Blog - Tobacco Reporter

Questioning the Numbers

Changes in the U.S. Tobacco Tax and Trade Bureau’s reports have made its data less useful.

By Marissa Dean

Each month, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) publishes excise tax statistical reports for tobacco products. In November 2022, the TTB announced that it would be changing the way in which it releases and reports this data—changes that significantly affect the quality of the data for its previous users.

The reporting changes are attributed to the decrease in market players; the TTB stated that with so few remaining players, the data, as it had been published, made it easy to identify specific companies and their production and sales levels. This made for an unfair market, with some manufacturers privy to information that may affect product pricing and create unfair marketing practices.

While at face value, the changes may not seem relevant, especially to those not adept at interpreting tax data, they are actually quite substantial. The TTB’s changes have led to shifts in the categories listed (categories now consist of cigarettes and a smaller number of other tobacco products) and the aggregation of tax-exempt data from all product categories; additionally, some months are missing data points. Tobacco products that are greatly affected include large cigars, little cigars, chewing tobacco, pipe tobacco and roll-your-own tobacco. As vapor products are not subject to a federal excise tax, the TTB does not, and did not previously, release any data regarding electronic cigarettes, e-liquid or other novel tobacco products.

The trade association TMA uses the TTB’s tobacco tax data to create reports dissecting the information to discuss the U.S. tobacco product markets and trends. With the TTB’s changes, this information is now less useful than before. Overall, cigarette data hasn’t changed significantly outside of the lack of specific tax-exempt information; however, the other tobacco products are lacking much information that was previously available, making it impossible to get a complete picture of the market.

When the TTB implemented its changes, it implemented them retroactively, meaning all of its previous excise tax statistical reports were removed from its website. The TTB also does not plan on notating which figures have been changed in revised reports to accommodate the new aggregation system, according to a source familiar with the matter.

This poses a problem for TTB data users. Now, there are likely to be more discrepancies in data because one source may be using the “new” data while another may be using the previously published data. There are likely to be more gaps in information as well because many categories are missing information due to the aggregation—data comparisons are more difficult to obtain if missing data points become more common. Sources are less likely to be able to effectively discuss market outlooks and comparisons as well due to the gaps in data and the fact that categories have been combined. At best, they would be estimations and educated guesses based on historical data and trends.

The aggregated information now provided by the TTB is useful in small part to give a snapshot of the market, but with gaps in data and large category aggregation, there is no way to dissect the market and understand possible trends in any comprehensive manner. Unless more players enter the game, it is unlikely that the TTB will revert to the way in which it originally reported the statistical data, creating a roadblock for those trying to discern potential market changes.

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

March 1, 2023

Where’s the Parade?

Record-low youth smoking rates get no respect.

By Cheryl K. Olson

Back in 2009, when planning its 10-year public health objectives, the U.S. Department of Health and Human Services (DHHS) set an ambitious goal for reducing youth smoking. At the time, said government data, one in five teens (19.5 percent) had lit up in the past month. The Healthy People 2020 target was 16 percent.

These targets aren’t meant to be slam-dunks. In 2020, a third of the 985 trackable Healthy People objectives were met; the rest improved some, stayed the same or got worse. So what happened with high school smoking?

It plummeted. After passing the goal in 2013 (15.7 percent), teen cigarette use kept on falling. At the ten-year mark, in 2019, it hit 6 percent.

The Healthy People 2030 youth smoking target is 3.4 percent. The newest national figures suggest we’ve already left that number in the dust. The 2022 National Youth Tobacco Survey (NYTS) pegged high school cigarette use at an astonishingly low 2.0 percent. That’s even just a puff in the past 30 days, not daily use.

“We’re crushing it, right? It’s great news,” says Dave Dobbins, former chief operating officer at the Truth Initiative who is now a consultant for Altria. “For many years, I never thought we’d get youth smoking under 5 percent; I thought the job would be done around seven or eight. And we’re beating the heck out of that.”

Did I miss the champagne cork-pop celebration? Why aren’t we talking about this?

