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Philip Morris Expands Operations in Lithuania

Photo: krivinis

Philip Morris International is expanding the production capacity of its factory in Klaipeda, Lithuania, following the suspension of its operations in Ukraine, reports Interfax, citing a company statement.
The multinational will reportedly construct a new production building connected to its existing storage facilities.
The Klaipeda factory will manufacture products intended for Ukraine, the company said. The project will cost €3.5 million and is expected to be completed toward the end of 2023.
On Feb. 25, PMI announced the suspension of its activities in Ukraine, including at its factory in Kharkov, due to Russia’s military invasion.
Ukraine accounted for around 2 percent of the multinational’s cigarette and heated-tobacco shipments in 2021 and less than 2 percent of PMI’s total revenue, according to the company.

November 1, 2022
Differential Progress
Photo: Nopphon

Will the valuable insights revealed in the Tobacco Transformation Index accelerate tobacco harm reduction?

By George Gay

The second biennial report on the Tobacco Transformation Index (TTI), which details 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, was launched at the recently staged GTNF. The 140-page 2022 report evaluates tobacco companies’ actions across six business functions, designated “categories” and 35 underlying indicators that are said to cover “measures indicative of harm reduction ….”
Of the 15 tobacco companies examined, three are state controlled, nine are publicly traded (including Egypt’s Eastern Co., in which the government owns a majority stake), and three are privately held. Together, they are said to account for about 90 percent of global tobacco product volume sales. The geographical sweep of the index takes in 36 countries spread across the globe and accounting for about 85 percent of the global population of adult smokers.
Erik Bloomquist
The report contains a huge amount of information, clearly presented and backed with a statistical methodology that aims for transparency and, despite its robust nature, is open to review. The global nicotine and tobacco investment analyst and consultant Erik Bloomquist, who is chairman of the TTI’s technical committee, said during the GTNF investor panel, which he chaired, that everybody should be visiting the TTI website because it contained a “fantastic” amount of “incredibly valuable” information.
Meanwhile, a press note issued on Sept. 28 by the TTI, which is a Foundation for a Smoke-Free World* initiative and whose research partner is Euromonitor International, said research had demonstrated “differential progress toward harm reduction across the 15 largest tobacco companies,” and highlighted:
That high-risk products made up about 95 percent of retail sales volume across the 15 largest tobacco companies during 2021, with reduced-risk products (RRPs) making up 5 percent;
That tobacco harm reduction (THR) momentum was developing across a subset of the 15 companies, albeit to varying degrees; and
That with companies having been analyzed across the six categories and 35 indicators on their actions to reduce the harm caused by tobacco use, Swedish Match was found to have been making the most relative progress.
The press note went on to list the following takeaways from the 2022 index findings:
“Only Swedish Match sells a greater volume of RRPs than substantially more harmful combustibles, due in most part to the popularity of its snus in Sweden and nontobacco nicotine pouches in the U.S. …
“Four index companies directed the majority of capital and R&D investments toward RRPs. In addition, five index companies, including three state-owned entities, made incremental investments or early indications of movement toward future production of RRPs during the review period.
“However, tobacco companies are … failing to invest in harm reduction in low-[income] and middle-income countries, with the vast majority of sales for their RRPs concentrated in markets with the highest disposable income. Notably, RRPs are banned in a number of countries around the world.”
For those who like lists, the 2022 index’s overall scores set the companies’ relative rankings as follows, with their 2020 relative rankings in parenthesis: Swedish Match 1 (1), Philip Morris International 2 (2), Altria Group 3 (4), BAT 4 (3), Imperial Brands 5 (5), Japan Tobacco Group 6 (6), KT&G Corp. 7 (7), Swisher 8 (8), ITC 9 (9), China National Tobacco Corp. 10 (10), Vietnam National Tobacco Corp. 11 (12), Tobacco Authority of Thailand 12 (11), Eastern Co. 13 (13), Gudang Garam 14 (14) and Djarum 15 (15).
As can be seen, there was little shifting of positions, but the devil is in the details, and there was more relative movement in each of the six categories that were researched: strategy and management, product offer, product sales, marketing policy and compliance, capital allocation and expenditure, and lobbying and advocacy. And this differentiation is seen as important, though, in fairness, it has to be set against any number of factors, some of which, such as portfolios, companies have control over, and in respect of some of which, such as regulations, they are largely at the mercy of outside forces, especially those companies operating mainly in countries that ban RRPs. And there are some factors that might be seen as sitting in between. Increases in sales of higher risk products, for instance, are seen as negatives.

Sense of Proportion

The report clearly has some important information, which is likely to become even more valuable in the future if, as seems likely, more of the 15 companies engage with the TTI. Six companies, mainly the multinationals, provided feedback in respect of the 2022 report.
Nevertheless, I have reservations about what is going on here. Glancing through the minutiae of the huge report and the 84-page methodology that defines the way the report’s data is arrived at, I couldn’t help wondering whether we weren’t in danger of losing our sense of proportion, even losing track of our objectives. To a large extent, tobacco transformation is pushing at an open door because consumers undoubtedly want the choices that new-generation products offer, and the business case is compelling.
David Janazzo
But what truly concerned me as somebody living in a country whose economy is being systematically tanked by the last remaining devotees of trickle-down economics was that the TTI seemed to be embracing trickle-down THR. For instance, the TTI was described in the Sept. 28 press note as having been created “to accelerate the reduction of harm caused by tobacco use by ranking the world’s 15 largest tobacco companies on their relative progress or the lack thereof.” From ranking tobacco companies in this way to accelerating THR sounds to me like a bit of a stretch. Certainly, it seems to beat something of an indirect path toward THR.
In fairness, though, I should say that the TTI program officer, David Janazzo, in his insights introduction to the 2022 report, added that part of the purpose of the index was “to inform the public about the activities of the tobacco industry that influence achieving a smoke-free world.” Such an undertaking, if it could be achieved, would certainly have a more direct influence. But I don’t see that happening. The report talks of “stakeholders,” but that term is not defined, and whereas, as far as I have been told, it potentially includes everybody, such a claim to inclusivity falls a little flat if you try to imagine smokers around the world engaging with a 140-page report and an 84-page methodology. Unsurprisingly, currently, stakeholders are largely confined to tobacco/nicotine companies, researchers and investors.

