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Category: Also in TR

  • To Boldly Go

    To Boldly Go

    Photo: sharafmaksumov

    Tobacco veteran Murray Prince is setting up tobacco operations in the Democratic Republic of the Congo.

    By George Gay

    Shortly after I had been asked to write a piece about leaf tobacco operations in Uganda and the Democratic Republic of the Congo (DRC), my daily newspaper carried, on the same page, a story on each of these countries. The stories focused on conflicts of various kinds and therefore appeared generally negative, which is not unusual for the coverage many British people would see of these two countries and, in fact, of many other African nations. There is no doubt that, seen from the outside by the person in the street, and, for some marginalized citizens, seen from the inside, the DRC and Uganda have their problems—some of them grievous and seemingly self-imposed.

    But, with a few obvious exceptions, businesspeople tend to see things differently. Countries, wherever they are in the world, are seen basically as producers or markets that are more or less attractive than other countries. Conflicts comprise a negative factor when appraising a country, but they are not seen as barriers, providing those conflicts do not impinge directly and oppressively on business interests.

    Such an approach can seem to be unethical, but, in one way at least, it can be seen to be the exact opposite. Shifting the focus back to Africa, businesses working within the leaf tobacco industry have been generally good at taking a practical approach and building operations, including, importantly, livelihoods, in places where others might fear to tread.

    And so it is that Murray Prince, an experienced Africa-tobacco hand, is in the process of setting up and registering Market Link Services, through which he aims to coordinate various leaf operations in East Africa and the DRC, where he is working with Idi Taban, a businessman based in Kampala, Uganda, whose interests include a tobacco procurement and trading operation in the DRC: GGLC. Taban’s Uganda-based company, KKT, has interests, too, in transport, property and regional trading, and the plan, still being finalized, would see Taban retain overall control of his tobacco business in the DRC while handing over operational control and the day-to-day running of it to Prince.

    In this role, Prince would manage all stages of GGLC’s DRC tobacco operations, including leaf production and procurement; he would oversee operations in Uganda, where the DRC tobacco would be processed and packed before being exported; and he would be responsible for marketing, sales and communications.

    The Formula

    Businesses in the leaf tobacco industry have been generally good at building operations and livelihoods in places where others might fear to tread. | Photo: Francesca Volpi

    The systems necessary to make all this transparent and workable have been put in place during the past 12 months, but, even still, Prince has no illusions about the challenges involved in operating in the DRC and, indeed, readily admits that his previous time there as a trader involved in production and procurement, from 2009 to 2012, was not easy and ultimately ended in failure. Nevertheless, failure is a form of experience that can be turned around, and he is up for the challenge, telling me that part of his role would require him to anticipate the risks and disruptions that, without early interventions, could cause operational challenges.

    On the positive side, he has long experience in various African countries, which means, he says, that he is familiar with the strengths, weaknesses and sensitivities of these markets and that he has a “formula” for what needs to be done—by all participating parties—to make a success of the entire operation. His expertise, however, is in two broad areas, one of which encompasses sales, marketing and exports while the other comprises the skills, including those in specialized project development, management and supporting roles, required to set up new projects.

    Originally from Zimbabwe, Prince started in the leaf trade in Malawi with Limbe Leaf, which later became part of Universal, before returning to Zimbabwe to work with Standard Commercial and, later, Zimbabwe Tobacco Brokers. He was then involved in or instrumental in three startups: Tobacco Handlers Zimbabwe, which also operated in Malawi, Leaf Buyers Zimbabwe and Southern Leaf Brokers. Since 2013, he has lived in the U.K. from where he has operated a tobacco consultancy and become involved in other trade-related interests.

    Building Relationships

    So, what are GGLC’s aims? Well, Prince says the first aim is to maintain the stable and sustainable production and procurement system and infrastructure that, for the past 15 years, have operated to the advantage of the company, its employees and the regional community, including tobacco farmers, their employees and families, who have also benefited from additional support services. And using that production and procurement system as a base, the next aim is to establish GGLC as the reliable leaf exporting company operating in the DRC, building long-term, trusted and mutually beneficial relations with international players that recognize the potential of the country’s niche market.

    That’s it in a nutshell, but the devil will be in the details. Maintaining the production and procurement system will require ensuring the smooth operation of farmer registrations, agronomy support, input availability, storage and dispersal; and leaf buying, grading and baling. Then, Prince says, to avoid disruption as the tobacco is moved to Uganda for processing, close attention will be paid to logistics, compliance and documentation appropriate for meeting obligations for both the DRC and Uganda as well as internationally.

    The plan, he says, is to have, as now, the DRC tobacco processed ahead of export at a facility in Jinja, Uganda, which is run by the Nilus Group, a partnership between Premium Tobacco and Uganda Tobacco Services that between them promote Ugandan Burley and dark-fired tobacco. Once processed, the tobacco will be moved for shipping from Jinja to Mombasa, Kenya, by an independent logistics group, Agrivest Shipping.

    Straightening the Hassles

    To the layman, this can start to look like a lot of effort for possibly not enough reward. So why do it? After all, even the GGLC DRC target of 10 million kg green weight is a drop in the ocean set against what can be grown in Zimbabwe, where, because of the importance of the tobacco crop, the infrastructure and systems, albeit probably not perfect, have been in place and functioning for years.

    So let me see if I can get this right. It is worth the effort if the tobacco fits well into a final buyer’s cigarette blend in respect of both sensory factors and cost. Therefore, once a tobacco has been found to be a right fit, and the generally flavorful tobaccos produced in Africa have been highly prized by manufacturers for decades, it all comes down to price. But there are two prices in play here: the dollar price and the hassle price. Some big players have tried their hands in the DRC and Uganda and left, some having found that the hassle price was too high. The idea is that a smaller, more flexible player with experience in negotiating the inevitable business, industry and political chicanes can straighten out those hassles, which, as mentioned above, is why Prince is getting on board.

    Much of what can be said about the DRC also applies to Uganda, where tobacco has been grown since at least the 1920s when BAT was active there but where, since the departure of that company’s stabilizing influence, flue-cured operations are currently said to lack a stable and balanced market. But therein lies an opportunity. Although BAT is no longer directly involved in the Ugandan leaf tobacco market, vestiges of the production expertise it left behind are still present, and so Taban and Prince believe the time is right to grasp the opportunity of entering the market for flue-cured tobacco. Prince told me there was a circularity, almost a natural rhythm to the way that smaller producers came into and went out of operation and that he believed the time was right in the region to take advantage of the moment and engage with grower communities and government departments that were now well disposed to such an initiative.

    This seems as though it could be a good assessment of the situation. According to an October 2021 story by Gilbert Mwijuke that was published in the East African newspaper, leaf tobacco production in Uganda peaked at 18 million kg in 2013, when more than 75,000 farmers were said to be engaged in the industry. Since then, however, things have fallen apart somewhat, and by 2020, less than 10 million kg was produced, apparently at least partly because of grower prices. Geoffrey Ozuma, a crop scientist at the National Agricultural Research Organization in Hoima and a former tobacco farmer, was quoted in the story as saying that many farmers had been discouraged by declining prices. When certain companies came into the market, he said, prices dropped because those companies started providing farmers with inputs but then set low prices for leaf tobacco produced with it. “That uncertainty, coupled with rising costs of production due to increasing scarcity of essential inputs such as firewood, forced many farmers to give up,” he said.

    How accurate these figures are is not known, and Prince treats most of the figures available with some skepticism. FAO figures tend to suggest that—presumably total—tobacco production in Uganda has been remarkably constant in recent years: 31.688 million kg in 2017, 32.762 million kg in 2018, 31.992 million kg in 2019, 32.277 million kg in 2020 and 32.563 million kg in 2021. Meanwhile, FAO figures for the DRC have been similarly constant: 3.774 million kg in 2017, 3.655 million kg in 2018, 3.562 million kg in 2019, 3.694 million kg in 2020 and 3.667 million kg in 2021.

    But I guess that historical data is perhaps not important, providing as it is only a guide to what was possible in the past under the conditions and in the environment that then pertained. What is possible in the future will depend on any number of factors that are not necessarily easy to identify at present. That’s probably why it’s necessary to have people such as Prince and Taban in place. They’ve been there before and seen the changes wrought by business, industry and political upheavals.

    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.
  • Seeking Substitutes

    Seeking Substitutes

    Dholakia Tobacco is offering Indian smokeless tobacco products that are less hazardous than the country’s most commonly used varieties. Photos: Dholakia Tobacco

    Modern oral nicotine products could help Indian consumers abandon deadly local smokeless tobacco products.

    By Stefanie Rossel

    When it comes to tobacco, India holds several records: It is the world’s second-largest consumer, third-largest producer and fifth-largest exporter. Its consumption pattern is also remarkable. According to the 2016–2017 Global Adult Tobacco Survey, 266.8 million adult Indians—28.6 percent of the country’s population—use tobacco in some form.

    However, with 199.4 million consumers, the most used tobacco product is smokeless (SLT). Only 99.5 million Indians consume tobacco by smoking it. Of these, only 37.5 million smoke cigarettes. Most smokers prefer bidis—cheap, unfiltered cigarettes made of tobacco flakes wrapped in a tendu or temburni leaf that are even more hazardous to health than factory-made cigarettes.

    India has the world’s largest number of SLT users. Unfortunately, the type of SLT that prevails here does not reside on the low end of the risk continuum like other smokeless products such as Swedish snus do. A pasteurized oral tobacco with limited negative health effects, snus has helped Sweden achieve the world’s lowest smoking prevalence. Indian SLTs, by contrasts, are considered “uniquely deadly” by experts.

    Indian SLTs come in a large variety. The most commonly used variants are khaini, a mixture of tobacco and lime, and gutkha, which comprises tobacco, slaked lime, paraffin wax as well as catechu, an extract of acacia trees and crushed areca (betel) nut. Other local forms of SLTs contain mixtures of betel quid or paan masala. All are highly addictive and full of carcinogens. In addition to the typical ingredients, they can be laced with thousands of chemicals. Available for a few rupees, these SLTs are affordable for low-income groups. Like bidis, they are predominantly consumed in rural areas, where almost 70 percent of the country’s population lives. SLTs are responsible for an estimated 350,000 premature deaths annually in India.

