Blog - Tobacco Reporter

Philippines Starts Vape Law Consultation

The Philippines Department of Trade and Industry (DTI) will begin consulting the public for the crafting of the implementing rules and regulations (IRR) of the country’s new vape law today, reports ABS-CBN News.

“For private stakeholders who have an interest on the crafting of the IRR, they are included, and we will consider all inputs or all comments that were sent,” said DTI Undersecretary Ruth Castelo.

The Philippines’ Vaporized Nicotine Products Regulation Act governs the importation, manufacture, sale, distribution and use of vape products. Among other measures, it calls for lowering the vaping age to 18 from 21.

The DTI was tasked to craft the IRR following the transfer of the regulation of vapes from the Food and Drug Administration.

The proposal was submitted to the Presidential Palace on June 24, days before then-President Rodrigo Duterte stepped down from office. Because the executive branch did not act on it within 30 days, the proposed legislation lapsed into law in July.

October 24, 2022

Nicotine-Degrading Bacteria Identified

Chinese and U.S. scientists have identified a bacteria in the human stomach that can degrade nicotine, reports the Xinhua News Agency, citing a new study published in Nature.

A colony of gut bacteria was found to have reduced intestinal nicotine concentrations in nicotine-exposed mice.

Nicotine is known to activate an intestinal molecule called AMPKα. These molecules contribute to the progression of nonalcoholic fatty liver disease (NAFLD), according to the study.

The authors suggest that Bacteroides xylanisolvens can help reduce smoking-exacerbated NAFLD progression.

The study involved researchers from Peking University, Zhejiang University, Fudan University, the First Affiliated Hospital of Wenzhou Medical University and the U.S. National Institutes of Health.

October 24, 2022

Smoore Presents Feelm Max in Jakarta

Smoore presented its Feelm Max disposable technology solution at the Indonesia Electronic Atomization Exhibition (IECIE 2022), which took place at the Jakarta International Convention and Exhibition Center.

Speaking at the exhibition, Smoore Vice President Clayton Shen highlighted the importance of technological innovation in driving progress in the vaping industry.

Feelm Max features a ceramic coil technology that offers more puffs and consistent flavor, according to a company press release. It is currently sold in more than 10 countries, including the United States and the United Kingdom. Other features include a semi-translucence mouthpiece and environmentally friendly packaging.

During his presentation of the Feelm Max, Shen explained that the closed system is the fastest-growing category in the new tobacco market and will claim a significant market share in the long run.

According to Smoore, ceramic coils solve longstanding challenges such as liquid leakage and burnt taste. Ceramic coils, said Shen, are used by leading vapor product manufacturers, such as Reynolds Vapor Co., Relx and Njoy.

One of the most influential exhibition platforms for companies operating in the vaping sector, the IECIE covered an area of over 12,000 square meters in Jakarta, with over 100 exhibitors and more than 10,000 visitors.

In recent years, Southeast Asia has become a new industry hub by virtue of its population base and market development potential. Euromonitor expects the Southeast Asian vaping market to grow by 29 percent in 2023.

October 24, 2022

ITC Reports Strong Quarter

ITC of India reported continued strong performance across its business segments for the quarter that ended Sept. 30, 2022. The company’s gross revenue and EBITDA were up 27.1 percent year-one-year.

Revenue from the cigarettes segment was up 23.3 percent over the comparable 2021 quarter, benefiting from a stable fiscal environment and authorities’ enforcement actions against the illicit tobacco trade.

“As seen in the past, stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, continues to enable volume recovery for the legal cigarette industry from illicit trade, thereby engendering domestic demand for Indian tobaccos while also mitigating loss of tax revenue to the exchequer,” ITC wrote in a statement.

“The company continues to engage with policymakers for a framework of equitable, nondiscriminatory, pragmatic, evidence-based regulations and taxation policies that balance the economic imperatives of the country and tobacco control objectives, cognizing for the unique tobacco consumption pattern in India.”

ITC also reported progress in the construction of a modern facility to manufacture and export nicotine and nicotine derivatives, which is carried out by the company’s wholly owned IndiVision subsidiary.

Designed to manufacture high-purity nicotine derivatives conforming to U.S. and EU pharmacopoeia standards, the facility is expected to be commissioned by the end of the current financial year.

October 21, 2022

Jamie Ashton Appointed to Pyxus Board

Pyxus International has appointed Jamie J. Ashton to its board of directors following the resignation of Holly Kim, a partner of Glendon Capital Management. Ashton will serve as a member of the board’s audit and compensation committees.