There’s a clue in the title of this 2016 DHHS press release: “Cigarette smoking among U.S. high school students at an all-time low, but e-cigarette use a concern.”

In the 2022 NYTS, past-month e-cigarette use was 14.1 percent. The answer may be that we’d have to give e-cigarettes some credit for choking off youth smoking. And we have decidedly mixed feelings about that.

In the Rearview Mirror

The article in the New York Times Magazine was provocatively titled “If It’s Good for Philip Morris, Can It Also Be Good for Public Health?” It included an interview with Matthew L. Myers, president of the Campaign for Tobacco-Free Kids.

“The challenge to me is not to eliminate smoking but the death and disease from smoking,” Myers said in 2006. “That should be the end goal. If you had a product that addicted 45 million people and killed none of them, I would take that deal. Then you’d have coffee! I have to believe that if the marketplace incentives were such that over time someone could devise a product that would give the same satisfaction as tobacco but didn’t kill them, people would flock to it.”

In that first decade of our century, the future of youth smoking looked gloomy. This 2010 DHHS press release title summed up the mood: “Little Progress Being Made in Reducing Smoking Among High School Students.” It noted that cigarettes’ rate of decline had slowed.

Kathleen Sebelius, then secretary of health and human services, wrote an introduction to the 2012 Surgeon General’s report Preventing Tobacco Use Among Youth and Young Adults. “Despite the well-known health risks, youth and adult smoking rates that had been dropping for many years have stalled,” she stated.

The surprise decline in teen smoking that followed isn’t fully explained by tobacco control policies or changing demographics, experts say. Michael Pesko, an associate professor of economics at Georgia State University, has published over 20 papers on e-cigarette policies and their effects.

“Something unexpected clearly happened between 2012 through 2019 that caused this exceeding of the smoking reduction goal by 400 percent,” he says.

“Tobacco 21 happened, and research suggests this had an impact in the later part of the decade. But the other big thing that happened was wider availability of e-cigarettes.”

The Pivot to E-Cigarettes

Rather than celebrating minuscule smoking rates, anti-tobacco organizations pivoted to e-cigarettes and nicotine addiction. Consider a recent Campaign for Tobacco-Free Kids press release on the 2022 Monitoring the Future survey findings. In his statement, Myers relegated smoking’s decline—“a remarkable public health success story that will save lives for generations to come”—to the third paragraph. He led with youth e-cigarette use and a call for the Food and Drug Administration to eliminate “the flavored products driving this youth addiction crisis.”

The Healthy People website today describes tobacco use in teens as “getting worse.” Reducing past-month tobacco use is a 2030 target. The new focus is on “cigarettes, e-cigarettes, cigars, smokeless tobacco, hookah, pipe tobacco and/or bidis.”

“I understand the reasoning of people who are skeptical of reduced-risk products,” says Dobbins. “There’s a fear that people who otherwise would not have used nicotine will use them and then be more likely to transition to cigarettes if they continue to exist in the market.”

“However, this has yet to be reflected in population data,” he continues. “Instead, the data suggest a transition to less harmful products. I think we have done a better job at educating people of all ages about the dangers of smoking than I gave credit.”

Is Vaping Displacing Smoking?

Pesko and colleagues have been analyzing the natural experiments created by variations in state policies regarding sales of e-cigarettes. He points out the remarkable consistency across a large body of research, none of it industry funded. In short, when governments regulate e-cigarettes—including taxes, minimum legal sales ages and advertising restrictions—it reduces e-cigarette sales to and use by both youth and adults.

“And it also increases combustible cigarette use, again across all populations,” Pesko says.

“The laws operate as intended in terms of reducing e-cigarette use but with the large unintended effect of increasing combustible use.”

Vaping appears to be displacing smoking. Set aside the moral panic over vaping and legitimate fears of this new unknown; what’s left looks like a public health success story.

“That’s what I believe is happening: a remarkable public health achievement,” says Pesko. He applauds advocates for passing Tobacco 21 but says nicotine companies also deserve credit. “Sometimes there is overlap between profit incentive and public health. The adoption of e-cigarettes may have been one of those things.”