    In line with its national health policy, India aims to reduce the number of tobacco users by 30 percent by 2025. The country closely adheres to the World Health Organization’s abolitionist guidelines, but its tobacco control measures are often contradictory. Attempts to curb tobacco use have remained limited to tax hikes on cigarettes rather than bidis and a ban on e-cigarettes and heated-tobacco products. In 2012, all states banned the manufacture, sale and distribution—but not the public use—of pre-packaged gutkha under laws that defined the product as a food. Some states extended this ban to other oral tobacco products, such as paan masala. Enforcement of these bans has been weak, however.

    In an interview with The Free Press Journal, Kiran Melkote of AHER, a harm reduction group, outlined the reasons for India’s ineffective tobacco control policy. “Many arms of the government work at cross purposes and implement policies that even on paper are in direct conflict with the WHO Framework Convention on Tobacco Control. The health ministry tries to implement awareness campaigns and maintain zero industry contact norms for its employees while the commerce ministry provides loans and support for tobacco cultivation and the finance ministry bans e-cigarettes and incentivizes bidi manufacturers. All of them generally ignore oral tobacco. The answer therefore lies in understanding that the strategies used in the developed world where the predominant form of tobacco is the cigarette may not really impact tobacco use in India. Here we have a larger population with different problems and an admitted inability to implement existing laws.”

    The success of modern oral products in Pakistan is welcome proof that they can replace the deadlier local oral tobacco.

    Samrat Chowdhery, director of the Council for Harm Reduced Alternatives

    Potential Solution

    Perhaps a look across the border might be useful. India’s neighbor Pakistan has a tobacco consumption profile similar to that of India. An estimated 10 million people use SLT, which represents more than 40 percent of the country’s total tobacco market. Recently, Pakistan has seen a remarkable development: In December, BAT announced that its modern oral nicotine brand Velo had achieved a monthly volume of more than 40 million pouches in the country, making it BAT’s third-largest market for nicotine pouches. Modern oral nicotine products consist of pre-portioned bags comprising nicotine applied to a carrier material. They are considered to be a more advanced, cleaner version of Swedish snus.

    Could Pakistan’s experience in substituting hazardous SLT products with less harmful varieties serve as a blueprint for India? “The tobacco use patterns in both nations are similar,” says Samrat Chowdhery, director of the Council for Harm Reduced Alternatives, referring to the high share of oral tobacco use. “Nicotine pouches have not been sold on scale before in the South Asian region, hence their substitution potential for the region’s tobacco users, especially the SLT users, was not known. Their success in Pakistan is welcome proof that they can replace the deadlier local oral tobacco—though whether that is indeed happening needs to be better understood.”

    Nihar Dholakia, director of next-generation products at Dholakia Tobacco, an SLT company based in Gujarat, India, has been closely monitoring the rise of the modern oral category in Pakistan. “Given that both Pakistan and India have a similar culture of using SLT products, we believe that the success of nicotine pouches in Pakistan could be replicated in India but on a much larger scale.”

    In light of the Indian government’s abolitionist strategy and the competitive structure of the local SLT segment, in which two leading companies jointly hold around 40 percent of the market, less hazardous oral products in India could encounter major hurdles, according to Chowdhery. “Nicotine pouches and snus could face opposition from the SLT lobby unless they can be made to see the business potential,” he says. “It would be a major setback if the government banned safer oral nicotine products too.”

    Issues are also likely to come up in terms of cultural heritage and consumer education. “Tobacco use, especially oral, has long been part of India’s cultural milieu, just like alcohol is in western nations,” says Chowdhery. “SLT is also available for cheap, and varieties vary across regions. While the social stigma around smoking is beginning to develop, none exists for oral products as there is no secondary harm. Educating users can be challenging given the number of users, with different cultural norms and languages such that it is difficult to design communications.”

    “In India, the avenues available for broadly educating consumers about THR and more specifically finessing that message to SLT users may be very limited,” says Dholakia. “The process seems to be largely organic, with consumers themselves becoming aware of the harmful effects and seeking alternatives. This often involved researching THR and exploring a range of reduced-risk products available. Online resources and word of mouth play a significant role in the education process. However, to make a more substantial impact, we require greater consumer advocacy as well as government initiatives to generally raise awareness.”

    We believe that the success of nicotine pouches in Pakistan could be replicated in India—but on a much larger scale.

    Nihar Dholakia, director of next-generation products at Dholakia Tobacco

    Treading New Paths

    Despite the government’s reluctance to admit safer substitutes, not all is lost for THR in India. Dholakia and other manufacturers are beginning to look at snus and nicotine pouches. With the Paz brand, his business recently launched the first Swedish-style tobacco snus brands in India. “In fact, we operate India’s first online platform for snus,” says Dholakia. “However, we face regulatory challenges, such as the requirements of an 85 percent pictorial warning of product packaging, high taxes and restrictions on advertisement and promotion. Nevertheless, despite these obstacles, we have observed a growing trend among consumers who are actively seeking reduced-risk products as a better alternative.”

    Dholakia Tobacco caters primarily to the premium SLT category. “However, considering the fact that India has over 220 million smokeless tobacco users who lack access to harm-reduced alternatives, we aspire to make our products more accessible and available to any SLT user. Therefore, we are determined to expand our reach to a broader audience in the domestic market as well through the right forms of direct-to-consumer education and word-of-mouth product awareness.”

    Indian consumers have responded positively to Dholakia’s snus products, particularly after switching from traditional chewing tobacco, cigarettes or khaini. “Many customers have reported experiencing a positive change firsthand, indicating their acceptance and awareness of the harm-reduced properties of snus products,” says Dholakia. “These are some of our future ambassadors for risk-reduced products, who will quite naturally be out there to talk with other consumers about their experiences with these new products.”

    The company also manufactures a filtered khaini brand, which has become popular in many Indian states recently. Filtered khaini is a modern version of khaini chewing tobacco that resembles western-style, portion pouch-packed snus but has a significantly different toxicological profile. “Traditional filter khaini available on the market is not less harmful than regular khaini,” clarifies Dholakia. “In fact, it can be thought of as a pulverized moist version of khaini packed in an oral pouch.”

    Dholakia’s filtered khaini brand is not the same, he insists. “The filter tobacco products we offer are different in composition when compared to traditional filter khaini and commercially available products in India currently. It can be said it is less harmful than other filter products due to the use of low-impact base ingredients, the type of quality tobacco and the novel processes as well as our advanced approach to product integrity and testing infrastructure. As far as affordability and availability is concerned, these filter products are comparable to regular chewing tobacco and khaini products. They are available in a few states and are perceived by khaini consumers as a more sophisticated version of a mainstay khaini product.”

    Dholakia Tobacco has also ventured into modern oral nicotine pouches. It was the first company in India to venture into this category. “As pioneers of modern oral nicotine pouches from India, our products are currently available only in the global markets we cater to and have not yet been launched domestically,” Dholakia says.

    “However, we are considering and working toward introducing them in India as we firmly believe that they can have a positive impact on public health in the country. We are confident that Indian consumers are ready for such a product. Accessibility, awareness, the right information, a fair regulatory framework and quality control are key factors that need to be addressed for the category. Given that India is in dire need of multiple harm-reduced products, we are committed to making them available in India.”

    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.
  • Broadening the Scope

    Broadening the Scope

    Image: alexlmx

    Tobacco harm reduction initiatives should also cover e-waste management, say experts.

    Contributed

    E-waste is an emerging unintended environmental consequence of the revolution in electronic nicotine-delivery systems, threatening to undermine a technological innovation in public health. This conversation examines the intersection of regulatory policy, consumer behavior and the vaping products’ industry and hopes to map a sustainable path for the future.

    In the discussion below, John Dunne from the U.K. Vaping Industry Association (UKVIA) brings in the vaping industry perspective, Pieter Vorster brings expert views on global tobacco and nicotine industry transformation, and Sudhanshu Patwardhan (Sud), a nicotine expert and health-tech entrepreneur, proposes a broader definition and scope of tobacco harm reduction (THR).

    Sudhanshu Patwardhan

    Patwardhan: We know that in the U.K. and the European Union, where they are regulated, vapes, or e-cigarettes, are classed as waste electrical and electronic equipment (WEEE). Ideally, consumers in these countries should dispose of vapes at a household recycling center or at the shop where they bought the device. Manufacturers are also required to make recycling options available. Many consumers, however, are unaware that single-use vapes can or should be recycled. Incorrect disposal of these items can potentially release plastic, electronic and hazardous chemical waste into the environment and represent a fire hazard. How big is this issue currently? Does the industry have numbers contrasting sales to recycling?

    Dunne: In the U.K., around 459 million e-cigarettes of all kinds are purchased each year, of which 168 million, or 37 percent, are single-use vapes. Approximately 43 percent of all vapes purchased are recycled, although this number is likely much lower for single-use (“disposable”) products:

    • Twenty-three percent of e-cigarettes are recycled in-store when consumers buy a new one.
    • Twenty percent are recycled at a local authority recycling center.

    On the face of it, the 43 percent recycled figure for e-cigarettes compares favorably with the 31.2 percent of waste electrical and electronic equipment in the U.K. that was recycled or reused in the U.K. in 2021. However, vaping products’ relatively short lifespan means more waste is generated.

    Patwardhan: Good to get that broader electronic products-based perspective and the product use life cycle nuance with regards to e-cigarettes. Obviously, there is a still a gap between current practices by consumers versus what would make e-cigarettes environmentally sustainable in the long run. Pieter, do you think there are any good examples of industry players showing some leadership in this?

    Vorster: All three tobacco companies that sell single-use vaping products in the U.K.—BAT (Vuse Bar), Imperial (Blu bar) and PMI (VEEBA), for example—advise consumers not to put them in household waste and offer free returns services on their websites. This information is displayed on the webpages where these items are sold. Consumers who don’t buy these products online need to read the package insert. They are advised that the product should not be placed in household waste but collected separately for recovery and recycling. The package insert also directs users to the manufacturer’s website for details of its recycling program. Whether consumers ever read these inserts is open to debate!