Ashton is a senior vice president of Glendon Capital Management, which together with its affiliates is a significant shareholder of Pyxus.

“On behalf of the company’s board of directors, I thank Ms. Kim for her dedicated service to our company,” said Pyxus President and CEO Pieter Sikkel in a statement. “She was an active advisor in redefining the company’s strategy, and her valuable guidance has significantly contributed to our steady business performance over the past two years.”

“I am pleased to welcome Mr. Ashton to the board,” added Sikkel. “As a close colleague of Ms. Kim’s, Mr. Ashton has a deep familiarity with our company and we look forward to his direct contributions to our board.”

October 21, 2022

PMI Sweetens SM Bid

Philip Morris Holland Holdings (PMH), an affiliate of Philip Morris International has increased the price of its bid for Swedish Match to SEK116 ($10.34) per share from the SEK106 per share offered in May. The company announced it would not further increase the price in its revised offer.

According to PMI, the new price offered represents a premium of 52.5 percent compared to Swedish Match’s closing share price of SEK76.06 on May 9, 2022; 52.9 percent compared to the volume-weighted average trading price of SEK75.86 during the 30 trading days ending May 9, 2022; and 60.4 percent compared to the volume-weighted average trading price of SEK72.33 during the 90 trading days ending May 9, 2022.

“We believe the best and final price in our revised offer for Swedish Match provides very compelling value for the shareholders of both Swedish Match and PMI,” said PMI CEO Jacek Olczak in a statement.

“The price in the revised offer primarily reflects the higher net value to PMI related to the portion of Swedish Match’s cash flows that are generated in U.S. dollars, given currency movements since the initial offer was announced in May.

“Moreover, we believe that the deterioration in the global economic outlook, equity markets and the interest rate environment since the time of the initial offer strengthens yet further the attractiveness of the revised offer to Swedish Match’s shareholders. The revised offer retains a 90 percent acceptance condition, which is critical to capture the full potential of the combination. Should the offer fail, we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio in the U.S.”

“The price in the revised offer primarily reflects the higher net value to PMI related to the portion of Swedish Match’s cash flows that are generated in U.S. dollars.”

Jacek Olczak, CEO, PMI

In May, PMI bid about $16 billion for Swedish Match, which is best known for its smokeless products, including the successful Zyn nicotine pouches that have been taking the U.S. market by storm. Swedish Match’s board of directors recommended shareholders accept the offer, but some investors, including Elliott Management Corp., object, saying the bid undervalues their firm.

Raising the offer is made easier for PMI by the gains of the U.S. dollar against the Swedish currency since the deal was struck. Other factors that went into the revised offer were inflation, volatility in equity markets and changes in interest rates, according to a source at The Wall Street Journal.

In related news, PMI has struck a deal with Altria to buy back the U.S. commercialization rights for IQOS, Philip Morris’ heated-tobacco device.

IQOS and the proposal to buy Swedish Match are part of PMI’s strategy to generate more than half of its annual net revenue from smoke-free products by 2025, up from about 30 percent currently.

October 20, 2022

PMI Acquires U.S. IQOS Rights From Altria

Philip Morris International will pay Altria Group approximately $2.7 billion for the exclusive U.S. commercialization rights to the IQOS tobacco-heating system effective April 20, 2024.

“We remain committed to creating long-term value through our vision,” said Altria CEO Billy Gifford in a statement. “We believe that this agreement provides us with fair compensation and greater flexibility to allocate resources toward ‘moving beyond smoking.’”

In 2013, Altria entered into a series of agreements with PMI related to innovative tobacco products, which included exclusive U.S. commercialization rights of Altria subsidiary Philip Morris USA to the IQOS system. PM USA’s commercialization rights were subject to an initial five-year term, which began when the system received authorization from the U.S. Food and Drug Administration in April 2019 and continued through April 2024.

As part of the 2013 agreement, PM USA had the right to maintain exclusive U.S. commercialization rights upon achieving an initial milestone by April 2022. Upon achieving additional milestones, PM USA had the option to renew for an additional five-year term through April 2029.

While Altria believed it achieved the required milestones, PMI disagreed. The parties were unable to reach a long-term agreement and decided to enter into the agreement to transition and ultimately conclude their relationship.

