Category: Also in TR

also-in-tr.jpg

  • Known Unknowns

    Known Unknowns

    Andrey Popov | Dreamtime

    The case for realistic optimism in the wake of America’s recent election

    By Chris Greer

    I always admired Donald Rumsfeld’s turn of an opaque phrase. As America’s former secretary of defense memorably explained in a 2002 news briefing on the U.S. invasion of Iraq, crystal ball gazing into the future is nothing if not an embrace of the mist and fog. However, anticipating what may come is not just an amusement, it can be a valuable strategic planning tool during a change of U.S. presidential administrations.

    I am often asked to provide my opinion on picks, replacements and likely policy directions. As president of TMA, I cannot provide an opinion. TMA has, for more than a century, striven to be an unbiased convener and place of understanding for those engaged in the complexities of tobacco and nicotine. So why should you continue to read after I just told you that you are not getting an opinion on leadership picks and policies?

    I think the perspective offered by a more dispassionate observer is warranted and useful to prepare for January’s changes. There are areas we can be realistically optimistic about, and it is more than an aphorism that what comes next is largely a “known unknown.” That is especially true when we consider the natural starting point of conversations like these: comparing the outgoing administration to what we think will happen during the new one.

    A realistic perspective

    I will give you one opinion: I believe few people in the tobacco and nicotine industry or harm/risk reduction stakeholder community consider the last four years an uninterrupted halcyon summer. If you do not share my opinion, then we can all at least agree they were eventful and highly consequential. Just naming a few events off the top of my head reveals:

    • The early but highly prominent miscommunications on e-cigarette or vaping product use-associated lung injury (EVALI)
    • Policy by tweet
    • No exemptions for premium cigars
    • A ban on most mass market flavored electronic nicotine-delivery system (ENDS) sales
    • Uncertain U.S.-China and U.S.-EU trade conditions for leaf and ENDS products
    • A global pandemic and its economic and social consequences
    • An order by a Maryland federal judge that moved forward, by several years to September 2020, due dates for provisional substantial equivalence and premarket tobacco product application (PMTA) submissions for deemed products
    • An order from a Massachusetts federal court directing a rule on cigarette graphic health warnings be promulgated by March 2020

    I ask you, is the reality of the last four years really all that different or better than the preceding eight years? Before you answer, consider my list of highlights and where we find ourselves now: farmers struggling, preliminary consumption data indicating no 2020 decline in cigarette consumption, increasing survey evidence showing more people believe any product containing nicotine is no better than a combustible cigarette, a once-in-a-century global pandemic and resulting economic conditions not seen since the Great Depression.

    Realistically, despite the overall business-friendly orientation of many Trump policies, what occurred over the last four years was profoundly turbulent and challenging to many aspects of tobacco and nicotine and harm/risk reduction efforts. Not feeling so cheery? Sorry, that was not my intention. But this is the reality we face and, therefore, the starting point for your comparison against what might happen under a Biden administration.

     

    Advertisement

    Optimism

    Now for the optimism. Provisional submissions for deemed products, including the entire ENDS category, are at the U.S. Food and Drug Administration (FDA). The proverbial elephant left the room. Seems bleak to lead the optimism section with completion of a regulatory submission that only starts an entirely untested process. But it was a millstone around the industry’s neck. And it was an exposed flank that lead to attacks from public health groups against the FDA. What the FDA does with these submissions will be a point of contention in 2021, but it would have been no matter when the submissions ended up being due.

    Some of the actions on my list of events from the last four years were the result of trends picked up in the National Youth Tobacco Survey and rising anecdotal evidence of an unwelcome rise in youth using ENDS products. Thankfully, 2020’s survey showed 2 million fewer teenagers falling into the survey’s “user” category than in 2019. Optimists may believe that the tide is turning on youth vape issues. There is a lot to be optimistic about here: Fewer kids taking up vapor products is good for everyone. This trend may absorb a lot of the electricity generated over the last few years. Quieter contemplation may be good for all stakeholders.

    The FDA was also busy making history with several breakthrough authorizations. These include the first modified-risk marketing order for Swedish Match’s General snus and the first modified exposure order for Philip Morris International’s (PMI) IQOS and Marlboro Heat Sticks. This is a big deal. They are not only the first instances of tobacco products that can legally claim users will experience a reduced risk or exposure to smoking-related illness (with exclusive use), but they open the pathway to a number of other products that sit on the lower end of the risk spectrum. Most encouragingly, this was done without hyperbole, based on evidence, following a rigorous but clear(ish) process, in a climate of open hostility toward nicotine-containing products, and it is repeatable for other products pending before the Center for Tobacco Products (CTP).