    Independent U.K. brands are not far behind either; Riot Bar and Blo Bar have also introduced comprehensive recycling schemes. Blo also offers consumers one free Blo Bar for every 10 disposable vapes of any brand sent to them for recycling. Most online retailers in the U.K. offer disposal and recycling advice, and VPZ, the U.K.’s largest vaping retailer, has announced that it is introducing a comprehensive return and recycling program in its stores before the end of March.

    Patwardhan: It sounds like manufacturers are, in theory, offering the recycling option to consumers. Do we know if consumers know that these options exist? Perhaps there is an education piece that needs to be carried out by key actors in the supply chain, including manufacturers, as well as by the broader regulatory agencies? Do the regulators need to intervene, or does the industry need to act? Or both, and others?

    John Dunne

    Dunne: Recycling vapes is not straightforward and needs collaboration between adult vapers, retailers, manufacturers, regulators and companies in the waste management sector, which are involved in the current Producer Compliance Schemes under the WEEE regulations. We are liaising with DEFRA [U.K. Department for Environment Food and Rural Affairs] and the Office for Product Safety and Standards and calling upon our members and the wider industry to innovate products that are easier to recycle.

    Patwardhan: Talking about multi-stakeholder initiatives, we are on the cusp of another VApril, an annual British feature in April to showcase vaping as a means to stop smoking. As we have seen with a series of successive publications from U.K. health and related authorities and charities—e.g., the 2016 Royal College of Physicians’ Nicotine Without Smoke report—e-cigarettes/vapes are a potential force for good by helping smokers quit smoking. The THR creds of e-cigarettes in the context of current adult smokers are not in doubt. However, this emerging narrative on environmental harms from disposable vapes presents a unique challenge to those in public health and policy, does it not, Pieter?

    Pieter Vorster

    Vorster: Indeed, Sud. To date, opponents of tobacco harm reduction have often relied on questionable science that is unlikely to withstand rigorous evaluation, as evidenced by numerous retractions in recent years. On the other hand, the science underlying the potential environmental and health risks posed by the inappropriate disposal of reduced-risk products isn’t subject to the same constraints. Furthermore, the emotional appeal for the “environmental harms” narrative from these products has a much broader and vocal activist constituency—thus threatening to undermine the public health arguments of THR. In short, it represents a potentially potent weaponizable tool for those opposed to THR.

    Patwardhan: I can see that the recent developments in Scotland, where an environmental activist highlighted the problem of vape littering, and separately, the decision of a large British supermarket chain to stop selling disposable vapes, signal a change in public perception and attitudes toward the product. It is as if an argument is being built in this narrative about disposables being harmful to the environment and are a lost cause as such, as well as the anecdotal observation that disposables are used by a much younger cohort, possibly those underage as well as those who have never smoked cigarettes before. If true, surely that is one issue to address through stronger regulations, especially with regards to preventing youth access and mandatory recycling requirements and refund schemes, right?

    Dunne: Preventing the sale of vaping products to minors is one of the industry’s most fundamental challenges, and our members are united behind this goal. We have recently updated our “Preventing Underage Sales Guide” to give retailers all the information they need so they don’t inadvertently sell to someone under 18. However, we need the support of the government, regulators and enforcement authorities to ensure that unscrupulous retailers who knowingly sell to young people face the full force of the law. We believe that there is a need for increased fines for rogue traders, licensing of vape retailers and a national test purchase scheme. In fact, the UKVIA’s Youth Access Prevention Task Force will propose so to regulators this month. Regarding e-waste, the industry also recognizes its environmental responsibilities, and we are working with regulators, waste management experts, product manufacturers and retailers to find a workable solution.

    Patwardhan: This is a most fascinating discussion where we find innovative 21st century nicotine products that have huge positive public health potential getting caught into an orthogonal field of great import in global public policy: sustainability and environment. In concert, responsible behavior by industry and retailers, better regulation and enforcement—and not prohibition—and consumer adoption of e-waste management solutions may well be the answer. In fact, we can go one step further and challenge all stakeholders—industry, regulators, public health and consumers—to embrace proactive e-waste management as another opportunity to reduce harms from a transforming tobacco and nicotine products’ landscape whilst maximizing the societal benefits from this shift in consumer behaviors.

  • Unfit for the Counter

    Unfit for the Counter

    Unwrapping the issue of counterfeit and noncompliant vapes

    By Lee Bryan

    Photo: uliab

    It feels as though you can’t check the news these days without reading about rogue traders dishing out vapes to kids or stumbling across the latest report about Trading Standards—the U.K. authority charged with enforcing consumer protection legislation—seizing a few thousand counterfeit devices.

    National newspaper headlines about youth vaping and environmental damage have changed public perceptions on the reduced-risk product, and evidence shows that many people wrongly believe vapes are equally or more harmful than cigarettes, leading some smokers to decide against making the switch. 

    The U.K. government has historically been pro-vaping, taking an evidence-based approach and encouraging smokers to switch as part of its smoke-free 2030 ambitions. However, a minority within the industry who flout the law and put their profits above all else are putting all of this at risk for the sake of their own greed.

    The vape sector is primarily a community of well-intentioned retailers, manufacturers, distributors and activists whose main priority is to help adult smokers move away from combustible tobacco, and as the head of a leading vape compliance firm, I’ve seen this firsthand.

    The unscrupulous sellers, who provide so much ammunition to the mainstream media, are as much at odds with the rest of the harm reduction community as they are with regulators and health officials. They must be stopped before they take vaping from being one of the most popular and effective stop smoking tools available in the U.K. to public enemy No. 1.

    Where Are Brands Falling Short?

    As a leading authority on vape regulations, we at Arcus Compliance understand how complex the road to a compliant status can actually be and recognize the challenges of meeting legal obligations.

    Even those with the best intentions can fall foul of regulations if they don’t have the right knowledge, and our job is to help them navigate this often difficult terrain.

    In fact, we conducted an industry-wide analysis that uncovered the most common ways that vaping products fall short of regulatory requirements. These included:

    • inadequate checks to ensure e-liquid recipes do not contain inappropriate substances in specific markets;
    • copying competitors’ labeling;
    • notifying the wrong product type to the regulator;
    • reusing former identifier codes for new products; and
    • lacking systems for tracking adverse safety events.

    In many cases, these can be put down as simple mistakes, but errors like these can make the regulatory process more expensive and complicated for brands.

    They can also bring a product’s journey to approval to a grinding halt and land it in hot water with the Medicines and Healthcare products Regulatory Agency (MHRA), the body responsible for overseeing the U.K. market.

    It’s critical that brands avoid these common pitfalls and ensure their vape products are up to standard across the board, especially when tensions over industry compliance are so high.

    Wholesalers and retailers must also step up and play a role here by demanding only the highest levels of compliance from products and brands, not only to protect their own reputations but also the reputation of the entire sector.

    Recognizing the need for further regulatory support in the industry, Arcus Compliance recently teamed up with distributor Phoenix 2 Retail to deliver a “Pre 2 Post-Market Compliance Testing Program.”

    This collaborative effort aims to support and maintain industry standards while also encouraging the evolution of policies that raise the bar when it comes to responsibility. 

    Sadly, there’s no denying that a small pool of traders are knowingly going against the law to line their own pockets—typically by selling to minors or pedaling youth-appealing products.

    They cast a dark cloud over our industry and deserve to feel the full force of the law, which is why I welcome the recent comments of Neil O’Brien, the parliamentary under-secretary of state at the Department of Health and Social Care, to clamp down on regulatory noncompliance, set up a Trading Standards “flying squad” to enforce the rules and tackle illicit vapes and underage sales and to set up a national test purchasing scheme—something for which the U.K. Vaping Industry Association has long been advocating.

    Policies like these represent a significant forward step in combatting the noncompliant sector, and I’m confident that they can be the foundation on which we can level up accountability and responsibility in the U.K. vaping arena.

    By coming down hard on those who flout the law, policymakers can protect young people, prevent underage sales and allow the compliant vape industry to thrive.

    Where Does Policy Need to Go From Here?

    While the government’s renewed determination to stop rogue traders and prevent youth access is wholly welcome, we can’t allow ourselves or our politicians to make the mistake of thinking the problem is now solved—the reality is that we are a long way from the finish line.

    If nothing else, lawmakers should take onboard other recommendations put forward by the UKVIA, including increased fines of up to £10,000 ($12,409) per instance for those caught selling to minors and a retail registration scheme.

    It’s also high time we reviewed the arbitrary limit on e-liquid volume for vapes. If we were to increase this from the current legal maximum of 2 mL to a more substantial 10 mL, we could make e-cigarettes far too expensive for young people to buy while ensuring vapes remain competitively priced against cigarettes.

    More urgently, regulators need to tighten their grip around product and packaging by introducing more checks during the market approval process.

    It still amazes me that brands don’t have to upload any pictures to the MHRA when they apply for permission to sell in the U.K., and making this one, relatively small, adjustment could make a big difference to the compliance issue by preventing products with child-appealing imagery—i.e., cartoon characters and copycat candy designs—from ever making it onto the shelves.

    Preemptive strategies like this will help wash away vapes that are blatantly trying to catch the attention of kids, reaffirm the industry as adult-focused and could prove to be an invaluable tool in the fight to eliminate youth use and underage access.

    The government must now build on the new momentum brought forth by its newly announced measures by engaging in conversation with industry experts and implementing balanced policies that target the illegal market while supporting vaping as a public health tool.

    Regulators, retailers, health officials and advocates together are perfectly positioned to pioneer a new age of vape compliance—I only hope we can seize this critical opportunity.

    Lee Bryan is the CEO of Arcus Compliance.
  • Fighting the Dip Mentality

    Fighting the Dip Mentality

    Photo: Andrey Popov

    What will it take for women who smoke to consider smokeless?

    By Cheryl K. Olson

    When Brittney Niquette first tried smokeless tobacco two years ago, it was from a sense of obligation. She runs customer support for Lucy Goods, a maker of nicotine pouches, gums and lozenges.