Relative Rankings

The TTI throws up a number of oddities, not the least of which has to do with the understandable decision to compare the 15 largest tobacco companies. Gudang Garam against BAT seems to be a total mismatch, and, given that the index is aimed at informing, in large part, potential investors, the presence of companies that are not publicly traded, though understandable from a nudge theory standpoint, nevertheless looks strange. PMI was said in the press note to be ranked second in the 2022 index and Djarum last, and while I understand that this is how the index’s methodology sees the tobacco world, I have to ask, is this a fair reflection of tobacco harm? If you constructed an index that ranked companies on the number of people worldwide who currently were harmed by consuming those companies’ products, I would guess that Djarum would move up the rankings.
It was disappointing, in my view, that the 2022 report did not cover the environmental credentials of the RRPs on offer, either relative to each other or relative to the higher risk combustible cigarettes they are supposed to replace, though I understand such matters might be covered in the third iteration of the report, which is due out in 2024. RRPs are supposed to comprise a disruptive technology and, if disruptive means anything, it surely means speedy. Is it wise to wait so long for such information to trickle down? We have on the one hand a problem with the diseases caused to individual smokers, which are tragic on an individual basis but contained, and, on the other hand, an existential environmental crisis enveloping everybody, and we seemingly choose to try to fix the first problem and not the second.
Timing is important, and one of the main weaknesses of the TTI seems to be its two-year time frame. The 2022 report took in research through the end of 2021 while the next report is due out in 2024, so this suggests that, unless interim updated TTI reports are issued, the publication schedule is going to provide a three-year drag on the incorporation of anything of significance that occurred in early 2022.
To my way of thinking, the commitment to THR is driven and will be driven by regulations and taxes, and one benefit of the index is that it might influence governments in these areas. And this is important. Taxes are currently set in some jurisdictions so that some RRPs attract revenues much greater than those of combustible cigarettes, and investors are clearly going to put pressure on companies to transform their portfolios while the profits generated by the sale of RRPs are higher than those from the sale of combustible cigarettes. Of course, you would have to be terribly naive to imagine that those same investors would keep up the pressure if the profit advantage were wiped out. There is nothing wrong with this if you believe that the market should be the ultimate arbiter of what is good, though one has to accept, too, that things might head in the other direction.
Finally, I would be concerned that the cynics will have a field day because while the TTI is listed as an initiative of the foundation, in my view, it is not spelled out prominently enough where the foundation’s money comes from: PMI. Despite the fact that the foundation is independent, those cynics will see that the number two company on the list is PMI, which is possibly about to acquire the number one company and move into the number one spot. All above board, I’m sure, but these things have to be seen from the point of view of those with different agendas.
My argument is not that the application of trickle-down THR would be socially destructive in the way that trickle-down economics has been but that it would be slow and there would be more efficacious ways of approaching THR. Why spend the foundation’s money carrying out research that is going to benefit mostly analysts, banks and pension funds that have the resources to carry out such research on their own behalf? Surely, the money should be spent on projects that will more directly help smokers. Even helicopter THR might be preferable to trickle-down THR.

*The Foundation for a Smoke-Free World is an independent nonprofit organization created in 2017 with the mission to end smoking within this generation.
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.
November 1, 2022
Moving Forward

Habanos and its partners remain committed to boosting the global reputation of all Cuban cigar brands.

By Timothy S. Donahue

Cuban cigars have always had a certain mystique about them, primarily as a result of their exclusivity. Earlier this year, they moved even further out of reach for many consumers when Cuba’s state company responsible for the production and distribution of cigars, Habanos, raised prices worldwide to the levels of its premier brands in Hong Kong. In some countries, prices jumped by as much as 300 percent. The announcement triggered massive hoarding by consumers eager to stock their inventories before the price increases took effect. This in turn led to product shortages in many markets, which then prompted several retailers to raise prices even further.
The price hike was a joint decision between Habanos shareholders, including its new Chinese partner, Allied Cigar Corp. (ACC), a Hong Hong-based investment group that in 2020 purchased 50 percent of the Cuban cigar company for €1.23 billion ($1.2 billion).
The result was a perfect storm that spawned considerable amounts of misinformation. The price increases, along with the difficulties in finding cigars in some markets and the secretive nature of the relationship between Habanos and its Hong Kong partners, had rumors swirling. In an interview with Tobacco Reporter during the 55th anniversary celebration of Habanos’ Cohiba brand in September, Leopoldo Cintra Gonzalez, commercial vice president of Habanos, and Jose Maria Lopez Inchaurbe, vice president of development, insisted that there was “no such basis” for any of those rumors.
“Rumors? We are not keen to speculate about any of this,” said Gonzalez. “The new Chinese shareholders—it’s true that they are not coming from the tobacco business, but we have a very good relationship, a very good friendship. They are now starting to be part of Habanos’ future. They are very excited about our future together for sure. There are still many aspects of this business that they are learning, trying to become familiar with. But this is normal. Nothing dramatic to see.”
Inchaurbe said he had spoken with the shareholders of ACC and that it must be understood that while the cigar business may be new to ACC, marketing a luxury good is not. It’s a learning process, and ACC is excited about the Habanos product and bringing the Cuban cigar brands to new heights, he noted. “They know our brand, our product, but they joined us knowing cigars only from [the] aficionado or consumer point of view,” explained Inchaurbe. “And we are in the process of also understanding their targets and goals and explaining our business goals, which can be a learning process.”
All decisions concerning Habanos are made jointly by both companies, added Inchaurbe. He said the new global pricing structure was a common decision between the two shareholders—and one that had been considered by Habanos for some time. After all, he says, there is no cigar in the world equal to the Cuban Cohiba in terms of quality. When a product has all the attributes of a Cohiba cigar—high quality, good presentation, attractive packaging—it must be considered a very high-end luxury good indeed.
“You have a price in Hong Kong or in London that is double the price [of that same cigar] in some other countries. At the end, for the luxury cigar industry, this is a disturbance,” explains Inchaurbe. “What we are trying to do with the global Habanos pricing is, like the many various luxury items in the ‘luxury’ industry, to have a single, global price for all the consumers wherever they are. Our benchmark for Cohiba was Hong Kong, as we clearly stated, because Hong Kong [is a benchmark] for extremely high-quality luxury products.”