Altria received $1 billion from PMI upon entry into the agreement. Under the terms of the deal, PMI is obligated to make an additional payment of $1.7 billion (plus interest) by July 2023 for a total cash payment of approximately $2.7 billion (pre-tax). Altria expects to use the cash proceeds for several items, which may include investments in pursuit of its vision, debt repayment, share repurchases and general corporate purposes. Share repurchases, Altria said, depend on marketplace conditions and other factors and remain subject to the discretion of its board of directors.

Altria expects to record the $2.7 billion pre-tax transaction amount as a deferred gain on its consolidated balance sheet in the fourth quarter of 2022. This gain will be recognized in earnings when the company assigns its rights to the IQOS system.

IQOS and Marlboro HeatSticks are currently unavailable for sale in the U.S. due to orders imposed by the U.S. International Trade Commission that prohibit importation of IQOS and Marlboro HeatSticks into the U.S. relating to a patent dispute. PMI remains responsible for manufacturing the IQOS system and Marlboro HeatSticks and targets resumption of product supply in the first half of 2023. If supply of FDA-authorized product is available to Altria before May 2024, PM USA has the option to reintroduce the IQOS system and Marlboro HeatSticks for sale in the U.S. On April 30, 2024, U.S. commercialization rights to the IQOS system will transition to PMI. PMI will not have access to the Marlboro brand name or other brand assets, as PM USA owns the Marlboro trademark in the U.S.

In a press note announcing the IQOS transition, Altria said it remains committed to its vision to responsibly lead the transition of adult smokers to a smoke-free future. “We believe in a portfolio approach to tobacco harm reduction and expect to compete in the major smoke-free categories. We have reinvested into our internal product development system, and we expect to finalize designs for two smoke-free products, including a heated-tobacco product, by the end of 2022,” the company wrote.

“We are ready to invest behind IQOS to bring it to market at scale across the U.S., leveraging the proven capabilities of our outstanding commercial engine.”

Jacek Olczak, CEO, PMI

PMI, meanwhile, hailed the deal as a historic milestone in its journey toward a smoke-free future. “This agreement gives PMI full U.S. commercialization rights to IQOS within approximately 18 months and provides a clear path to fulfilling the product’s full potential in the world’s largest smoke-free market, leveraging PMI’s full strategic and financial commitment to IQOS’ success,” said PMI CEO Jacek Olczak in a statement. “The agreement also avoids what could have been an uncertain and protracted legal process that would have severely hindered the fast deployment of IQOS in the U.S.”

PMI views IQOS as a substantial growth opportunity in the U.S. smoke-free market, whose retail value represents around 60 percent of that for the rest of the world, excluding China. “The U.S. opportunity for IQOS is particularly significant given the clear demand from American adult smokers for credible smoke-free alternatives to cigarettes and the limited success to date of current offerings to fully switch adult smokers away from cigarettes. Furthermore, in the U.S., there are ample opportunities to build adult smoker awareness and understanding of smoke-free products, something that is particularly true for IQOS given its modified-risk tobacco product (MRTP) authorizations,” the company wrote in a press note.

“We are ready to invest behind IQOS to bring it to market at scale across the U.S., leveraging the proven capabilities of our outstanding commercial engine, which we will deploy domestically during the transition period to April 30, 2024,” said Olczak. “The route to market is clear given the well-established distribution and retail channels in the U.S., and we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio should the offer for Swedish Match fail.”

PMI says it is already well advanced in its plans for the commercialization of IQOS in the U.S., as it prepares for domestic manufacturing, important regulatory submissions—including premarket tobacco product applications (PMTAs) for ILUMA in the second half of 2023—as well as the development of U.S. sales, distribution, retail, consumer engagement and support capabilities over the next 18 months.

“Our commercial plans include full-scale launches in key cities and regions with rapid progression to a national presence, and we believe that IQOS heat-not-burn products could account for around 10 percent of total U.S. cigarette and heated-tobacco unit volume by 2030,” said Olczak. “We estimate the industry profit pool for the U.S. at over $20 billion in 2021, underpinned by superior per-unit margin compared to PMI’s international market average. We see an accelerated path to profitability with an attractive payback period enhanced by the absence of a PMI domestic combustible tobacco business.”

Olczak said PMI looks forward to replicating its international success in switching adults who would otherwise continue to smoke to better alternatives. “According to 2022 U.S. Centers for Disease Control and Prevention (CDC) data, the U.S. is home to around 31 million adult smokers, and I believe that IQOS—the only inhalable smoke-free nicotine product to have received an MRTP authorization from the U.S. Food and Drug Administration and thus be recognized as appropriate for the [protection] of public health—can play a meaningful role in further reducing smoking rates,” he said.