    “I like to know what our products taste like, so that I have a genuine opinion and feedback to give customers,” she explains. “They’re just not marketed to women. So I honestly didn’t know what a nicotine pouch was. I was thinking tobacco, like, brown in a pouch.”

    Niquette started smoking at 15, repeatedly quitting and restarting. She now uses tobacco-free pouches every day. “My favorite is the berry citrus. And I like espresso flavor with coffee in the morning.”

    In Scandinavian countries, widespread use of smokeless tobacco products has driven smoking rates to astonishing lows. In his recent article “Can alternative nicotine put the final nail in the smoking coffin?,” Karl Fagerstrom writes, “The availability and use of snus has contributed to Sweden’s record-low prevalence of smoking and the lowest level of tobacco-related mortality among men in Europe. This phenomenon is sometimes referred to as the ‘Swedish experience.’”

    Public health modeling that factors in that experience and the low-harm chemical constituents of modern products suggest that a huge number of deaths could be averted if more people switched, as Niquette did, from cigarettes to smokeless. But so far, most of those switching, even to the newest smokeless alternatives, have been men.

    “Of all adult smokers, about 45 percent are women, and 55 percent are men,” says Allison Bolyard, vice president for innovative nicotine products strategy at Altria. “But if you look at lifetime smokers who have successfully switched, only about one-third are women. We see a big opportunity in providing alternatives for women that they can enjoy and can be successful in switching, because they’re falling behind.”

    In recent behavioral studies on smokeless products that I’ve conducted for industry, women described negative stereotypes about smokeless users. One said, “You kinda have to fight the dip mentality. Marketing needs to be classy and discreet. Not a country boy dip and spit.”

    What innovations and approaches might get women who don’t want to quit nicotine to consider a smokeless alternative? To better understand this, I talked with people in industry working to provide appealing options for women. I also collaborated with the Consumer Advocates for Smoke-Free Alternatives Association (CASAA) on a survey of its female members about their smokeless tobacco perceptions and experiences.

    Deadly Misperceptions

    Surveys consistently find that smokeless products are wrongly seen as more risky than e-cigarettes and often as more risky than smoking. A recent analysis of the nationally representative Population Assessment of Tobacco and Health Study found that a higher percentage of Americans believe smokeless tobacco products are more harmful than cigarettes than believe the (actual) reverse to be true. What’s more, “the study demonstrates that harm perceptions not only predict future product uptake in nonproduct users but also predict continued product use among existing users.” 

    Unfortunately, these misperceptions are even more widespread among women. Previous research found that among people in the U.S. and Canada who smoke, women were significantly less likely than men to agree with a statement that some types of smokeless tobacco are less harmful than cigarettes.

    Daunting Barriers

    Along with exaggerated fears of health risks, there are psychological and practical barriers to female interest in smokeless products. (More on these below.) One is outdated perceptions of smokeless products. Discreet modern products, such as tobacco-free nicotine pouches, do not involve what one CASAA member labeled “the nasty habit of spitting out the juice.” As Niquette’s story above implies, these small, white pouches bear little resemblance to the stereotype of a wet, brown wad of chew.

    Another barrier is the unfamiliar mode of delivery. Bolyard previously oversaw Altria’s On! tobacco-free nicotine pouch line. She notes that users of traditional moist smokeless tobacco (MST) are about 95 percent male: “As opposed to men, women who smoke cigarettes aren’t used to putting, and parking, a product in their mouth.”

    A third barrier is fear of being associated with negative stereotypes of smokeless tobacco users. In my previous research, smokeless users were perceived as being mostly men, “biker guys and baseball players.” There were mentions of “gross people” with brown or black teeth.

    Based on this, women were reluctant to be observed using smokeless. One said, “Folks were noticing it [the round pouch tin] in my pocket and expecting me to spit somewhere.”

    Unfamiliar, uncomfortable mouth sensations are a fourth barrier that may turn off women. In the CASAA survey, a number of women referred to “burn” or irritation as a reason for stopping smokeless use or avoiding certain brands.

    “The familiar stinging/burning sensation on the gum when trying either snus or nicotine pouches is a huge deterrent to switch to smokeless oral products, especially for women,” says Bengt Wiberg, a Swedish economist turned snus advocate and innovator. His startup company, Sting Free, markets nicotine pouches with a patented shield technology that provides flavor and nicotine sans discomfort. “I think the U.S. expression ‘You only have one chance to make a first impression’ applies very much to this issue,” he says.

    Wiberg also notes that today’s smaller, slimmer pouch products fit more comfortably in women’s mouths. Niquette seconded this, saying, “I could be talking to somebody, and you won’t know I have one in.”

    Bolyard noted that Altria’s On! product was designed to minimize some of these barriers. The can is a square shape instead of an MST-like circle and includes 20 small pouches to match the typical cigarette pack size.  

    Unexpected Benefits

    As women get better acquainted with smokeless products, they may discover unexpected benefits over other nicotine-delivery methods. Niquette appreciates the hands-free convenience of smokeless tobacco. “Women do so much stuff: We’re busy people—we cook, clean, raise kids. Sometimes your hands are full,” she points out. “So vaping or smoking is not an option.”

    “I have three computer screens; I’m typing all day,” she adds. “And I don’t have to break. I can just grab a pouch out of the can, put [it] in my mouth and keep going.”

    To ease the transition, Niquette suggests that women start with a smokeless alternative that comes in flavors they enjoy in other products, such as fruity or minty gum.

    “Not Messy or Gross Like I Thought They Would Be”

    Here is a selection of comments from 260 female members of the Consumer Advocates for Smoke-Free Alternatives Association on what makes women who smoke decide to try or reject smokeless tobacco products.

    We defined “smokeless tobacco” as including nicotine pouches, snus, dip and chew. However, we learned that unfamiliarity with these products extends to the terminology. One wrote, “I’m confused; I thought vaping was smokeless tobacco?”

    What would make women consider a smokeless product? The most common response was “nothing.” This included variations such as “threat of death,” “a million dollars,” or less hyperbolically, “a vaping ban.” However, a few respondents were open-minded: “I have no idea what it is, but this email was enough to have me interested. I currently vape.”

    Factors listed that might make smokeless products appealing included: not having to spit, smaller size, “a bigger spectrum of flavors,” “cleaner,” “nonstaining” and “not noticeable to others.”

    Few who had tried traditional moist smokeless tobacco found it appealing. One said, “It was convenient, and there was no annoying smoke, but it irritated my mouth a bit, and I worried about my teeth or developing cancer.” “The smell and the taste [were] overpowering, the ‘juice’ burned my mouth, spitting was gross, but swallowing was even worse,” said another.

    But tobacco-free pouches, and to a lesser extent snus, found some favor. A user of both said they are “not messy or gross like I thought they would be and are advertised in the media.” Reasons for trying these products among those who use(d) them include not being able to smoke or vape at work or while traveling; wanting to quit vaping (“to give my lungs a break”), ease of access (“Vaping products became less available online … pouches were available at our convenience store”), ease of use, and curiosity.

    Other positive comments included “Liked that it was discreet and just nicotine”; “It works just as well as the smoking of something, and it’s easy to just spit it out when you have enough”; “Use to get through the day at work without having to take a break. I liked how they curb cravings; the flavors and the size of the pouch makes it easy to be discreet”; and “Can do them anywhere. Try these pouches!! No smoke, but satisfaction given.”

    Women who tried and stopped using pouches gave a variety of reasons. Some missed the “hand-to-mouth action—still wanted to smoke.” Others complained of hiccups, nausea or irritation: “I’m not a big fan of pouches because they burn the inside of my cheeks.” A few mentioned other sources of discomfort, such as “uncomfortable material that hurts my gums/mouth” or too much bulk. There was also just difficulty getting used to this type of product: “Flavors were good, but it was weird having something in my mouth that I wasn’t supposed to be chewing.” Some disliked the taste.

    Because “smokeless” received various interpretations, many women left comments on other nicotine products, including gums, lozenges, tablets or sprays. These received a similar range of positive comments and complaints. This supports the idea that women seeking alternatives to cigarettes may have to try a variety of products and brands to find their fit. As one wrote, “Try it if it will benefit your health and you’re OK with it. To each their own.”

    In short, it’s clear that many women hold strong, perhaps outdated stereotypes of smokeless tobacco. Many will never try it. However, there appears to be an untapped demand for the benefits some women report from modern oral nicotine products: a discreet product to use where no smoke or vapor is allowed or a hands-free product that gives nicotine and flavor without effort. –C.K.O

    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.
  • Poised for Growth

    Poised for Growth

    Antonella Giannini (left) and Alberto Monzon
    (Photos: Montrade)

    Montrade is expanding its portfolio and manufacturing facilities.

    By Stefanie Rossel

    There are clear signs that Montrade is continuing its remarkable growth: In the corner of the tobacco equipment manufacturer’s bright conference room, there are samples of tiles, wall coverings and other construction materials. The Bologna-based company is about to build new premises. About 200 meters from its current 4,000-square-meter site, it will construct an additional 7,000-square-meter shop floor, which is supposed to be finalized by the beginning of next year.

    “It will become our main company building with offices,” explains Alberto Monzoni, Montrade’s managing director. Together with his wife, Antonella Giannini, who serves as the company’s sales director, he founded Montrade in 2004. “The assembly workshop in the new building will have a bigger dimension because we’re growing also in terms of our portfolio as we are adding new machine models, and it will be fully dedicated to the assembly of our machines,” says Monzoni.

    The current site, built in 2010 when the company had outgrown its original rented offices, will in the future accommodate a warehouse and tooling capacity. It already hosts the company’s spare parts manufacturing center, which is equipped with a CNC machine and will become a preferred sub-supplier for Montrade machinery after the expansion. The building is also home to a startup company, with a team dedicated to the development of special sensors, mainly for the inline quality control of filters that Montrade installs in its machines or sells as part of retrofit kits for its equipment. “The team will get more space with the option to increase capability. Inline control is important as high speed requires high quality.” 