Seeds of Success

In fiscal 2021, Habanos earned more than $568 million while experiencing 15 percent growth compared to the previous year. Despite the global pandemic and growing inflation, at the end of 2021, Habanos was operating 20 Cohiba Atmosphere outlets, 160 La Casa del Habano shops, 1,217 Habanos Specialist stores, 2,465 Habanos Points and 486 Habanos Lounge/Habanos Terrace outlets.
When asked whether Cuba had the capacity to produce more cigars to satisfy growing demand, Inchaurbe said that the company was not going to produce “ever more cigars” just to satisfy the demand. The most important factor in producing Habanos cigars is quality, he insisted, and the company will not increase production at the expense of quality.
“The problem is a very nice problem to have,” he said. “There is a lot of demand. This is our problem, but good news.” According to Inchaurbe, demand for high-value brands, such as Cohiba, Trinidad and Montecristo, is higher than what the company can produce at the level of quality required by Tabacuba, the government arm of the Cuban cigar industry in charge of production.
Inchaurbe insists this is not due to problems in production but because cigars are a natural product where you put all the focus on quality. “In my opinion, it’s difficult to say whether the problems of shortages in some retail shops all over the world will continue because demand is too much,” he said. “But of course, together with Tabacuba, with an investment program, we are trying always, especially Tabacuba, to be able to produce more cigars with the same quality. And that is the only way we will have the ability in the future to satisfy the growing demand.”
Habanos’ goal remains to grow every year without compromising the quality of its cigars, according to Gonzalez. Over the past 10 years to 15 years, the company has averaged nearly double-digit growth. However, today, Habanos isn’t necessarily looking to build its brick-and-mortar footprint as in previous years but rather to build on the value of its current assets alongside the global reputation of the Habanos brand. Looking at the first three quarters of 2022, Gonzalez expects the company to experience growth in line with that of 2021.
“Generally speaking, the premium cigar industry is growing for all the manufacturers, all the traders, because there is a big demand,” he said. “There is a great interest in our product. And, as usual, Habanos is the leader in this demand. Our demand continues to be very strong, especially in some emerging areas like Asia-Pacific. Of course, we are also going through difficult periods like this global inflation. This could also impact our business.”
The duty-free business in particular was heavily impacted. “The duty-free channel is not yet 100 percent recovered compared to pre-pandemic levels, and duty-free is a very significant channel,” said Gonzalez. “We are lower than the pre-pandemic figures in the duty-free channel while in the domestic channel, we are growing quite well.”
Innovation is going to be a central focus for Habanos in its quest to boost production and its global presence. Gonzalez said that the company will continue launching new products, innovating its operations and trying to satisfy its clients. The company is also considering possible technological improvements in its supply chain operations to better distribute its cigars.
“We want to prevent transfers [of product] from one market to another,” he said. “That’s why in those specific brands, Cohiba and Trinidad, we decided to harmonize with Hong Kong. Habanos is innovation. It is in our DNA, it’s in our products, in our brands. It’s true; we will continue innovating, launching new products, trying to give to our clients more activities, special activities about the lifestyle and so on because this is the demand from our clients. And regarding the prices, I will say that we will continue monitoring them.”
In the end, both men agree that the true value behind Habanos and its cigars are the factory workers who produce the cigars, the retailers who sell them and the consumers who are dedicated to Habanos’ 27 brands. “We have more than 4,000 specialized point stores in the world that represent, I would say, more than 50 percent of our sales,” said Inchaurbe. “They are in charge of this ship. For us, these new retail concepts that are driving our growth, we are going to continue bringing more points into the family and strengthening the points that we already have in the market. Habanos is poised for great success.”

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

November 1, 2022
Moving Backward

If enacted, Spain’s proposed regulations on vaping products will hamper tobacco harm reduction.

By Stefanie Rossel

In mid-May, a shockwave hit Spain’s vaping industry: The government presented a bill that would end the independent domestic vaping sector. The proposal calls for limiting vapor product sales to state-owned tobacconist shops within five years. Specialized vape shops can stay in business only if they transition into licensed tobacconists—a step that would oblige them to sell combustible products as well. The bill would also ban online sales of vape products.
At a recent conference, Angeles Muntadas-Prim Lafita, chair of the Spanish Association Supporting Vapers (ANESVAP) explained that the proposed legislation means the government wants to monopolize the nicotine market. “A country that is a member state of the European common market wants to monopolize a free and independent market. That’s like going back to a time when Spain wasn’t even a democracy—or even to the Spanish Inquisition,” she said.
Muntadas-Prim Lafita considered it unlikely that vape shop owners would sell combustibles. Established tobacconist shops, on the other hand, might or might not sell vaping products under the planned rules. “This would be harmful for consumers who would be forced to go to a tobacconist to get their vape products—or as many as they could find because it would be up to the tobacconist to decide what he is going to sell,” she said. “In addition, smokers who use vaping to quit more hazardous products might be tempted to purchase combustibles again. It’s like forcing an Alcoholics Anonymous meeting to be held in a liquor store.”
If the bill, which is now in the stage of public consultation, passes, it would also mean the loss of 1,200 direct and 3,000 indirect jobs in times of emerging economic crisis, according to Muntadas-Prim Lafita. Vape shops would have only six months to notify the commission for the tobacco market that they wanted to transition to become tobacconists. “The result of this legislation would be black markets, disobedience and lots of people going back to smoking,” she predicted. “Tobacco control in Spain is one of the fiercest and most stalled in the European Union.”