    Lastly, I am writing at the end of 2020, the year best described as a dumpster fire. I feel good that the year is ending, and we have not endured anything else. Honestly, I would not be surprised if we are attacked by the Stay Puft Marshmallow Man or wake up to aliens landing on the National Mall. There is a vaccine or three on the horizon. I am optimistic 2020 will end, and we will all be glad that it never again darkens our doors.

    Knowns and unknowns: Knowing the difference

    We know things will change. Focus will shift, emphasis will alight on other priorities, political appointments in federal public health agencies will be filled by new people. All of this will occur in the charged atmosphere of a global pandemic, a highly fractured political environment and during an economic crisis.

    The biggest unknown is the capacity of the Biden administration to deal with issues not related to the big four: ending the pandemic; addressing the pandemic’s economic fallout; addressing the erosion of faith in the basics of the American political system; and finding the political capital to execute the new administration’s core economic agenda. Each one of these could easily consume all the new administration’s time, energy and goodwill.

    It would be reasonable to assume that, regardless of the outcome of Georgia’s January runoff election, the partisan disfunction and the math of Congressional majorities that frustrated much of the Trump legislative agenda after the 2018 mid-terms will persist into the Biden administration. Therefore, a Biden legislative agenda will be difficult to achieve, and the administration will likely be more active on the administrative and regulatory front, especially for noncore issues.

    That leaves the tobacco, nicotine and harm reduction agenda in an exposed position, especially given the powers in the vast and unexplored space of product standards. It is conceivable that an active FDA commissioner would implement a more expansive regulatory agenda. However, we must consider the reality of the situation confronting the Biden health policy team.

    We are not facing the same level of pressure or attention. Youth ENDS use is trending down. The CTP is quite busy with PMTA submissions. Pathways for modified-risk products, with very robust post-market surveillance, are now functioning and have a pipeline of pending applications. And most curiously, EVALI now languishes in that part of the internet where forgotten news and Paris Hilton reside.

    It is a fact that most of the people on the list for responsible positions within the Biden health team have track records in prior offices, or have advanced public positions, that are considered challenging for many harm reductionists and certainly for the industry itself. However, as we have all come to know, facts and truth are different. Truth, while composed in part of facts, is also made of other things like circumstances, possibility, achievability, consequences and priorities. The truth is, we simply do not know what will happen. However, it is equally truthful to point out that the overall instability of the country and an already full plate of the industry’s primary regulator suggests the frying pans remain filled with a lot of uncooked fish.  

    So, what is my point? Well, we can surmise that tobacco, nicotine and harm reduction will not be a core focus of the Biden administration. Statutory action is unlikely, bouncing the action back to the regulatory sphere. However, the responsible regulatory agencies are also the ones hopefully closing out the pandemic. Some of the key pressure points that emerged during the Trump administration are shrinking, and the CTP has a few items already in its “In” box. What people have done or said in the past is instructive but not determinate for what will occur in the future. Most importantly, and it cannot be understated, one of the core principals of U.S. public health regulation is a basis in evidence and the rule of law.

    On this last point, I will veer into opinion once again because my position affords me the ability to compare regulatory structures around the world. The people I meet in responsible federal regulatory positions are thoughtful and dedicated. They always strike me as committed to their mission of going where the science and evidence takes them, upholding the rule of law and taking action in the best interests of the American people—and that includes adult Americans who smoke or are choosing to transition away from smoking using reduced-risk products. Likewise, the industry and large parts of the stakeholder community are similarly dedicated to these principals.

    I do look with realistic optimism at the next four years under President Biden. I think we will experience a recovery from the social and economic dislocation caused by Covid-19, and that includes struggling segments of tobacco and nicotine like retailers, small manufacturers, distributors and growers. I trust that our nation can begin to recover and reconcile from the caustic divisiveness that mars our conversations of late. And I hope we can see that fellow Americans are people who may hold different views but are not the enemy incarnate.

    The reality of 2021 is much like the reality of 2018–2020: It’s mostly unknown. It is highly charged and divided. It is uncertain and dynamic in ways both positive and negative. It also holds opportunities for the stakeholder community to engage constructively with our regulators as we examine the issue of nicotine and harm reduction. With everyone at the table, dedicated to similar purposes, all stakeholders can advance policies and enact programs that continue to nurture the seeds planted over the last four years.