    Monzoni says it’s essential that Montrade, which exclusively supplies the tobacco industry, enlarges its footprint. “Multinational companies have become an essential part of our customer base, and they require a certain capacity.”

    With 120 employees, the company presently manufactures about 30 lines per year. Montrade offers a wide range of equipment ranging from filter-making to packaging for combustible cigarettes and heated-tobacco products (HTPs). “It’s vital for us to meet the new market requirement of flexibility,” says Giannini. “Due to the increasing amount of products, the complexity of the tobacco industry is intensifying. Montrade covers everything from roll-your-own [RYO]/make-your-own [MYO] to packing lines, always with a view to sustainability.”

    Environmentally friendly filter solutions, Giannini and Monzoni believe, will be the next big thing in the industry. Discarded cigarette filters, 98 percent of which presently consist of cellulose acetate (CA), a bio-based polymer that takes years to disintegrate, are the world’s most littered items. They pollute the environment with microplastics. In July 2021, the European Union banned plastic items such as plates, cutlery, straws or cotton bud sticks but exempted cigarette filters. Instead, tobacco manufacturers will be required to cover the costs of consumer awareness-raising campaigns and extended producer responsibility schemes starting in December. There are rumors, though, that the EU might ban CA filters in the future. Giannini considers it more likely that the EU will raise taxes on polluting items instead. The tobacco industry is taking the issue seriously by developing paper filters, a trend that Montrade has seen reflected in the demand for corresponding machinery.

    Efficient Paper Crimping

    One of Montrade’s bestsellers is a new version of a paper crimper that was originally developed in 2010. Paper is crimped with a pair of rollers that penetrate the paper band without cutting the fibers. The goal of the process is to get the maximum volume so that when the rod is made, the filter doesn’t have any holes; it should look as much as possible like a filter made from CA.

    Driven by customer requests, Montrade recently redesigned the crimping head of its machine to enable the manufacture of paper filters with similar properties to CA filters. “With our new technology, we have achieved excellent results,” Monzoni says. “We save 15 [percent] to 20 percent of paper compared to traditional crimpers, which means that we create a very homogeneous and stable filter with no variation in pressure drop and superb quality. Not only does this reduce cost; there is also an advantage for taste. The retention of paper is much higher than that of CA, which means that tar and nicotine will be reduced. If you use less paper, you will get less of the typical taste of a paper filter. For better machinability in the downstream process, we have increased the hardness.”

    Importantly, Montrade’s machine works at the same speed as filter makers for acetate tow, splicing automatically and never reducing the speed of production, according to Giannini.

    As an alternative to the paper crimper, the company offers the standalone crimping module as a retrofit package. Within 15 minutes, it turns a conventional CA filter maker into a paper filter maker. “If CA filters get banned, it doesn’t make sense economically to waste so many machines and replace them with new ones as the rod forming basically does the same job no matter whether there’s CA tow or crimped paper at the backend,” says Giannini. “The crimping module breathes new life into the existing rod forming, just giving it a new material feeding. We are getting a lot of positive response from our customers; you can see that this is the direction they will go. Many brands are making trials and have set up smoking panels with this new material.”

    While demand for paper filter makers is increasing, Monzoni emphasizes that the trend is still at an early stage. “Paper filters are currently used for brand variants that appeal to consumers with a more ecological orientation,” he says. “The big brands are not ready yet. One [company] is prepared to start with one brand; others are still studying the subject.”

    The situation is different in the smaller RYO/MYO category, which has become a forerunner in paper filter tips. “Sustainable filters are common, and the consumer likes them,” says Giannini. “In cigarettes, we’re still a bit behind. But the few brands with sustainable filters presently available are growing.”

    Sustainable Solutions

    Montrade’s portfolio reflects the tobacco industry’s current transformation that not only involves reduced-risk products but also non-nicotine offerings. For the rapidly growing cannabis market, Montrade is developing several products, including a cone-making machine.

    The company is also exploring the potential of paper beyond common solid filter plug production. In partnership with a big tobacco firm, the machinery manufacturer has created a new packaging line capable of producing soft packs without plastic film. The humidity in the pack is preserved through an innovative seaming technology that reduced both cost and environmental impact.

    Furthermore, the company uses the crimped paper to manufacture a hollow tube that is equivalent to hollow acetate filters. “Turning crimped paper into a hollow tube filter has long been the dream of filter designers,” notes Giannini. “Our customer wanted to change from CA filters to paper to have a full sustainable portfolio of paper filters. We have made it possible by offering paper tubes and hard paper filters. Our hollow paper tubes have a wall thickness of 0.6 mm to 1.5 mm, and they are very similar to CA filter tubes.” Montrade also has a machine that allows it to produce charcoal paper filters, which are also known as Dalmatians.

    Used in combustible cigarettes, hollow filters make elegant mouthpieces. In HTPs, they are highly functional, serving as either a flow restrictor or an expansion chamber and playing a fundamental role in aerosol cooling and accelerating. “The performance of HTPs is driven by tubes,” Giannini says.

    Drawing from its experience with crimped paper filter rod manufacture, Montrade has developed a rod-forming machine for the tobacco element in HTP consumables. The cast leaf that is used in the sticks presents a challenge in processing, says Monzoni. “It’s fragile and tends to be sticky, so it needs to be treated in a special way,” he says. The underlying concept of our rod maker, however, works for all bobbins or webs—you just need to adapt the technology to treat different materials.”

    More design possibilities for HTPs arise with Montrade’s coaxial flexible platform, which represents a new way of making filters. “Instead of a single process, our machine has two garnitures and is capable of making one filter or tube inside of the other,” says Giannini. “It’s highly performing and super flexible, allowing for a continuous process or a combination of individual filter segments inside and a wrapping with a continuous material, such as paper or CA, outside, in one go.”

    Customers’ biggest investments these days are in HTPs, according to Giannini. “There is still a lot to be discovered on the production side of HTPs. Coaxial technology is one opportunity to open the scenario to different production designs. HTPs are the future. We strongly believe that they will make up the majority of nicotine consumption in the future.”

    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.
  • Designing the Future

    Designing the Future

    An exclusive tour of PMI’s state-of-the-art heated-tobacco units plant in Bologna

    By Stefanie Rossel

    Photos: PMI

    A traditional cigarette factory gone sci-fi—that’s the impression Philip Morris International’s manufacturing site in Crespellano, near Bologna, is likely to leave on new visitors. Philip Morris Manufacturing and Technology Bologna (PMMTB), which is the company’s first factory dedicated exclusively to mass producing reduced-risk products (RRPs), provides a glimpse into the future of nicotine-delivery systems manufacturing. Presently, the facility focuses on consumables for the company’s IQOS heated-tobacco product (HTP).

    From the outside, the elongated structure with its glass facade and fountains framing the entrance, which was built in only 33 months and began production in 2016, could double as a modern congress facility. Measuring 110,000 square meters, the building hosts production, logistics, quality control and administration facilities, however. It has also been designed as an agreeable place to work. In addition to offices and a conference center, the building features a kitchen with a free-flow restaurant, modern changing rooms and a gym.

    To visitors, the site may seem more like a pharmaceutical facility than a traditional factory. To prevent contamination, no one is allowed to enter the shop floor without protective gear. A visitor center showcases the product ingredients and details the specifications of various IQOS consumables. Heets, the consumables of IQOS Original, comprise a tobacco plug, a hollow acetate tube, a polymer-film filter and a cellulose-acetate mouthpiece filter. In addition, there are outer papers and mouth-end papers.

    The tobacco part, visible at the end of each Heets, is made from fine tobacco powder mixed with fibers, such as cotton, glycerin and guar gum, and then cast into a sheet and rolled onto bobbins. The tobacco rods are manufactured by crimping the tobacco cast leaf in a patented process, which enables the heating blade to be inserted into the consumables.

    Terea Sticks, the consumables for IQOS Iluma, use Smartcore Induction System technology. Iluma, which does not need to be cleaned, is an induction heated device, hence the Terea sticks are equipped with a metal heating element, a thin solid metal thread that is coated with stainless steel and heats the tobacco from within. While with 4.5 cm it is as long as a Heets stick, the Terea consumable contains a fifth component: a front plug at the end of the stick behind the tobacco element to prevent contamination of the device. According to a PMMTB employee, the most challenging part in the production process is to put the metal stick into the center of the tobacco rod and allow eleven holes of filtration in the right place.

    Share the Learnings

    The highly automated shop floor comprises a series of halls that are arranged on both sides of a long corridor aptly called “the spine.” Among other things, they house the primary with the cast sheet production and the secondary with the filter-making division. The latter is divided into so-called cells, production lines that each comprise a crimper for turning the leaf sheets into the sticks’ tobacco elements, a filter combiner that assembles the consumables’ components and a packer. A web of buffer systems below the hall ceiling supplies individual cells with filter segments.

    Each part of the secondary has been designed to respond quickly to changing consumer needs and allow for future expansion. For instance, several of the cells that used to be dedicated to making Heets are currently being converted to manufacture Terea sticks, which Crespellano started producing in 2021. The cells’ new configuration reduces the space required for each production line from 1,200 square meters to 900 square meters. As it gained experience, PMMTB has been able to carry out such conversions quicker. While it took the company more than a year to refurbish the first line, it completed the fourth in four months.

    With more than 1,700 employees, the Crespellano site exports its products to about 40 countries where IQOS is presently marketed. In terms of value, the factory exports exceed Italy’s exports of olive oil and parmigiano cheese. To date, PMI has invested more than €1 billion ($1.06 billion) in PMMTB, which has become the company’s center of excellence for staff training, prototyping and large-scale production of smoke-free tobacco products.

    The plant is the largest factory in Italy to be built from scratch in 20 years and has made PMI one of the largest investors in the country. It is also the biggest facility dedicated to smoke-free products within PMI. PMMTB establishes the manufacturing processes for PMI’s HTP products worldwide. The learnings gathered in Bologna are then exported to PMI’s 38 manufacturing affiliates in 28 countries. Over the past five years, PMI has transformed several of its combustible cigarette factories into heat stick production facilities, including in Aspropyrgos in Greece, where it invested €300 million, Otopeni (Romania, €490 million) and Yangsan (South Korea, €420 million). Today, the company has seven smoke-free product manufacturing plants.