A Worrying Precedent

Criticism also came from the Independent European Vape Alliance (IEVA), the trade representative of independent producers and retailers of vaping products in the EU.
In a statement, the organization pointed out that the proposed legislation went against the main principles of EU competition law. “Considering the consequences of the proposed measures, the [draft bill] will set a worrying precedent in which legally established business can be unilaterally closed in an EU member state and handed over to a state-owned network of tobacco shops,” the IEVA wrote.
The planned legislation also violates the freedom of movement of goods in the EU and would generate severe adverse economic impacts in Spain and the EU, according to the group. It would drastically cut the European distribution value chain and negatively impact the exports to Spain from other EU member states, as the sales of vaping products in tobacco shops are expected to be extremely limited compared to the ones in specialized shops. Tobacco shops, after all, aim to maximize sales of combustible cigarettes and will be disinclined to devote time to explaining electronic devices to smokers looking to switch to less harmful alternatives.
An online sales ban for vape products would also drastically reduce the movement of goods in the EU as retailers in other countries would no longer be allowed to sell their products in Spain. Lastly, the IEVA said, the proposed law fails to distinguish between combustible tobacco products and noncombustible products as established in the EU’s 2014 Tobacco Products Directive (TPD).
The association called on the Spanish government, medical authorities and other stakeholders that will provide comments on the draft bill to critically reconsider the measure and insisted authorities review the proposed legislation for competition issues.

A Small Market

Compared with markets such as the U.K., vaping in Spain is relatively rare. After pharmaceutical companies lobbied the government for tougher legislation on vape products, the number of vape shops dropped by 90 percent in 2014. Today, there are around 535,000 vapers, which represents an adult vaping prevalence of 1.33 percent, according to the Global State of Tobacco Harm Reduction. This compares to a smoking rate of 27.9 percent, or 11.1 million people.
Vaping devices, like heated-tobacco products, are legal in Spain and can be sold to those aged 18 or older. E-liquids are currently untaxed. Statista estimates that the Spanish revenue service will collect the equivalent of $183.4 million in e-cigarette taxes in 2022. The market is expected to grow annually by 2.89 percent.
The bill is part of a wider effort by the Spanish government to bring its regulatory framework for tobacco products in line with World Health Organization and TPD standards.
The manufacture, advertising and sale of vape products in Spain is regulated under the Royal Decree 579/2017, implemented five years ago, which basically translates the TPD into Spanish national law. The rules ban smoking and vaping in all indoor state-owned public places, on public transport and in some outdoor places, such as parks. Advertising of vape products on TV is allowed, though there are regulations about the type of program and the times of day in which advertisements may be broadcast. Cross-border sales of e-cigarettes are prohibited.

A Tough Stance

In December 2021, the government published the draft of its “Comprehensive Plan for Smoking Prevention and Control 2021–25,” which aims to extend anti-smoking legislation from 2006 to include vaping products. During the consultation period, several Spanish medical societies took a hard stance on vaping, saying e-cigarettes are an ineffective tool for smoking cessation and asking the government to regulate them like combustible tobacco products.
Among other things, the plan aims to make more places—including private vehicles—smoke-free and vape-free, ban all e-liquid flavors except tobacco and introduce plain packaging for combustible cigarettes, vape devices and e-liquids.
Following a June 2021 report by the National Committee for the Prevention of Smoking, the plan also called for the taxation of vapor products. The report proposed a general e-liquid tax at the EU average rate of €0.15 ($0.15) per milliliter and an additional tax of €0.006 per milligram of nicotine. This would amount to an average tax rate of 35.6 percent, enabling the Spanish government to collect €35 million in taxes per year, according to the National Committee. With all measures combined, the government aims to reduce the percentage of the population that smokes to 10 percent by 2040.

Uncertain Outcome

According to the World Vapers Alliance analysis, the draft plan is biased against vaping, selectively citing studies, many of which have already been refuted. However, it didn’t consider studies acknowledging the harm reduction potential of vape products, such as the findings of Public Health England that vaping is 95 percent less harmful than smoking and may serve as an important smoking cessation tool.
“What this means is that the government wants to make it harder to vape than to smoke,” the organization stated. “Overall, the government draft shows the lack of knowledge politicians have on harm reduction tools, such as vaping, and the need for vapers to press them and tell their stories. Public health laws need to be based on evidence and not on stigma.”
The ANESVAP has started collecting signatures for a petition urging Spain to keep vapor taxes low and e-cigarettes accessible for customers. It also calls on regulators to keep online sales legal, allow an appropriate range of flavors and differentiate between vapor products and combustible cigarettes in smoke-free places.
The busy schedule of the Spanish government leading up to next year’s general election presently plays into the hands of the country’s vape community. Already more than a year behind schedule, the plan is now less likely to be brought before the Spanish Parliament soon, according to ECigIntelligence, which expects the bill to be discussed next year at the earliest.

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.

November 1, 2022
Show of Support

Speakers at the InterTabac/InterSupply trade shows expect steady growth for next-generation products.

By Timothy S. Donahue

China is the capital of e-cigarette production. It only makes sense to look at the vaping environment in the country to gauge the future of the industry. Jason Tian, director of development of 2FIRSTS, a vaping industry vertical media firm, and diplomatic assistant for the E-Cigarette Professional Committee of the China Electronics Chamber of Commerce (ECCC), said during an InterTabac/InterSupply trade show, held in Dortmund, Germany, in September, that e-cigarette production in China is growing rapidly.
A joint report from the ECCC and 2FIRSTS anticipates the global e-cigarette market to grow by 35 percent in 2022. The total market is expected to exceed $108 billion. In 2021, China’s total e-cigarette exports were $19.8 billion and were expected to reach $26.7 billion in 2022. Disposable e-cigarettes accounted for 65 percent of that growth; open systems accounted for 17 percent and pod products accounted for 8 percent in 2022. The main export destinations were the U.S., the EU, Russia, the Middle East and the U.K. Together, these markets accounted for 93 percent of China’s e-cigarette exports.
It seems that no matter where you go in the vaping industry, everybody wants to discuss the growth of disposables—and indeed, they dominate the InterTabac/InterSupply show floors. And while disposables are the fastest-growing segment of the industry, the one-time use vapes are devastating for the environment, according to several speakers during the event. A member of the European Confederation of Tobacco Retailers (CEDT) quipped, for example, “These [disposables] are really not up to date because it’s not sustainable for a society to have throwaway products.”
Tian said that new regulations in China are motivating companies to invest more heavily in R&D, including areas of sustainability, flavors and delivery. This is going to help boost the global vaping market, he predicted. “There’s going to be more investment,” said Tian. “And we predict that in the next one or two years, there’s going to be a new technological change in e-cigarettes. That’s a very optimistic look,” Tian explained. “And on the market side, though, with the strict regulation of China’s domestic market, more and more Chinese companies are going to be accelerating in their global development. They probably will put more investment in and … may do more partnerships around the globe.”
Speaking to visitors of the world’s largest tobacco/nicotine industry tradeshow, Tian told business owners, investors and other industry players that companies importing products from China or considering investing in a company that imports products from China need to be sure their China-based suppliers have a license issued by China’s State Tobacco Monopoly Administration.
“This is actually a guarantee for you and your consumers that the products that you are importing are safe, are quality guaranteed and are legal. Second, make sure your Chinese suppliers have sufficient production quotas. Every company with a license—they have a quota that limits how much they can produce yearly,” said Tian. “Once they’ve reached the quota, it seems to be a very simple path—simple paperwork, simple filing—but you have to make sure your demands [can be] met by the quota.”