Nicotine Gut Check

How should we feel about nicotine once it’s separated from combustible cigarettes? If, as Myers speculated about in 2006, we have appealing but addictive products with health risks similar to coffee … is that OK? This is a massive cultural adjustment that may take years to process.

Social scientists Kirsten Bell and Helen Keane described our confused emotions in an article critiquing the gateway theory. “The nicotine in NRT [nicotine-replacement therapy] products is ‘good’ because it weans smokers off the ‘bad’ nicotine in cigarettes and ideally nicotine itself,” they wrote. “The nicotine in e-cigarettes is ‘bad’ because it facilitates addiction to nicotine, which, in turn, drives the user to seek it in ‘harder’ or more dangerous forms.”

“My belief is that there will be an ongoing persistent demand for nicotine,” says Dobbins. “And if I’m right, it’s important that that demand be met with products that don’t subject the user to disease and death.”

Another new objective for Healthy People 2030 is “Eliminate cigarette smoking initiation in adolescents and youth adults.” In 2018, four percent of youth aged 12 to 25 first picked up a cigarette. The 2030 target: zero percent. Does this trajectory suggest that zero youth use of nicotine should be the next goal?

Pesko is not a fan of that approach. He uses the analogy of the Environmental Protection Agency’s regulation of water. They generally don’t use a zero standard for even nasty things like lead.

“It’s so expensive to go from that trace level to zero, and the benefit is so small,” he notes. “It’s a reasonable goal to try to get use very low and with as safe a nicotine product as possible. But to go to zero nicotine use by kids, I can’t imagine the types of aggressive regulation and extra policing we’d need to do that. And even then, we wouldn’t achieve the goal, as we’ve seen with the war on drugs.”

More Productive Policies

Given limited resources, where might policymakers and regulators most productively put their attention to reduce tobacco product risks to youth?

First, if we accept that the demand for nicotine exists, steer it toward reduced harm. “In terms of policy, having lower regulation of e-cigarettes than cigarettes makes a lot of sense,” says Pesko. “We want to incentivize people to use safer products. We should be taxing proportional to risk.”

He would also like to see lower regulatory hurdles for products like e-cigarettes and nicotine pouches and incorporation of studies like his into appropriate for the protection of public health calculations: “Natural experiments are a strong, consistent body of evidence that could be used to approve more PMTA [premarket tobacco product application] applications. I’d like the FDA to use this body of work more.”

Another suggestion is to turn up the heat on those nicotine companies known to sell to youth. Journalists have reported on the FDA failing to police vape products with candy flavors and toy-like packaging. Reynolds American even submitted a citizen petition a to the FDA requesting ramped-up enforcement of disposable e-cigarettes like Puff Bar and Elf Bar.

Dobbins understands the discomfort of many anti-tobacco advocates with this evolution in thinking.

“The reduced-harm products option allows companies that make money off selling cigarettes to continue doing business, albeit with much less harmful products,” he says. “But I think the most likely alternative of restrictive policies will be a move to a gray market that won’t be accountable to regulatory systems or the law, the way large companies must operate in the present.”

Recalling industry chiefs’ past staunch denials of tobacco harms, Dobbins adds, “We must acknowledge that we are nearly 30 years from 1994.”

Cheryl K. Olson is a California-based public health researcher who specializes in behavioral health issues and consults on tobacco product behaviors via McKinney Regulatory Science Advisors. She spent 15 years on the faculty of Harvard Medical School.

March 1, 2023

Altria in Talks to Buy Njoy

Altria Group is in advanced talks to buy e-cigarette startup Njoy Holdings for at least $2.75 billion, the Wall Street Journal reported, citing people familiar with the matter, according to Reuters.

The Njoy deal could be announced as soon as this week, though the talks could still fall through, according to the report.

The proposed deal includes an additional $500 million earnout if regulatory milestones are met.