    In addition to the consumables manufacturing facility, the Crespellano site also houses PMI’s new Center for Industrial Excellence, which was inaugurated in the autumn of 2021 and is the largest within the company for industrialization, process innovation, engineering and sustainability. The center is part of a plan to invest approximately €600 million in smoke-free products in Italy over three years. The project is anticipated to create 8,000 direct and indirect jobs.

    The most recent addition to PMMTB has been the Institute for Manufacturing Competences (IMC), which opened in 2022. The company’s aims are to create a skills development center for continuous training and technology transfer, with a focus on manufacturing digital, sustainability, talent development and managerial competences. PMI wants the IMC to benefit not only employees but also suppliers and other stakeholders. The academy, which also finances scholarships, carries out applied research projects with the University of Bologna, the Polytech of Bari and various competence centers.

    In designing PMMTB, PMI paid considerable attention to its ecological footprint. The facility purchases 100 percent certified renewable electricity and features a photovoltaic system, avoiding emissions of about 2,000 tons of carbon dioxide per year. Between 2017 and 2020, the site reduced its emissions by 17.1 percent. Those of its supply chain declined by 56 percent from 2012 to 2020. Built in accordance with sustainability standards, the IMC is completely self-sufficient in energy.

    Longtime Player in Italy

    Italy is an important market for PMI. Statista expects tobacco products revenue to reach $24.73 billion in 2023. The market is expected to expand at a compound annual growth rate of 0.57 percent between 2023 and 2027. While cigarettes still account for the lion’s share of the domestic market, sales of novel products are growing quickly. In 2021, Italy was the world’s third-largest market for HTPs, with 9 billion sticks sold, behind Japan (45 billion) and Russia (21.7 billion), according to Euromonitor. By February 2023, about 2 million Italian smokers had completely switched to IQOS and stopped smoking, according to PMI.

    PMI has been in Italy for more than half a century. In 1963, the company set up Intertaba in Zola Predosa—a 10 minutes’ drive from Crespellano—to supply filters under license of the Italian tobacco monopoly ETI. In 2020, Intertaba became a reference point for the development of new technologies. In 2013, PMI finalized a high-tech filter production facility at the site, which then became the company’s Center of Excellence in Manufacturing and Technology for innovative filters and smoke-free products. With 20 standalone prototyping lines, Intertaba works as a vertical startup by developing new products from concept proof through technology verification. In 2020, the U.S. Food and Drug Administration authorized the marketing of the IQOS tobacco-heating system as a modified-risk tobacco product.

    Opened in Rome in 2001, Philip Morris Italia is responsible for the sale and marketing of PMI brands in Italy. In 2020 and 2022, PMI established digital information service centers in Taranto and Marcianise, respectively. 

    Pipeline of Innovations

    To date, PMI has invested more than $10 billion in its transition to smoke-free products. The company employs more than 980 people in R&D and has evolved into the EU’s 45th-largest patent filer. At the 2023 CAGNY Conference, Chief Financial Officer Emmanuel Babeau said PMI was on track to become a majority smoke-free company by 2025. Last year’s acquisition of Swedish Match provided a substantial boost to reaching this target. The smoke-free net revenues of the two companies combined amounted to about $12 billion in 2022, accounting for more than a third of total net revenues.

    PMI’s smoke-free business has been profitable for several years. The Swedish Match deal provided the company not only with a strong position in Scandinavia but has also given PMI a rapidly growing modern oral nicotine brand, Zyn. Swedish Match’s nicotine pouch led the U.S. retail category with 75.7 percent in the fourth quarter of 2022.

    IQOS continues to grow too. PMI’s shipments of heated-tobacco units grew 14.9 percent in 2022. In the fourth quarter of 2022, 24.9 million smokers worldwide used IQOS. Seventy percent of them had completely converted to the new product. In the fourth quarter of 2022, HTPs accounted for 8.8 percent of the EU market, up from 6.4 percent during the same period in 2021. Ninety percent of HTP users in Europe use IQOS. In Japan, growth of IQOS consumable sales has been driven by Iluma. In the fourth quarter of 2022, PMI’s HTPs had a market share of 24.5 percent.

    The company has set ambitious targets for its smoke-free business. By 2025, PMI wants to have a user base of more than 40 million smokers who have switched to one of its smoke-free products and stopped smoking.

    The company aims to have its smoke-free products available in 100 markets. More than $1 billion in net revenues is supposed to be generated by the company’s “beyond nicotine” business, which focuses on wellness and healthcare products.

    To achieve these goals, PMI is expanding its RRP portfolio. On Jan. 30, 2022, the company turned its 2020 cooperation deal with KT&G into a 15-year contract. The agreement gives PMI exclusive access to KT&G’s smoke-free brands and innovation pipeline. In return, KT&G benefits from PMI’s global commercial infrastructure and experience in commercializing smoke-free products. As a result of the collaboration, KT&G’s Lil HTP, which is considered complementary to PMI’s smoke-free products, is present in 31 countries in Central America, Europe and Central Asia.

    PMI aims to provide smokers in low-income and middle-income countries (LMICs) with less hazardous alternatives. About 80 percent of the world’s smokers live in LMICs and often have limited access to affordable RRPs. In November 2022, PMI launched a new HTP device—Bonds by IQOS. Based on IQOS Original’s blade heating technology, the product is marketed as “simple, convenient and affordable without compromising on a reduced-risk profile,” making it a relevant proposition for consumers in LMICs, according to Babeau. The product has shown promise during pilot launches in the Philippines. Further commercialization is anticipated during this year.

    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.
  • Returning to Cuba

    Returning to Cuba

    The Cuban cigar industry is flourishing despite several challenges, including weather and factory staffing.

    By Timothy S. Donahue

    Photos: Timothy Donahue

    It was going to be a two-hour to three-hour drive. The rented 16-seat passenger bus had problems the day before, but the driver insisted that the issues had been resolved. Taking the buses provided by Habanos, the manufacturing and distribution arm of Cuba’s state-controlled cigar industry, is more reliable, but the trip often takes more than 12 hours to complete because things move at a slower pace with the Festival del Habano crowd. A small group of colleagues and I decided to rent the private bus instead.

    It didn’t turn out well. About 45 minutes into the trip to Pinar del Rio, Cuba’s tobacco growing region on the western side of the island, the bus began to fill with smoke. In typical Cuban fashion, the driver turned around in his seat and said, “Do not worry; this happens all the time.” It soon became too much, however, and the bus had to pull over along the side of the busy Havana highway during morning rush hour. The six passengers climbed down the steps to the side of the road. Smoke continued to billow from the engine.

    An hour after being promised another bus would arrive in 15 minutes, we decided to call it a day. We then began the hour wait for two cabs to make the short trip from the city center to pick us up during what was now extremely heavy traffic. Cuba doesn’t have much gasoline, so everything runs on diesel, and the exhaust made the roadside nearly as toxic as riding in the damaged bus. We never made it to the farms. The bus driver assured us that the bus would be fixed by the next day. We never bothered to call to find out.

    Maritza Carillo Gonzalez

    Travel in Cuba can be complicated. For all of its troubles, however, the island is filled with a passion and love for everything Cuban, including its music, food and, of course, cigars. During the 23rd edition of the Habano Festival, which took place from Feb. 27 to March 3, more than 2,000 cigar aficionados from around the globe came together in Havana to celebrate the Cuban cigar after a two-year hiatus caused by the Covid-19 pandemic.

    Habanos’ new co-president, Maritza Carrillo Gonzalez, said she has had the honor of attending numerous festivals and has seen for herself the passion with which Habanos enthusiasts enjoy and appreciate the event. She said she was excited for its return. “This year has a special flavor,” Gonzalez  said. “This is a unique and long-awaited edition in which I take on a new position that I accept with great enthusiasm and responsibility.”

    Rising from Ruin

    Cuba’s tobacco farms are recovering from the damage sustained in September, when Hurricane Ian made landfall as a Category 3 storm. While Habanos brought festivalgoers to a smaller farm in Pinar del Rio, many media members wandered to other larger, more famous farms in the area. They found that the plants were still small, but farms seemed to be growing and curing plenty of tobacco leaf.

    The industry intends to plant 9,500 hectares of tobacco, down from an initial plan of 15,000 ha, according to Enrique Blanco, agricultural director of Tabacuba, the agricultural arm of Cubatabaco, the state-owned tobacco conglomerate. An estimated 2,100 ha of premium shade-grown leaf will be cultivated, which Cuba hopes to use to meet its growing export demands.

    In Cuba, the growing process starts in July and August, when the seedbeds are prepared, preferably on loose, well-drained soils. After 45 days of irrigation, the plants reach a height of 13 cm to 15 cm (5 inches to 6 inches) and are ready to be replanted in early October. The plants reach their full growth during the 45 days to 50 days following replanting, and after another 50 days they are ready for harvesting.

    Private tobacco producers have been meeting with Cuban authorities over the past few months to secure the state’s help in settling debts and paying for materials to rebuild tobacco drying houses, according to Cubatabaco. Nicaragua and the Dominican Republic as well as other producers have also stepped in to help Cuba recuperate. Several farms have new curing barns, but many more are still needed.

    Factory Floors

    Entering a Cuban cigar factory can be overwhelming for the senses. The smell of cured leaf, cigar smoke and hard work can be intoxicating. During the visit to the factories this year, festival attendees had the opportunity to experience two of Cuba’s “Big Four” factories: La Corona, also once known as La Casa de Hierro, and the world-famous Real Fabrica de Tabacos Partagas. The other two major factories are H. Upmann and El Laguito. At La Corona, the factory produces Romeo y Julieta, Hoyo de Monterrey, Cuaba, Por Larranaga, Saint Luis Rey, San Cristobal de la Habana and some Montecristo. Habanos markets 27 premium brands. There are over 400 market names and an estimated 100 factory names.