Companies working with Chinese suppliers need to be sure to have registered trademarks for their products, and those products must also meet any regulatory requirements of the country in which the products will be sold. If a country doesn’t have any e-cigarette regulations, China’s regulations would apply to that country.
“We want to encourage everybody, the industry as a whole … to be compliant with the laws in the country that they are working with,” said Tian. “We want to healthily grow this e-cigarette environment, the e-cigarette industry,” he said. “To register [your] trademark is to protect your own back … protect yourself, protect your own brand.”
While synthetic products are illegal in China, the country does allow for the export of nontobacco nicotine products. At least one company has been granted a production license for such products. Tian said that China issues separate licenses for imported and exported products. “There’s a difference in the quotas. But once you have a domestic use license, you’re for sure going to have an export license. But they’re not the same. The quotas are different,” he said. “But if you’re only export, only export[s] are still needing [a] license.”
The EU is expected to introduce equivalent legislation for tobacco products, including nontobacco nicotine products, in the next few years, according to Pablo Cano Trilla, director of legal analysts for Tobacco Intelligence at ECigIntelligence. He also expects the heat-not-burn market to grow more rapidly than in previous years.
“[In the EU, heated tobacco] is a big boy in the category already: over $5 billion in market size in 2021,” said Trilla. “And we expect that by 2025, it will be over $13 billion. This means that, nowadays, it’s about two times the size of the vaping sector. In 2025, we would expect it to be four times bigger than vaping. So, it’s growing very fast in the EU.”
Trilla anticipates a future where only tobacco product flavors are allowed in the EU. While he doesn’t expect the trade block to implement U.S.-style regulations, with premarket authorization requirements, the growing concern about youth vaping could bring flavor bans. Trilla also anticipates plain packaging, progressive limitations on advertising and increases in environmental laws concerning e-cigarettes. He also said online sales are unlikely to continue.
“I guess you all know that with the [U.S. Food and Drug Administration], basically you need to get authorization from the authorities before your product is allowed in the market. Why don’t we think this will happen [in the EU]? Our guess [is] because of basically a practical reason. Any country in the world, any authority in the world, everyone knows what has happened to the vaping industry in the U.S.,” he said. “How complicated it has been for the United States government to manage the thousands and thousands of applications of PMTAs [premarket tobacco product applications]; how many legal challenges they are having now. Premarket approval [requirements] are unlikely in the EU.”

Reaction Time
Following the disruption caused by the Covid-19 pandemic, the nicotine industry trade show scene in Europe is getting back to normal. Several exhibitors and attendees in Dortmund said it was beneficial for the industry to be able to showcase its innovations again. Oliver Pohland, CEO of the German E-Cigarette Retailers’ Association, said the growth of InterTabac/InterSupply 2022, with over 600 exhibitors (including an estimated 160 first-timers) and the more than 12,000 visitors, highlights how interest remains high in e-cigarettes as a risk-reduced alternative to combustible cigarettes.
“A large number of exhibitors from our industry across Germany and beyond, including many who were attending InterTabac for the first time, took the opportunity to present new innovations and products for adult smokers,” he said. “Important contacts were made, and face-to-face conversations [were] conducted again after a long absence.”
Dennis Dahlmann, CEO of InnoCigs, and Dustin Dahlmann, chief financial officer at InnoCigs, said the draw of InterTabac is its high-quality visitors. “It is of great importance for us to generate new customer relationships and above all to maintain and deepen our existing contacts,” they said. “We had the impression that the quality of the show had improved again compared to three years ago.”
Rico Winkel, marketing manager at Dinner Lady, said that it was important to again be able to “present oneself and win potential new customers” face-to-face after InterTabac had been canceled for two years due to Covid. “This year, we’ve also been focusing on communicating new products,” Winkel said. “Also, the wide span of products we’ve [been] able to experience during these three days is giving us inspiration for evolving our own product range.”
Jan Muecke, CEO of the German Association of the Tobacco Industry and Next-Generation Products (BVTE), said his organization was able to “marvel at the innovative strength” of the next-generation products industry during InterTabac. “Society and the economy are in a state of upheaval, and this year’s show has illustrated that the entire tobacco industry is united as we go through it,” said Muecke. “With new ideas, solutions and innovations, the nicotine and tobacco industry is getting ready for a sustainable future.” —T.S.D.