The potential deal follows Altria’s decision last year to be released from its noncompete deal with Juul Labs almost four years after buying a 35 percent stake in the company. Altria was planning to divest its stake in Juul. As of Dec. 31, Altria valued the stake at $250 million.

It was reported in July that Njoy had hired bankers for a possible sale of the company. The privately held firm is likely to be valued at up to $5 billion.

Njoy has a roughly 2 percent of the U.S. vape market by volume, according to Jefferies, Juul, by contrast, accounts for around a quarter of American vapor product sales.

Unlike Juul, however, Njoy is one of the few vape brands that have permission from the U.S. Food and Drug Administration to continue to sell its products. Juul is waiting to hear whether the FDA will allow its e-cigarettes to remain on the market.

In June 2022, the agency ordered Juul to remove its products from the market after finding that premarket tobacco product application failed to prove they would “appropriate for the protection of public health.

The FDA agreed to take another look at Juul’s application after the company appealed the marketing denial order in court. The company can continue selling its products at least until the agency makes a final decision.

Altria is keen to supplement its income from combustible products with earnings from smoking alternatives, such as e-cigarettes.

Its cigarette sales volumes fell 9.5 percent last year as high gasoline prices and general inflation pinched smokers’ disposable income.

February 28, 2023

Top Court Declines to Hear Flavor Ban Appeal

The U.S. Supreme Court on Feb. 27 declined to hear an appeal by three Reynolds American Inc. subsidiaries seeking to overturn the county of Los Angeles ban on flavored tobacco products, reports Law360.

R.J. Reynolds Vapor Co., American Snuff Co. and Santa Fe Natural Tobacco Co. had petitioned the high court in October to take another look at the case after the full 9th Circuit upheld a lower court’s dismissal of the suit.

The RAI companies said the 9th Circuit had twice before erred in allowing sales bans at the state and local level that were preempted by federal law.

While the federal Tobacco Control Act grants state and local municipalities broad authority to regulate the sale of tobacco products, it does not allow them to completely prohibit the sale of those products for failing to meet state or local tobacco product standards, the companies argued.

In dismissing their initial suit, District Judge Dale S. Fischer in 2021 found that the ban doesn’t regulate tobacco product standards. The judge said the ordinance is protected by the federal law’s preservation clause, which allows states and localities to prohibit the sale of tobacco products even if those bans are stricter than federal law.

The companies appealed, calling the ban unconstitutional and saying state and local governments can’t bar the sale of tobacco products because they disagree with federal tobacco standards.

L.A. County countered that the ban doesn’t pose an obstacle to federal policy since the FDA announced it intends to ban menthol cigarettes and all flavored cigars.

February 28, 2023

Youth Protection Guidelines Updated

The U.K. Vaping Industry Association has updated its guide to retailers on preventing underage sales.

UKVIA Director General John Dunne said tackling the sale of vaping products to minors was “one of the most fundamental challenges facing the industry.”

The UKVIA is making its “Preventing Underage Sales Guide” freely available via its website.

The 20-page guide has been developed in partnership with the association’s Primary Authority Partners, Buckinghamshire and Surrey and Trading Standards.

Dunne said: “The entire UKVIA membership is united behind the message that we must do all in our power to stop underage sales.

“This is one battle that we simply have to win, but we need the support of government, regulators and enforcement authorities in order to do so.

“Our underage sales guide will give retailers all the information they need so that they don’t inadvertently sell to someone under 18.

“Policymakers, politicians and consumers must have confidence that the vaping industry is a responsible sector, and this will be undermined if businesses do not implement and uphold robust age verification processes.

“The guide gives clear advice on how to implement a ‘Challenge 25’ policy and why it is important that anyone who appears to be younger than 25 should be asked to provide ID.”

February 28, 2023

Industry Unimpressed by CTP ‘Reset’

Vaping industry representatives are unimpressed by the U.S. Food and Drug Administration’s plan, announced Feb. 24, to address the shortcomings in the operations of its Center for Tobacco Products (CTP) identified by independent evaluators working through the Reagan-Udall Foundation.