    I invite all stakeholders to use forums like TMA for that purpose. We stand ready to assist the community to turn uncertainty into positive action. Change is unavoidable; the only choice we have is to be shaped by it or take a shot at being the sculptor.

    Chris Greer is the president and CEO of TMA. Before joining TMA, he was director of corporate affairs and communications at JTI USA. He joined the tobacco and nicotine community from telecommunications and has spent his career in government and regulatory affairs, compliance, and corporate communications. Founded in 1915, TMA is a member-driven organization dedicated to convening all stakeholders in open, welcoming forums and providing unbiased information and understanding.
  • Resilience in Adversity

    Resilience in Adversity

    Photo: PMI

    The Altria Group continues to deliver a strong 2020 performance despite a challenging economy.

    By Timothy S. Donahue

    Despite a challenging economic environment, Altria Group’s net revenues rose by 3.9 percent to $7.12 billion in the third quarter of 2020. Through the first nine months of the year, the tobacco giant’s net revenues grew by 3.9 percent to $19.85 billion. During its third-quarter conference call with investors, Altria CEO Billy Gifford said that the company demonstrated its resilience during the third quarter while continuing to navigate the adversity produced by the Covid-19 pandemic.

    Altria’s third-quarter adjusted diluted earnings per share (EPS) was unchanged at $1.19. Gifford explained that for the first nine months of the year, adjusted EPS grew 5.6 percent to $3.37, driven by the strong financial performance of Altria’s tobacco businesses. The smokable products segment delivered third-quarter adjusted other comprehensive income (OCI) of $2.8 billion, up nearly 10 percent from the same period last year. And for the first nine months, the smokable segment adjusted OCI increased 10.5 percent to $7.7 billion, according to Altria’s third-quarter report.

    “In the third quarter, our tobacco businesses delivered strong financial performance once again, and we made steady progress against our 10-year vision,” said Gifford. “At the same time, we’re pursuing our vision to responsibly lead the transition of smokers to a noncombustible future.”

    Smokeless and next-generation tobacco products continue grow in Altria’s portfolio. The company has made steady progress with expansion plans for its On! and IQOS brands. These products, alongside Altria’s moist smokeless business and its investment in Juul Labs, present significant opportunities for smoker conversion to noncombustible alternatives, according to Gifford. Altria subsidiary Helix Innovations is responsible for marketing, manufacturing and distribution of On! nicotine pouches globally.

    “We believe On! is a strong proposition and has been successful with both smokers and dippers. On! was sold in 56,000 stores at the end of the third quarter, up 40 percent from the second quarter and more than tripled the store count from the end of last year,” said Gifford. “In stores with distribution, On! achieved a retail share of 2.1 percentage points of the oral tobacco category in the first nine months of 2020. Helix continues to test different trial-generating promotions and has benefited from strong trade partnerships.”

    In the vapor category, Altria submitted its premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration (FDA) for its Juul product and four flavors of pods. That application is currently under scientific review. Gifford believes that a sustainable vapor category is one that exists with solely FDA-authorized products.

    “We encouraged FDA enforcement against noncompliant manufacturers, including those who continue to sell e-vapor products without a PMTA submission,” he said. “We estimate the total e-vapor volumes decreased by 13 percent for both the third quarter and the first nine months of 2020. We believe the e-vapor category will continue to undergo a transition period over the next few years as [the] FDA makes market determinations on the thousands of PMTAs before the September [2021] deadline.”

    Altria’s valuation of Juul Labs dropped to less than $5 billion, down from $38 billion two years ago. In September, Juul Labs announced a strategic update, which included its plans for a significant global workforce reduction, evaluation of resource allocation and the possibility of exiting various international markets.

    “I think while we’re disappointed in the investment, we do believe that e-vapor will play an important role as we progress harm reduction, especially in the U.S. but even worldwide,” Gifford told investors. “In preparing our third-quarter financial statements, we performed a valuation analysis of our investment in Juul, which considered both its international prospects and current U.S. e-vapor category dynamics. As a result of this analysis, we’ve recorded a $2.6 billion impairment to our Juul investment, bringing its carrying value to $1.6 billion as of Sept. 30.”