October 20, 2022

PMI Reports 2022 Third-Quarter Results

Philip Morris International announced its 2022 third-quarter and September year-to-date results.

PMI reported a net revenue decline of 1.1 percent for the third quarter and an increase of 1.3 percent for the nine months year-to-date.

Net revenues from smoke-free products accounted for 30.1 percent of total net revenues, or 29.2 percent on a pro forma basis, for the third quarter. Market share for heated-tobacco units (HTUs) in IQOS markets were up by 1.3 points to 7.7 percent on a pro forma basis. Pro forma total IQOS users at quarter end were estimated at approximately 19.5 million (up by 3.6 million, or 22 percent, versus Sept. 30, 2021), of which approximately 13.5 million had switched to IQOS and stopped smoking. The company increased regular quarterly dividend by 1.6 percent to $1.27 per share, or an annualized rate of $5.08 per share.

For the nine months year-to-date, net revenues from smoke-free products accounted for 30.4 percent of total net revenues, or 29.6 percent on a pro forma basis. Market share for HTUs in IQOS markets was up by 1.2 points to 7.6 percent on a pro forma basis.

“We delivered very strong performance in the third quarter, driving quarterly adjusted diluted EPS of $1.53 per share despite pressures related to currency, the supply chain and inflation,” said PMI CEO Jacek Olczak in a statement.

“IQOS’ excellent momentum continued in the quarter, with heated-tobacco unit volume and share growth across all key geographies driven in part by ILUMA’s strong performance in initial launch markets. This was complemented by the robust performance of our combustible tobacco portfolio, reflecting essentially stable shipment volume, encouraging international market share growth and accelerated pricing.

“As a result of our strong year-to-date performance, we are raising the low end of our full-year pro forma growth outlook for adjusted net revenues, resulting in a range of 6.5 percent to 8 percent on an organic basis, and continue to expect full-year pro forma adjusted diluted EPS growth of 10 percent to 12 percent, excluding currency.”

October 20, 2022

Politicians Linked to Tobacco Smuggling

Montenegro’s outgoing Prime Minister Dritan Abazovic has accused the Democratic Party of Socialists (DPS) of maintaining ties to tobacco smugglers, reports Balkan Insights.

During a parliamentary Security and Defense Council session on Oct. 17, Abazovic claimed that three major tobacco smuggling groups operate in the country, at least one of which is linked to the DPS.

Abazovic urged prosecutors to investigate his claims, adding that he would “self-arrest” if his assertions proved false.

Since the collapse of Yugoslavia in the 1990s, the Port of Bar has become a center for cigarette smuggling from where imported tobacco is re-exported and cigarettes made in Montenegro are shipped.

Abazovic said the smugglers had the political support of current President Milo Djukanovic and his DPS, which held power for almost three decades.

In recent years, Montenegrin authorities have seized hundreds of tons of smuggled cigarettes and more than two tons of cocaine in Bar. Earlier this month, the head of Montenegro’s Customs Office resigned after being linked to tobacco theft in Niksic.

October 19, 2022

British Columbia Juul Litigation to Proceed

The Supreme Court of British Columbia has dismissed an application from Altria Group to stay or dismiss proceedings against the company in a class action lawsuit against Juul Labs, reports The Lawyer’s Daily. Altria owns 35 percent of Juul.

The claim alleges that Altria conspired with Juul in the sale of nicotine vaping devices to youth in particular with the goal “to convert them into smokers” in part through nicotine addiction.

The class action suit was initially filed in September 2019, shortly after Health Canada issued an advisory for vapers to “monitor themselves for symptoms of pulmonary illness … and to seek medical attention promptly if they have concerns about their health.”

“This is an important decision that ensures that Canadians are able to sue all the parties that they allege have harmed them,” said Daniel Bach, a partner in Siskinds, about the Supreme Court decision. “We look forward to litigating these issues against Altria on the merits.”

Juul has been pummeled by lawsuits and mounting restrictions on the production and sale of vaping products in recent years. The e-cigarette maker has suffered financially as a result.

Since 2019, Juul has halted all U.S. advertising, discontinued most of its flavors and attempted to rebrand itself as a product for older smokers who seek alternatives to cigarettes.

According to press reports, Juul has been preparing to file for Chapter 11 bankruptcy.

This was the second appeal by Altria in this class action that British Columbia courts have dismissed. In October 2021, the B.C. Court of Appeal dismissed an appeal to an order allowing cross-examination on its affidavits in the company’s jurisdictional challenge.

October 19, 2022