    La Corona’s manager said that daily production averages an estimated 25,000 cigars. Workers strip an estimated 1,200 leaf per day. During the peak of the Covid pandemic, those numbers plummeted by half. “We have returned to close to normal operations,” the manager said. “What is complicated is we had many experienced rollers leave the factory or even the country, and now we must train new rollers, and that takes time.” The manager also said that in 2022, farmers began testing a new variety of tobacco that was more resistant to fungus. “We like the results so far,” he said.

    The quality control manager at La Corona claimed that the wrapper imparts little flavor to the cigar. This led to a contentious debate among festivalgoers, and the opinions varied greatly. However, when the manager insisted that the addictiveness of Cuban cigars was due not to their exquisite leaf but to the fact that their wrappers are sorted on the thighs of Cuban women, his statement went oddly uncontested.

    At the Partagas factory, other brands are produced as well–everything from Partagas, Cohiba and Romeo y Julieta to Bolivar and Quai d’Orsay. The original factory closed for renovations in 2011; however, after a roof collapse in 2020, the original historic factory was shuttered for good, and all operations moved to the “new” historic building, which is still quite old.

    Currently, Partagas has 200 rollers producing about 15,000 cigars a day. However, the tour guide said that on many days there are only 100 rollers or so because, like La Corona, many of them have left for other factories located closer to their homes or have left the country entirely. There is room for 240. Many rollers also switch between factories based on demand for cigars.

    The exodus was evident throughout Cuba where even some well-known rollers have left the country. Reynaldo Gonzalez, for example, moved to Mexico, and the Hotel Conde de Villanueva where his La Casa del Habano (LCDH) was located is shuttered with green plywood over the entranceways. Alejandro Gonzalez Arias left the Hotel Comodoro to open a cigar lounge in California. The Comodoro store is now operated by two talented female rollers.

    Robust Sales

    In 2022, Habanos generated $545 million in revenue, nearly 2 percent more than in 2021. Habanos reported a turnover of $568 million in 2021 (Habanos did not define its 2022 turnover, only revenue), up 15 percent growth over the previous year. The company’s largest markets for cigar sales are Spain, France, Germany, China and Switzerland, consecutively.

    The company also boosted its retail presence in 2022. Habanos now has 157 LCDH stores, 17 Cohiba Atmosphere locations, 1,264 Habanos Specialists, 2,744 Habanos Point designated stores and 587 Habanos Lounge and Habanos Terrace locations.

    Last year, Habanos announced a new “global pricing standard,” which greatly increased the prices of Cuban cigars around the world. The company has already announced at least two additional price increases for 2023. The price increases have impacted the costs of Cuban cigars greatly. In 2018, for example, a box of 10 Cohiba Talisman Limited Edition 2017 cigars cost $600. Today, that same box can cost anywhere from $2,350 to $2,850—if they can be found. Cohiba Robustos were selling at multiple locations in Cuba for about $1,700 a box, meaning each cigar was selling for just under $70 each. In 2019, the box of 25 cigars was less than $300.

    The company is confident in its pricing strategy, according to Jose Luis Lopez Inchaurbe, development vice president of Habanos. “The process of implementing the new price homogenization strategy takes time. As in every market, the procedures and the regulatory situations are different,” Lopez said. “So, the price increase has not been made at the same time in every market. Then we are now evaluating how the demand has been impacted by this step. In any case, it’s clear that some brands and references have responded better than others. But we see this as a normal situation of the compensation of the demand by market.”

    Luis Sanchez-Harguinday, co-president of Habanos, said that the company has “big expectations” for the coming year, adding that two factors will make the most impact. “First of all, because we trust in the power of our initiatives that we have, product initiatives and other activities that we are planning for the year,” he said, “and this is a great weapon that we have, and it’s all the enthusiasm, the hard work, the spirit and passion devoted by all the participants in the value chain of our business, starting by the Cuban Tobacco Research Institute, going through the farmers, the tobacco growers, the Cuban industry, of course, the workers at Habanos, and finally, the unique and exclusive distribution network that we have.”

    Evening Events

    The most attended experiences during the Habano Festival are its three evening events, held on Monday, Wednesday and Friday. Each of the three evening events celebrates specific brands or releases, and the Monday opening night event commemorated the Montecristo Open line. It was held at Club Habana, a historic beach resort that opened in 1928. This year’s event featured a show with drones depicting scenes of farmers, cigar bands and cigar brand names. The event can most easily be described as a street festival on a boardwalk at the beach on the grounds of a historic resort.

    Wednesday’s evening event is a little different from Monday’s event but has many of the same qualities. Held at the El Laguito Reception Hall, this experience was dedicated not only to the Bolivar marca but also to both Habanos Specialist and LCDH stores. The evening marked the release of Bolivar’s New Gold Medal cigars. This event is a giant, fancy pool party where everyone is dressed up and no one is swimming.

    It was rumored that for the first time in the Habano Festival history, the company had an LCDH outlet at Monday’s evening event that was selling the newly released Open Slam. However, at the Wednesday event, participants witnessed firsthand the LCDH table selling boxes of 10 of the Bolivar New Gold Medal cigars for $250. It was a madhouse, and people waited the entire evening in some cases to buy a box of the new cigars at a seriously reduced price reserved for the festival. There is no timetable for when the cigar will be released to the public.

    Friday’s gala dinner event is the premier event of the festival and is traditionally held at the Pabexpo Fairgrounds. This experience is a sight to behold. The 2023 evening paid tribute to the Partagas brand with the launch of the Linea Maestra, the brand’s most premium line. Only an estimated 1,200 people are permitted to attend. The gala was also honored by the attendance of Cuban President Miguel Diaz-Canel, who signed the Cohiba humidor for the festival’s humidor auction, bringing back an old tradition popularized by Fidel Castro during the first editions of the festival.

    Castro last signed a festival humidor in 2006, when five humidors sold for a total of $725,000. It was also the final time Castro was able to attend the event. Famous for his ability to orate at length, Castro’s presence at the early events caused a mixture of awe and trepidation by some guests—awe at the opportunity to share a room with such a historical figure and apprehension about missing an early morning flight. Only a few journalists, including Tobacco Reporter, were allowed on the floor where the gala was taking place this year, as all the other journalists were relegated to platforms at the far ends of the room for nearly the entire evening.

    The highlight of the closing event is the humidor auction, which has brought in record amounts of money for Cuba’s healthcare system the past few years. This year would be no different. The 2023 humidor auction generated a record $11.89 million in combined sales. This shattered the festival’s previous auction record of $4.71 million in 2020. This year, a Cohiba humidor was sold for $4.45 million, almost equaling the entire 2020 auction. It is the most expensive humidor ever sold at auction. According to sources, the buyer of the Cohiba humidor is one of the new Chinese partners of Allied Group, which owns 50 percent of Habanos.

    It is impossible to truly know Cuba without visiting Cuba. For those in the cigar industry, there is no better time to travel to the country than during the Festival del Habano. For all its difficulties, it is still an amazing adventure. As one Cuban-American who has been in the tobacco industry for 35 years and was attending his first festival this year said, “It’s an amazing place. The people and the atmosphere are intoxicating. It’s also easy to see how a trip to Cuba could be going along great, and then suddenly, everything just falls apart.”

    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.
  • An Italian Flavor

    An Italian Flavor

    Photos: TTI

    From its new subsidiary in Umbria, TTI can supply its global customers more efficiently and cost-effectively.

    By Stefanie Rossel

    The tree-covered rolling hills of central Italy’s Umbria region provide the backdrop for the European subsidiary of U.S.-headquartered flavor house TTI. Here, in the plain at the foot of the hill of Assisi, a charming medieval town halfway between Florence and Rome, the company has set up a state-of-the-art production facility and warehouse.

    Establishing the new flavor factory has been a long journey, relates Jeremy Davis, TTI’s sales marketing manager, who leads the project and is the sister of TTI CEO George Cassels-Smith. The family business specializes in flavors with aroma chemicals, many of which have complex profiles to generate unique taste experiences. It develops high-quality flavors for shisha, cigars, snus, cigarettes, modern oral pouches, e-liquids and cannabinoids. Casings are also part of its portfolio.

    “We tried to put a warehouse in Dubai many years ago, but due to some high-rise fires in the city, the government wouldn’t allow chemical storage in free trade zones any longer. TTI then thought of Turkiye, but at that time, Trump and Erdogan were on difficult terms,” says Davis, referring to the former U.S. president and the current Turkish one. “Just as we were about to sign a contract for an existing factory, Erdogan wouldn’t allow Americans into Turkiye.”

    Europe turned out to be a good option. “We opted for Italy because the tobacco industry has always had a strong presence here, and [we opted] for Assisi because there are other tobacco entities right here,” Davis said. Universal’s affiliate Deltafina subsidiary, for instance, is located in neighboring Bastia Umbra. “Logically, maybe Milan would have made more sense because it’s a center of chemical manufacturing, but George wanted to be close to the tobacco industry.”

    What was supposed to start with a warehouse quickly evolved into a full manufacturing facility, according to Davis. Built during the Covid pandemic and opened about a year ago, the 6,000 square-meter facility currently manufactures about 100 flavors for tobacco products using 700 different raw materials. New flavors and raw materials are being added weekly. The facility that produces such a multitude of flavors is surprisingly sparse: A corner of the spacious shop floor hosts two huge, shiny 18,000-liter casing tanks. They are complemented by two 200-liter tanks to mix smaller volumes.

    On the wall opposite that corner is the warehousing space. Quality control is rigorous: All incoming raw materials must pass an internal check before being used to manufacture flavors. The finished flavors undergo a similarly strict quality assessment procedure before delivery to the customer. Traceability of both raw material and finished product is a basic procedure for TTI. Flavors are validated at both the Italian facility and TTI’s U.S. facility.

    Faster and Less Costly Delivery

    The Italian factory features a “plug and play” concept throughout the production department and the laboratory. It also includes space to construct a clean room for the manufacture of e-liquids, which is scheduled to start by 2024. TTI intends for the Italian factory to eventually produce exactly the same portfolio as its U.S. mother plant, where the company creates novel aromas in a newly developed R&D center.