    Pamela Kaufman, an analyst with Morgan Stanley, asked Gifford to explain the rationale behind the magnitude of the Juul Labs write-down, which implies a total value for the company of about $4.5 billion—well below Juul’s reported internal valuation of about $10 billion.

    “When we put together a valuation for the company, we do our best to make the best assumptions we can based on the future cash flows, how large we would expect [the industry] to become both on the domestic side and the international side,” said Gifford. “We highlighted for you that we believe the category is going to go through a two-[year] to three-year transition as all manufacturers in the e-vapor category navigate this FDA regulatory process. Certainly, we’ve seen a number of manufacturers get fairly competitive and step up their competitive activities in the marketplace. And we believe as the FDA makes decisions and products can remain and some products leave the category that there will be consumers at play. And so, all of those factors went into the valuation that we have, and we came forward with our best estimate.”

    Meanwhile, Altria subsidiary Philip Morris USA (PM USA) continues to expand the footprint of the IQOS heated-tobacco brand in the United States under an agreement with Philip Morris International. Gifford said that the FDA’s recent authorization of a reduced exposure claim for IQOS has allowed the tobacco company to use its “robust digital assets and tobacco consumer database” to communicate with smokers, including through websites, email and direct mail.

    “We believe that the combination of these modified-risk communications and PM USA’s more disruptive retail fixture will significantly enhance the quality of IQOS awareness among smokers. As smokers move along the journey to engagement and trial, PM USA is providing flexible options to learn about IQOS and purchase devices,” explained Gifford. “PM USA now offers a video chat option for age-verified smokers to use their mobile phones and connect directly with IQOS experts for product education and support.”

    PM USA is also expanding the availability of IQOS devices into the convenience store channel. Beginning next month, PM USA expects IQOS devices to be available in select convenience stores in Charlotte, North Carolina. Gifford said the company estimates the number of tobacco consumer trips to the store rebounded in the third quarter and that tobacco expenditures per trip remained elevated versus a year ago.

    “The IQOS team is looking at how we meet the consumer where they’re at and putting it in select convenience stores; it really is meeting the consumer where they make their point of purchase,” said Gifford. “It’s really an education process. But our IQOS team has done some excellent work. We’re also testing at-home delivery; once the consumer has gone through the tutorial and has been age verified, we could actually have at-home delivery of devices.”

    Altria’s fourth quarter is expected to follow the third-quarter’s and first nine month’s trends. Gifford says that Altria’s tobacco businesses have a track record of delivering strong and consistent financial performance in challenging environments. He said the company will continue to reward its shareholders by returning a significant amount of cash in the form of dividends. “We believe our tobacco business platform has the winning brands and is unmatched,” he said. “We’re excited to make further progress in achieving our vision of responsibly transitioning smokers to a noncombustible future.”

    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.
  • The Wrong Direction

    The Wrong Direction

    Photo: Ded Mityay |Dreamstime

    Current e-cigarette use in Great Britain has declined for the first time, most likely because of misinformation.

    By George Gay

    A number of countries are moving toward severely restricting the flavors that may be included in e-liquids, partly, they say, because certain flavors encourage vaping among young people—“young” being variously defined. Two of three countries that are going down this road and of which I am aware are, at the same time, moving toward bans on the sale of vapor products to young people, and one already has such a ban in place.

    This means that, in these three countries (Denmark, the Netherlands and the U.S.), the proposed bans on generally popular flavors are aimed at discouraging adult consumers from attempting to switch from smoking to vaping and, given that nicotine users are addicted, encouraging vapers to switch back to smoking.

    Nevertheless, these planned flavor bans are being put forward as health initiatives, so the only conclusion that can be drawn from what is going on in these countries is that those promoting the flavor bans believe that smoking is less risky than vaping.

    How did they get to this point? Well, I think that we can rule out that they have been led there by scientists. While there seems to be a band of scientists desperate to prove that vaping is as risky, if not riskier, than smoking, I think I am on safe ground in saying that most scientists well versed in such matters will tell you that vaping is less risky—many would say hugely less risky—than smoking.

    So if those promoting these flavor bans haven’t been led by the science, what has led them to this point? It can’t be politics because, in matters of public health, the politics would be guided by the need to protect people, which takes us back to the science. After all, what better proof could one have of this than the current situation where politicians are being led by the science in making decisions about fighting the coronavirus pandemic? Hmm.