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

November 1, 2022
Perceptions of Nicotine

Photo: Chris Ferenzi Photography

Participants in “The Perceptions of Nicotine” panel during the GTNF 2022, held in Washington, D.C., in September, began the conversation by drawing comparisons to similar consumer products, most notably caffeine. Nicotine is found in tobacco leaves, but it’s also found, at lower levels, in plants, such as tomatoes, potatoes, eggplants and sweet peppers. However, by far its predominant source is in tobacco leaves.
Caffeine can also be found in multiple food sources, including coffee beans, tea, cocoa beans, Kola nuts and guarana berries. The amount of caffeine in guarana berry seeds is about the same as the amount of nicotine in tobacco leaves, up to about 4 percent, according to a panelist. Unlike caffeine, however, nicotine is tied to tobacco. Nicotine is a public pariah while caffeine is socially acceptable. The panelist agreed that this is due to the differences in how the public has been educated on these products. Medical professionals, for example, get much of their information from medical societies, one panelist noted.
One challenge is that the public and even many medical specialists don’t distinguish between nicotine and smoking. “I think that’s part of the problem,” a speaker said. “How do we untangle that? Nicotine does not produce disease. It’s not carcinogenic. It does increase heart rate and blood pressure. And perhaps there are some positives … it’s a stimulant, it induces pleasure and it improves concentration, reaction time [and] performance on some tasks, but it can also reduce stress and anxiety.”
For consumers, when asked why they smoke, the most common answer is for enjoyment and pleasure; however, nicotine ranks low on the list of motivations. But when you ask a smoker, “Why do you find smoking difficult to quit?” the answer is “because I’m addicted—addicted to nicotine.” One panelist said when consumers want medical information, more than 70 percent say the first place they go is the internet. The misinformation is rampant, even from seemingly trustworthy sources.
“The first place that they turn for health-related information is the internet. More than 70 percent of people say that’s the first place they go when they’re looking for information … because it’s easy to use, and they find information that way,” a panelist said. “Just doing the quick search yesterday, you put in electronic cigarettes into the Google search engine, and the first thing you see is the Center[s for] Disease Control [and] Prevention website, which is great; it’s a government resource. The Office on Smoking and Health is the place within the federal government for information on health and smoking.
“But when you click on that link, the first thing you see is information on the EVALI [e-cigarette or vaping product use-associated lung injury] outbreak. The headline is [about an] outbreak of lung injuries from e-cigarettes and vaping products. That’s not the right way to help people understand the comparative risks between cigarettes and electronic cigarettes and nicotine-replacement therapy and other lower risk [nicotine] products.”
Many years ago, smoking and addiction were joined together, and that has now created the assumption in the public that nicotine use equals smoking, which equals addiction. It’s not helping people who smoke understand how they might be able to use the products that are available, including lower risk tobacco and nicotine-containing products as well as nicotine-replacement therapy, to quit smoking. Panelists agreed the misconception was doing more harm than good for public health.
The way vaping and tobacco products are regulated is also partly to blame, according to the panel. Tobacco companies are very limited in the amount of information they can provide on their products. Swedish Match, for example, was the first company to receive an authorization for a modified-risk tobacco product. The U.S. Food and Drug Administration, however, severely restricted the ways in which Swedish Match could communicate the lower risk of its product to consumers.
“We got super excited internally. I mean, here we have a product, it had no carcinogens, no tar, no nitrosamines, significant risk reductions, and when we started looking at how and what we can communicate, it was incredibly limited … as we were going through our process, we had [tried] to figure out how to tell consumers this was different without telling them it was different,” explained a panelist representing Swedish Match. “It was very challenging. We were trying to figure out how to use different colors and different cues. It was a brand-new category, so we’re trying to educate people on a brand-new category with a can, and you didn’t even know what was in it …. It was incredibly difficult to try to do that.”
Swedish Match also gathered customer testimonials, but regulations kept the company from doing anything with them. Another panelist explained that consumers do not separate nicotine from tobacco. Nearly 80 percent of the population agree that those are virtually the same. When asked to compare the risks of products, people list tobacco as the most harmful, followed closely by nicotine and then alcohol.
Caffeine, however, is on the other end of the scale. “Caffeine is on a totally different end of the spectrum. Interestingly, when we think about where the market is moving and things are moving relative to legality, you look at CBD, look at THC, [and caffeine] is more closely associated from a harm perspective to CBD and THC,” a speaker said. “In terms of addictiveness, 96 percent of U.S. consumers would say that nicotine is addictive. Only 76 percent say that caffeine is addictive. But then, you look at harmfulness to health. You can see this wide gap that exists in terms of … the core chemical, 89 percent versus 46 percent in terms of harmfulness to health [nicotine versus caffeine].”
The panelists argued that people who smoke combustible cigarettes are less likely to try less harmful products if they perceive those products to be no different than what they’re currently using in terms of harm. There’s very little motivation for them to try them. There is also very little the industry can do to reverse the misinformation surrounding nicotine.
“The industry’s hands are tied with regard to the voice that the industry can have. But I think the role that the industry can play in it is to continue to develop high-quality, lower risk products that are acceptable alternatives for cigarettes for people who smoked cigarettes, and then get those through the regulatory process,” a panelist said. “It’s up to the FDA to communicate to consumers that there are less risky products to consume nicotine.”