    The goal of replicating its U.S. process abroad is to lower transport cost and facilitate the logistics process. Many of TTI’s clients are based in Europe and the Middle East whereas many suppliers of raw materials are in Europe. This means that producing in the U.S. requires a lot of shipping across the Atlantic.

    “When we started to produce flavors for these markets in the U.S., transport was already expensive and took a long time,” Davis says. “Now with the changed situation due to the Covid pandemic and Russia’s invasion of Ukraine, it is much more expensive and takes even longer. It’s very burdensome to our customers to be paying all of that and waiting the times they have to today. We just want to make it easier for them and more cost-effective.” TTI’s production for Europe and the Middle East, which is currently carried out at both the U.S. and the European sites, is planned to be eventually shifted largely to Assisi.

    TTI caters to many players but, like other flavor manufacturers, doesn’t always know in which end products their flavors are used. When the company is dealing with customers who are looking for a specific flavor profile, TTI conducts panel testing to find that profile. “Customers pretty much tell you what they want,” says David. “Different customers have different requirements.”

    The appropriate flavor profile also depends on the region and cultures in which the end product will be consumed. “Shisha in the Middle East is more traditional flavors, but they’re growing into what we call fusion flavors,” says Davis. “In Europe, fruits are big. Minty flavors are sought after but restricted in an increasing number of markets.”

    Davis observes increasing demand for TTI products in Europe from the growing modern oral nicotine category. “Geographically, we are growing a lot in the Middle East and Africa. We focus on Asia; we have a successful Chinese sales office, but we’re presently putting more work into south [Asia] and Southeast Asia.”

    A Company with Tradition

    The Cassels-Smith family has a long history in the tobacco industry. It started more than 150 years ago with exports of U.S. tobacco leaf under the name Gieski and Neiman. In 1975, Davis’ father left the company to set up the flavor house TTI. Unlike many competitors who make aromas for other industries, TTI has always dedicated its service exclusively to the tobacco industry. Recently, the company expanded with the creation of eLiquiTech, which specializes in e-liquid. In late 2020, eLiquiTech introduced SyNic, a high-purity (typically 99.9 percent) synthetic nicotine (S-nicotine) that is neither obtained from tobacco nor derived from a synthetic racemic mixture.

    At the time when the Assisi site was built, TTI ventured into cannabinoids by establishing Emerald Green Technology. This subsidiary creates fresh terpene blends, tinctures and edibles as well as casings and distinctive flavors for hemp, hemp shisha, cannabis cigarettes, oral CBD and THC pouches. The company plans to transfer its expertise to TTI Assisi to cater to the cannabis market that is expected to develop in Europe. Germany’s government, for instance, recently announced that it would legalize cannabis during the current legislative period.

    “Typically, we find trends start in the U.S., move to Europe, and then they go beyond Europe,” says Davis. “We are seeing growth of interest in cannabis here, so I think the EU will be going down the same road as the U.S.”

    Davis is excited about the outlook for the tobacco industry. “It has its challenges, but we are working hard to find other avenues within the industry, such as working with synthetic nicotine to develop safer products, e-liquids, CBD and hemp. There are opportunities out there where there’s growth in the industry—it is just evolving.”

    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.
  • Step by Step

    Step by Step

    SWM has published a manual to help regional manufacturers quickly launch tobacco-heating products.

    By George Gay

    Bruno Stefani

    Bruno Stefani told me recently that his company’s aim was to help other companies develop, manufacture and market heated-tobacco products (HTPs). This came as no surprise, in fact; he is, after all, the HTP manager of SWM’s Reduced-Risk Products division, so what he said was more or less a statement of the division’s raison d’etre. But he went on to explain that the division’s focus was on regional cigarette manufacturers that had previously not entered the HTP market and that the aim was to have them launch products within 18 months to 24 months while continuing to operate in much the same way as they do when manufacturing combustible cigarettes. Each step of the process seems to have been designed with simplicity in mind and with the focus on targeting HTP products aligned with individual manufacturers’ brand profiles. Now, given the history of HTPs, which overall and until recently comprised about 30 years of market tests and failures, news of such a straightforward, rapid and all-encompassing offer did come as something of a surprise.

    When the first commercially successful HTP products started to appear on the market, there was a veil of secrecy around them that most of us could penetrate only dimly. Of course, the veil started to lift as these products came under the scrutiny of those who were more qualified than most of us to figure out why they had been designed as they had been and how they performed as they did. And it started to lift further as the interests of those manufacturing these reduced-risk products were aligning with the release of information that was likely to increase their marketability in the eyes of consumers and, potentially, regulatory authorities.

    It is not surprising, therefore, that now, much information about HTPs can be gleaned from the internet, though, I would suggest, it is surprising that it is possible to visit a website that outlines the way in which anybody interested in these once obscure products and with the necessary financial backing can be guided, from concept to marketplace, through the steps needed to become a manufacturer and supplier of such products. But, in fact, SWM, which has much expertise in the components that come together to make up an HTP, provides on its website a white paper that does just that.

    The white paper, which is clear and concise, includes, in addition to an introduction and executive summary, chapters on what companies need to know before launching an HTP and dealing with an overview of the HTP market; eight reasons to make the leap into HTPs; overcoming obstacles; designing the heating device; designing the stick; building a blend; risks and regulations; and HTPs and the environment. There is also a chapter on expert solutions, and it is worth mentioning that SWM has invested €12 million ($12.88 million) in heat-not-burn R&D since 2013, as part of which it has assessed more than 40 different single tobacco grades under aerosol conditions. It has developed a unique puff-per-puff aerosol analyzer; it has presented at Coresta three scientific studies on HTPs; and, overall, it has more than eight years of HTP scientific and manufacturing expertise behind it.

    Stefani told me during a telephone interview in early March that SWM offers a four-step process for developing and marketing an HTP from scratch. At its heart, the process involves providing a customer with know-how and access to ready-made components while avoiding tricky patent issues. The first step, discovery, is the one in which SWM demonstrates to a potential customer the workings and benefits of a number of HTP products. The second step, validation, involves a proof of concept in which characteristics, such as the taste profile and nicotine delivery level, are finalized in respect of a prototype.

    The third step, industrialization, deals with how to manufacture and maintain the quality of the consumable sticks using the assets already available to the manufacturer. And the fourth step, the future, concerns preparing, immediately after launch of the first HTPs, the next generation of such products, which need to be placed on the market about every six months to keep the product portfolio looking fresh but which might involve only minor brand extensions.

    To ensure a fast HTP development phase, SWM’s process is built around an already designed device and consumable stick. The device, which has been designed and would be manufactured by a third party with which SWM has worked and to which it would provide introductions, uses an “external” or oven system to heat the aerosol-generating material rather than an “internal” blade or pin. Choosing the external rather than the internal heating system reduces hugely the investment required because, whereas in the case of the latter, a greenfield plant must be constructed, the former allows a manufacturer to use, perhaps with minor modifications, its existing machinery. The third-party device supplier owns the patent to the device and ordinarily would be responsible for the after-sales obligations that attach to the supply of such electronic equipment.

    At the same time, SWM can provide introductions to a filters company and to a machinery company in the case that modifications must be made to equipment while it is able to supply the consumable stick’s reconstituted tobacco for which it holds the patents.

    But, in the end, it is down to the customer to mix into its primary department the reconstituted tobaccos specifically designed for HTP applications and other materials to produce personalized blends, much as it would do when making combustible cigarettes: adding other components, such as casings and flavors and even other reconstituted botanicals that, again, are designed specifically for HTP applications and that can be supplied by SWM. And it is, of course, down to the customer to sign off on the sensory experiences provided by the product.

    Staying Competitive

    Although the process sounds straightforward, the question arises, I suppose, as to why regional players should become involved in HTPs and if they should become involved, why, in general, they haven’t so far, even though, in conversations with Stefani, many have expressed considerable interest. There are at least three answers to the second question, one of which has to do with the disruptions caused by the Covid pandemic. Another reason has to do with some manufacturers already being involved in other projects that have left them for the time being without the resources necessary to embrace HTPs. And for some, there is no sense of urgency in moving to HTPs because, with the major manufacturers concentrating on new-generation products, the regional players are performing well on the market for combustible cigarettes and have not felt the chill wind of decline.

    But it seems likely that if these regional players are to stay competitive in a world where combustible cigarettes are giving way to new-generation products of various kinds, they will need to get on board with HTPs and probably sooner rather than later. SWM says the combustible cigarette market is suffering a steady attrition that amounted to an estimated compound annual growth rate (CAGR) of about minus-4 percent between 2016 and 2022. Over the same period, HnB products enjoyed an estimated CAGR of about 70 percent, and, in some countries, the market share of HTPs was above 10 percent by the end of 2022. Within the EU, where most but not all of the target regional manufacturers operate, the cigarette/HnB transfer rate between 2016 and 2020 was plus-35 percent, meaning that for every 100 cigarette sales lost, HTP sales grew by 35 sticks.

    Further, SWM estimates that the overall HTP CAGR between 2021 and 2027 is likely to be 15 percent to 20 percent while the CAGR for HTPs using external heating systems will be about 20 percent to 25 percent given that they are starting from a lower volume base.

    Of course, confidence in the future for these devices is provided by the fact that, in many markets, they stand at a tax discount to combustible cigarettes, providing a potential retail price advantage that, in the case of HTPs with external heating systems especially, is bolstered by the relatively low cost of manufacturing disposable sticks. Such confidence must also be seen in the context of the investments that have been made in them and that is continuing to be made in them by the major players. And it is likely, too, that the entry into this market segment of regional players will build product exposure and market momentum.

    The case for HTPs can be argued from a negative perspective as well. If a consumer of a regional player’s combustible cigarettes decides she wants to move to a less risky product, she will move to the product of a competitor if the regional manufacturer doesn’t offer a suitable product. And this would be an avoidable loss for the manufacturer in question. While it is not possible for a manufacturer to develop HTPs that exactly mimic the characteristics of its combustible brands, it can get close enough to present devices as new formats offering fresh experiences. This product/brand continuity, if you like, is important because while a consumer might be looking to move to a less risky product, she probably wants, too, to move to one manufactured by a company she already trusts.

    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.