“While the devil is in the details, nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product,” Tony Abboud of the Vapor Technology Association told AP News.

The CTP has come under fire from various sides, with health advocates urging the agency to more aggressively police regular cigarettes and flavored e-cigarettes, and tobacco companies complaining that the FDA is unwilling to approve new products, including e-cigarettes, which might help adults quit smoking.

To address such criticisms, FDA Commissioner Robert Califf in July 2022 ordered an independent investigation into the CTP’s operations.

On Dec. 19, 2022, the Reagan-Udall panel issued a blistering report. Evaluators described the FDA as “reactive and overwhelmed,” with a demoralized workforce that struggles to oversee both traditional tobacco products and a freewheeling e-cigarette market.

In response, the FDA pledged a reset to the agency’s tobacco program. The CTP director promised to develop a five-year plan by the end of 2023 outlining priorities, including efforts to clean up a sprawling market of largely unauthorized electronic cigarettes. The agency also said it would provide more transparency to companies about its decisions, following the rejection of more than 1 million applications from e-cigarette makers seeking to market their products as alternatives for adult smokers.

Nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product.

Tony Abboud, executive director, Vapor Technology Association

Vaping industry representatives expressed disappointment with the FDA announcement, which they said would continue to result in denials for most vaping products.

“After the scorching findings from the Reagan-Udall report, the FDA should be issuing a mea culpa to the American public for the calamity created by the agency’s insistence on crushing the nicotine vaping market,” the American Vapor Manufacturers Association wrote in a statement.

“But instead of taking responsibility, the agency is proposing yet more task forces, more bureaucrats and even a so-called ‘five-year plan,’ which is government shorthand for punt, retreat, and see you later. It’s not good enough, not by a long shot, and the millions of Americans relying on vaping products to stay off cigarettes have once again been bast to the wind by the FDA’s chronic negligence and indifference.”

Americans for Tax Reform described the CTP’s response as “inadequate,” saying it fails to address the critical issues highlighted by the Reagan-Udall Foundation. “Since [CTP] Director King and FDA are clearly unwilling to step in and fix the problems plaguing the Center for Tobacco Products, this falls upon Congress, and specifically the new Republican House Majority, to use oversight powers to reestablish trust in FDA and improve public health,” the group wrote in a statement.

While welcoming the CTP’s new commitment to transparency, the Premium Cigar Association (PCA) expressed concern that the CTP continues to view industry engagement as an afterthought rather than a means to better understand how its approach can be better designed in the developmental phase of regulations, guidance or strategic planning.

The PCA also questioned the CTP’s desire to increase its workforce and raise more funds through user fees. “Until the systemic failures are addressed, growing an agency that already spans over 1100 employees will only complicate and compound its problems,” the PCA wrote in a statement. “Rather, CTP should embrace Congressional oversight, as does every other Federal Agency, to ensure that its ongoing efforts remain in-line with its statutory mission and public demands.

February 27, 2023

ITC shares Surge on Adani Worries

Shares in tobacco manufacturer ITC have increased more than 75 percent as investors seek stability in the Indian stock market, which has been churning with concerns about corporate governance following Hindenburg Research’s allegations against the Adani Group.

“ITC’s stable cash flow and dividends have won hearts of investors in this volatile environment amid Adani’s troubles and inflation,” Sameer Kalra, founder of Target Investing in Mumbai, told Bloomberg. “The company is also expected to unlock value of its noncigarette businesses.”

ITC not only offers attractive dividend yields and returns on equity, but it also ranks top in a Bloomberg Economics analysis of governance, liquidity and leverage at Indian conglomerates.

ITC has gotten a further boost from stronger-than-expected third-quarter earnings. In early February, ITC reported a profit of INR50.31 billion ($614.52 billion) in the October–December quarter, up from INR40.56 billion in the comparable 2021 period. The company attributed the increase to strong cigarette sales and steady demand for its packaged foods.