October 31, 2022
‘Forgotten’ Smokers

Photo: Chris Ferenzi

Rather than being “forgotten,” as the session’s title suggested, people who smoke are an unexplored, stigmatized and often misunderstood species, according to the participants in a GTNF discussion about consumers. While consumer centricity has become a buzzword in the reduced-risk product industry, companies still have a lot to learn about their target group.
Altria, whose vision is to responsibly lead the transition to a smoke-free future, examined the plight of consumers on their journey to less hazardous products. “We had done a comprehensive research program about the interest in vape products, but what was really missing was to bring the voice of the consumer directly to the organization,” said Brent Taylor, managing director of consumer and marketplace insights at Altria.
Last year, the company initiated “Project 21,” a study of 21 consumers of combustible tobacco who were interested in switching to less harmful nicotine products (see “Listening to Nicotine Users,” Tobacco Reporter, September 2022). Over 21 days, Altria’s researchers catalogued the study participants’ behavior via videos and weekly surveys. The participants were asked to “do their best” but didn’t get any guidance, as Altria wanted to learn how they tackled the challenge on their own. Their progress was checked after three weeks, three months and six months.
After six months, 15 participants were still smoke-free. The people who were most successful were those who really wanted to switch and held themselves accountable. The project also showed that many factors unrelated to the product category, such as a bad day at work, impacted the success of participants in transitioning. Each of the journeys was unique and entailed its own set of complications. For all participants, it was a highly emotional experience, according to Altria.
Kim “Skip” Murray, a person who vapes and a tobacco harm reduction (THR) advocate who until last year ran a vape shop in Minnesota, related experiences from her customers that illustrate how external factors, such as misinformation and economic strain, can impact attempts at switching. One of her customers, a Vietnam veteran with chronic obstructive pulmonary disease, returned to smoking for some months after press reports and health authorities mistakenly attributed the e-cigarette or vaping product use-associated lung injury (EVALI) outbreak to nicotine vapes.
Some clients reverted to more harmful but less expensive cigarettes when their budgets were tight. Discouragingly, the Food and Drug Administration’s marketing denial orders forced products off the market that had helped Murray’s customers quit cigarettes while leaving combustible products widely available. Murray said she was unable to dispel the myths about EVALI and many of the other false narratives about vaping. The number of people who came into her shop wanting to quit dropped substantially, eventually forcing her out of business.
Alex Clark, CEO of the Consumer Advocacy for Smoke-free Alternatives Association, stressed the importance of language in the smoking and health debate. “Smoker,” he said, has become a pejorative term. “We’re now focusing on people who have a history of being underprivileged, undeserved and oppressed—people who we don’t see in offices or at conferences; people who have been pushed to the margin of society.” Having smoked heavily in his youth, Clark recalled being told that his habit was a character flaw. The stigma of having no control over his decisions and essentially being a drug addict, Clark said, stuck with him even after he had switched to vaping.
Most of the 30 million Americans who smoke today belong to vulnerable groups, suffering, for instance, from mental illness or unemployment, according to health behavior consultant Cheryl K. Olson. Among people in custody, the percentage of people who smoke is four times higher across the world. Together with other researchers, Olson explored the potential of vape products for use in a prison environment and found that the acceptance was 95 percent. “For vulnerable groups, harm reduction is a realistic goal if nicotine abstinence is not,” she said. “Our findings about these groups have the potential to rebalance the conversation about appropriateness for the protection of public health.”
Will Godfrey, editor-in-chief of Filter and executive director of the Influence Foundation, bemoaned the lack of synergy between harm reduction for illegal drugs and harm reduction for tobacco.
Many illegal drug users smoke, and it would make sense to apply harm reduction strategies to both habits. In reality, those running drug-related programs are often unwilling to apply harm reduction to tobacco use. Bizarrely, some needle exchange programs for intravenous drug users are accompanied by anti-vaping policies, noted Godfrey.
He blamed the “deep suspicion” of the nicotine industry within the left-wing harm reduction movement as well as the growing influence of Bloomberg Philanthropies, a big funder of anti-smoking programs that is notoriously hostile to vapor products.
Godfrey urged the administrators of drug harm reduction programs to extend the harm reduction principle to smoking. “It is vital that THR, including the industry, builds momentum in this direction,” he said. “The hostility to the industry won’t go away but is surmountable, as the role of pharma in drug harm reduction has shown.”

October 31, 2022
Joe Murillo

Photo: Chris Ferenzi Photography

Joe Murillo is right. It is hard to believe that the U.S. Food and Drug Administration reviewed Juul’s premarket tobacco product application (PMTA) thoroughly. Murillo, chief regulatory officer for Juul Labs, told attendees of the GTNF 2022 that the regulatory agency wrongly issued Juul a marketing denial order (MDO). That order was later stayed by both a court and the FDA itself.
The FDA says it follows the science; Murillo counters that the entire process is “substantively and procedurally flawed,” adding that the MDO was not based on a fair and complete review of the science in Juul’s PMTAs.
“Our PMTAs included over 125,000 pages of data. They included information and analyses from over 110 scientific studies, and these studies cut across nonclinical, clinical and behavioral research programs,” he said. “We assessed our products relative to combustible cigarettes … and relative to other marketed [electronic nicotine-delivery system] ENDS products. It seems as though, among other things, FDA overlooked at least 6,000 pages of these data.”
Murillo said that the FDA prides itself on having the “highest scientific integrity and public health focus, shielded from political interference.” That statement mirrored what was said by the director of the FDA’s Center for Tobacco Products, Brian King, who spoke at the same conference. “Ultimately, it comes down to the science … it’s very critical, to me, to ensure that we use that as our guiding light,” King said (see “Reservations Required,” page ?).
Despite that stated commitment, the PMTA review process appears to be susceptible to politics, according to Murillo. He noted that the FDA has been under immense pressure to deny Juul Labs’ applications and remove Juul products from the U.S. market. “This political pressure cannot continue,” said Murillo. “FDA cannot allow the hostile conversations around tobacco harm reduction to seep into what should be a science and evidence-based process. The very integrity of the FDA’s review process is now called into question. The FDA must guard against politics and improper attempts to influence their scientific decision-making. We need to find common ground, turn down the temperature of the rhetoric and put people who smoke [combustible cigarettes] at the center.”
Juul Labs is now in a fight for its future. After the e-cigarette maker appealed the MDO in court, the FDA on July 5 stayed its own order. The agency announced that it would review its decision after determining that “There are scientific issues unique to this application that warrant additional review.” Alongside the agency’s internal review, Juul Labs also submitted its own administrative appeal with the FDA.
“In this appeal, we demonstrate how the agency’s denial of our applications was substantively and procedurally flawed,” said Murillo. “We requested, among other relief, that FDA rescind its denial and put our applications back into substantive review. Throughout this process, Juul products will remain on the market, and we are confident we can address any further questions the agency may have. So, we will continue to fight for the millions of adults who use our products. They deserve a complete review of the science and evidence we presented as required by law and without political interference.”
Murillo said that while underage use is a concern, last year’s National Youth Tobacco Survey (NYTS) showed a significant decline in underage use compared with just two years ago, and youth use of cigarettes continues to decline to historic lows. Murillo said the decline in underage years can be attributed to many factors, including raising the minimum purchasing age to 21 and measures to further restrict access and limit appeal.
“But not all trends related to underage use are positive. Many of us are worried about the rise of disposable flavored products among youth,” he said. “In the United States, fly-by-night companies have flooded the market with illegally marketed products. These products flout laws and regulations and present a public health danger.”
According to Murillo, regulators must improve and prioritize enforcement. “True Age, NACS and other stakeholders are firmly committed to reducing and preventing underage access to tobacco products at retail,” he said. “Scientists and public policy experts have put forward thoughtful solutions to preserve the harm reduction opportunity for adults while also protecting youth.”
Meanwhile, regulatory uncertainty has created immense barriers to innovation in reduced-risk products. This uncertainty diminishes confidence in the products themselves and the category, according to Murillo, who said that uncertainty “has a chilling effect” on investment and further innovation.
“To be crystal clear, this uncertainty only prolongs cigarette use,” he said. “Despite challenges for alternatives like ours, with the PMTA process, new combustible cigarettes continue to receive authorization via substantial equivalents and even PMTA and MRTPA [modified-risk tobacco product application] pathways; 13 years after the passage of the Tobacco Control Act, cigarettes remain far and away the most used tobacco product in the United States, making up over 75 percent of the market.
“Less than 3 percent of the total tracked ENDS market is authorized under FDA’s PMTA process … the rest of the market, the vast majority of ENDS products fall into one of three precarious buckets,” explains Murillo. “One, those being sold illegally. This includes companies that have not even submitted to the PMTAs. Two, those awaiting a marketing decision from FDA after years of review; or three, those stuck in a highly opaque administrative process—one that’s subject to a shifting requirement and unpredictable timelines.”
Innovative products that are specifically designed to advance public health have a steep road ahead in the U.S. Murillo said this is alarming. While the technology is available to accelerate the displacement of combustible cigarettes, a slow and uncertain path to the market is a significant obstacle.
“The data suggests that ENDS sales are displacing cigarette sales. So, we can see an emerging path to end the combustible cigarette once and for all. Unfortunately, that path remains blocked by a political and regulatory environment that inhibits meaningful progress … I think most of us in this room appreciate that combustible cigarettes will one day be obsolete,” he said. “Undoubtedly, that is our company’s goal. It’s not a question of whether, but of when … As an industry, we can accelerate this public health goal through product innovation and evidence-based policy development. But the viability of the marketplace is at stake, especially for those companies that don’t sell cigarettes.”
Murillo said an example of innovation in a market that is more accepting of ENDS products as a tool toward harm reduction can be found in the U.K., where Juul Labs launched its Juul 2 product last year. The platform includes cutting-edge technology designed to deliver a more consistent vapor experience with improved nicotine delivery. Its temperature control minimizes the production of toxicants, and the platform can help address underage use through its pod technology.
“We’ve also developed a mobile app that can be used for age verification and locking the device when it’s out of the range of a user’s phone,” said Murillo. “The app has other features that enhance the experience for users as they switch away from cigarettes. We’re confident that Juul 2 delivers a better experience for adult smokers than products currently available, which should result in increased switching from combustible cigarettes.”
In the end, Murillo said he is disappointed with where the ENDS industry is currently, but he has a genuine belief that there is an endgame for combustible tobacco. “Society cannot allow the death and disease associated with smoking to be a part of the incremental progress we’ve made,” he said. “Absent a renewed and fundamental commitment to the very concept of harm reduction, we will lose this opportunity.”

