, agricultural director of Tabacuba. Under fabric cover, 2,100 ha of premium leaf will be grown, which Cuba hopes to use to cover export demand.

March 9, 2023

Scandinavian Tobacco Reports 2022 Results

For the full year of 2022, Scandinavian Tobacco Group delivered a 3.5 percent negative organic EBITDA growth in line with the guidance range of minus-4 percent to 0 percent, free cash flow before acquisitions at DKK1.3 billion ($184.5 million) and an increase in adjusted earnings per share (EPS) of 8 percent. The EBITDA margin before special items was 25.9 percent. For the full year of 2023, net sales and EBITDA margin before special items are expected in the range of DKK9 billion to DKK9.3 billion and 24 percent to 25 percent, respectively.

For the fourth quarter of 2022, organic EBITDA increased by 13 percent with an EBITDA margin before special items at 25.8 percent, and the free cash flow before acquisitions was DKK530 million. These results were driven by a resilient demand for most product categories, including handmade cigars in the U.S., price increases across most product categories and continued cost efficiencies.

Net sales for the fourth quarter were DKK2.19 billion with 1.7 percent organic growth. EBITDA before special items was DKK563 million with 13.3 percent organic growth. The EBITDA margin was 25.8 percent. Adjusted earnings per share were DKK4.4. Return on invested capital was 14.3 percent.

For the full year of 2022, net sales decreased by 0.8 percent organically to DKK8.76 billion, and EBITDA before special items decreased by 3.5 percent organically to DKK2.27 billion with free cash flow before acquisitions at DKK1.26 billion.

“In the current environment, I’m pleased we can deliver a solid performance for the fourth quarter and the full year, which is in line with our financial expectations,” said CEO Niels Frederiksen. “In a challenging year, we have made good progress on our strategy ‘Rolling Toward 2025.’ Our vision is to become the undisputed and sustainable global leader in cigars, and the recent acquisition of the Alec Bradley cigar business brings us one step closer to achieving this. Our ambition of becoming a larger company, to grow our EBITDA margin over time and to generate outstanding cash flow are all important pillars for creating continuous shareholder value. I am confident we will make further progress in 2023 on our long-term strategy.”

At the annual general meeting on April 13, 2023, the board of directors will propose an increase in the ordinary dividend of 10 percent to DKK8.25 per share.

For the financial year 2023, guidance metric for the group will be changed. In the financial statements going forward, the group will report on and publish expectations for reported net sales and EBITDA margin before special items instead of organic EBITDA growth. The new guidance metrics will better reflect the group’s operational performance and will increase transparency from divisional performance to group level.

A conference call will be held on March 9, 2023, at 10:00 CEST. Dial-in information and an accompanying presentation will be available at investor.st-group.com/investor around 09:00 CEST.

March 9, 2023