February 27, 2023

General Cigar Appeals Cohiba Ruling

Scandinavian Tobacco Group’s (STG) General Cigar Co. has appealed the Trademark Trial and Appeal Board’s (TTAB) December 2022 cancelation of the Cohiba trademark registration in the United States.

“By initiating this lawsuit to appeal the TTAB decision and to obtain a declaration of its rights, General Cigar expects the court will ultimately rule it has exclusive U.S. rights to the Cohiba marks,” Regis Broersma, president of STG’s North America and Rest of the World division was quoted as saying by Cigar Journal.

STG and Empresa Cubana del Tabaco (Cubatabaco) have fought over the U.S. rights to the Cohiba trademark since 1997. The TTAB sided in favor of the Cuban cigar conglomerate in its claim on the name, saying that General Cigar Co.’s registrations on the Cohiba trademark are to be canceled due to a violation of an international agreement that dates back to 1929.

However, General Cigar believes the TTAB decision is improperly based on the re-litigation of a claim that was decided in General Cigar’s favor by a U.S. Court of Appeals for the 2nd Circuit more than a decade ago.

In February 2005, the 2nd Circuit Court of Appeals in New York ruled unanimously in favor of General Cigar.

While there are more trademark conflicts between Cuban and American cigar companies, Cohiba is a unique case due to both its prominence on the global stage and its creation by the state-run tobacco company after the Cuban Revolution, whereas other brands with Cuban roots that General Cigar Co. owns, such as Partagas, Hoyo de Monterrey and La Gloria Cubana, were assumed by the Cuban government in 1959.

While the lawsuit moves forward, General Cigar said it will continue to manufacture, market, sell and enforce its Cohiba trademarks.

February 27, 2023

Texas Court to Hear Exploding Battery Case

The Supreme Court of Texas has agreed to hear a lawsuit by a vaper burnt by an exploding battery to determine if Texas courts have jurisdiction over LG Chem America, a subsidiary of South Korea-based LG Chem, which made the battery, reports Law360.

In 2016, Texas resident Tommy Morgan bought an 18650 lithium-ion battery manufactured by LG Chem. He claims it unexpectedly exploded and caught on fire, leading to him suffering permanent and severe injuries, according to his lawsuit filed in 2019 in Brazoria County District Court.

The companies are facing other lawsuits by Texas residents with similar claims concerning batteries exploding. But intermediate appeals courts have come to different conclusions on whether LG Chem has enough contacts in the state to face claims.

LG Chem America and LG Chem have argued that Texas courts lack jurisdiction because the companies don’t sell individual batteries in Texas nor directly to Texas customers. LG has consistently stated in litigation throughout the country that this battery was never intended to be used in e-cigarettes or vaping devices.

Morgan told the Texas high court that the company deliberately shipped its products to Texas customers who were later injured, therefore Texas courts have jurisdiction.

February 27, 2023

Investors Press KT&G on Ginseng Spinoff

A group of activist funds has filed an injunction at the Deajeon District Court in South Korea demanding that KT&G address their demand to spin off its lucrative ginseng business, appoint certain outside directors and strengthen its shareholder return policy, reports The Korea Times.

Led by the Singaporean activist private equity fund Flashlight Capital, the group has repeatedly demanded that the ginseng business be spun off for to recover corporate value and share prices.

However, during an investor relations event last month, KT&G rebuffed the request. “The spinoff will have little to no benefit to the company’s corporate value and shareholders from a long-term perspective,” said KT&G Senior Executive Vice President Bang Kyung-man.

Bang expressed concern that KT&G would potentially lose “synergy” in the event of the ginseng unit’s separation.

During the meeting, KT&G also dismissed the funds’ demand to strengthen KT&G’s shareholder return policy. The cigarette and ginseng product manufacturer said the current policy “should hold for now.”

Flashlight Capital founder Lee Sang-hyun believes KT&G’s share price will bounce back to over KRW140,000, a level last seen in 2016, once the firm reorients its investment portfolio to better achieve environmental, social and governance goals.

KT&G’s share price hit a low of KRW87,100 on Feb. 17 but has recovered since.

February 27, 2023