October 31, 2022
Sales up at Swedish Match

Photo: Swedish Match

Sales of Swedish Match increased by 21 percent to SEK5.78 billion ($525.77 million) for the third quarter of 2022. In local currencies, group sales increased by 5 percent. The group’s operating profit increased to SEK2.4 billion from SEK2.08 billion in the comparable 2021 quarter.
Operating profit from product segments increased by 15 percent to SEK2.4 billion. In local currencies, operating profit from product segments declined by 1 percent for the third quarter.
In local currencies, operating profit grew by 12 percent for the smoke-free product segment. For the cigars product segment, operating profit declined, impacted by lower volumes. The lights product segment faced particularly tough conditions and reported a steep decline in operating profit.
Lars Dahlgren
Profit after tax increased to SEK1.78 billion from SEK1.54 billion in the comparable 2021 quarter.
Swedish Match attributed its performance to continued momentum for the U.S. smoke-free business and the strong U.S. dollar.
“Our core smoke-free business, and especially our nicotine pouch businesses, continued to demonstrate strength and attractive prospects, both commercially and from a tobacco harm reduction perspective,” said Swedish Match CEO Lars Dahlgren in a statement. “While we experienced some challenges in the quarter, underlying developments in several of our businesses were stronger than what the reported financials portrayed.”

October 31, 2022
Comments in FDA Assessment Suggest Agency in Disarray

Photo: BillionPhotos.com

The U.S. Food and Drug Administration is in disarray and influenced by outside forces rather than scientific research, according to several comments submitted to the Reagan-Udall assessment of the performance of the FDA’s Center for Tobacco Products (CTP).
In July, the FDA commissioned an independent review of the agency’s food and tobacco programs following months of criticism over its handling of a baby formula shortage and e-cigarette reviews. FDA Commissioner Robert Califf chose the nonprofit Reagan-Udall Foundation, a nongovernmental research group created by Congress to support the FDA’s work, to perform the review.
As part of its work, the Reagan-Udall Foundation has been soliciting feedback from stakeholders.
Many of the comments paint a picture of an agency struggling to fulfill its mandate.
One commenter said that reviewers of premarket tobacco product applications (PMTAs) in the CTP Office of Science lack the autonomy to exercise “best scientific practices” in their reviews of PMTAs.
“Scientific disagreement is frowned upon, if not entirely suppressed, and punished through various backhanded methods (e.g., lack of assignments, projects and other opportunities that are needed for career development/promotion),” this person wrote.
“In some divisions (e.g., Division of Nonclinical Science), leadership pushes a ‘gotta get ’em’ mentality onto staff, which is unsupportive of a reviewer’s fundamental duty to provide an unbiased review using the best available science.”
Another commenter claims that arbitrary and politically driven timelines set externally (by a judge for example) are driving reviews as opposed to allowing for a thorough scientific review. “When errors are found, the CTP reviewers are blamed when in fact the lack of adequate time to complete the reviews are at fault.
“Staff are burned out and constantly told to do more in less time and blamed for not meeting insane deadlines,” the commenter wrote. “In cases where reviews are finished and scientific decisions are made, they are also overruled by political agendas and pushed to change decisions.”
To read all comments, please visit the Reagan-Udall Foundation’s stakeholder portal.

October 31, 2022