    Advertisment

    Arbitrary choices

    Perhaps it would be wise to take a closer look, and here I move the focus of the story from the three countries mentioned above to Great Britain. At the start of an opinion piece published in The Guardian in October, David Runciman, professor of politics at Cambridge University, quoted the German sociologist, Max Weber, as arguing a century ago that politics can never really follow the science. Later in the piece, Runciman wrote that “[i]n politics, expecting the evidence to point the way does not reduce the arbitrariness of the outcome.” He added that “all political choices are arbitrary to a degree. Using statistics to justify difficult decisions just makes them appear more arbitrary for anyone who happens to disagree.”

    I can see what he is getting at, but this is not to say that politicians should flip a coin to decide policies, so I’m going to turn things around by using some statistics to challenge rather than justify what seem to me to be arbitrary decisions that are already on their way to being made in respect of e-liquid flavors. The reader will have to decide whether the statistics—evidence, science, call it what you will—make the decisions being taken more or less arbitrary.

    The statistics have been taken from a recently published report, “Use of e-cigarettes (vapes) among adults [those over 18] in Great Britain,” which was based on data taken from an annual survey, “Smokefree GB,” carried out for Action on Smoking and Health (ASH) by the market research company YouGov. The survey started to include e-cigarette use in 2010, and the current update includes the results of the 2020 survey carried out in February and March.

    These statistics concern Great Britain, which includes England, Scotland and Wales, but I imagine they would probably reflect, at least partly, the situation in many other countries.

    Let’s start off by looking at what the point of vaping is, viewed solely from the point of view of the smoker and vaper. According to the report, “[a]s in previous years, the main reason given by ex-smokers for vaping is to help them quit (41 percent) and prevent relapse (20 percent)” while “[t]he main reason given by current smokers for vaping is to cut down (24 percent) followed by to help them quit (14 percent) and to prevent relapse (14 percent).” Moreover, the report says that when, in 2019, current vapers were asked about their views on vaping, most e-cigarette users said that improving their health was their number one reason for vaping. “Among all vapers, 60 percent agree that ‘health is my number one reason for taking up e-cigarettes,’” the report said.

    It seems as though, under the current circumstances, these vapers and smokers are making rational decisions about their health, especially given that later in the report, it is noted that recent evidence from a randomized controlled trial showed that vaping was nearly twice as effective as nicotine-replacement therapy (NRT) in helping smokers quit in a Stop Smoking Service setting in England.

    And if the focus is shifted from individual smokers to the wider population, it is worth noting that the report describes how the use of electronic cigarettes is largely confined to current and ex-smokers, with use among never-smokers remaining low, something, I think, that is suggested by the age profile of vapers. “The peak ages for current e-cigarette use in 2019 are among 35 [year-olds to] 44 year-olds (9.5 percent) followed by 45 [year-olds to] 54 year-olds (9.3 percent) and then 25 [year-olds to] 34 year-olds (7.8 percent),” the report says. “The lowest vaping rates by age are 4.3 percent for young adults aged 18 [to] 24 followed by those over 55 at 5.6 percent.”

    John Dunne

    Rational decisions

    This all sounds very encouraging. Generally speaking, those who should have been taking up vaping—smokers—seem to have been doing so while those who shouldn’t have been—never-smokers—haven’t been. But there’s a fly in the ointment. The report says that for the first time (and at a time when there are still nearly 7 million smokers in the country), current e-cigarette use has declined year-on-year from 7.1 percent of the adult population in 2019 to 6.3 percent in 2020—from 3.6 million users to 3.2 million users.

    Unfortunately, this is not surprising. “Misinformation continues to be a huge challenge for the [vapor] industry despite its efforts to make consumers aware of the evidence-based facts, including Public Health England’s statement that vaping is at least 95 percent less harmful than smoking,” said John Dunne, director-general of the U.K. Vaping Industry Association (UKVIA), in reacting to the report’s findings. “Inaccurate and misleading reporting, together with highly questionable research, gives a negative view of vaping to smokers who may otherwise quit. Even worse, it could make current vapers reconsider whether they’ve made the right move by taking up e-cigarettes.”

    One result of the widespread dissemination of misinformation has been that the proportion of the adult population of Great Britain that thinks vaping is more or equally harmful than smoking is five times higher than it was in 2013, up from 7 percent in 2013 to 37 percent in 2020. But as the report suggests, the likely driver for the decline in e-cigarette use between 2019 and 2020 is the impact of the media coverage of an outbreak of serious lung injury among cannabis vapers in the U.S. “While the cause of this outbreak has since been identified as vitamin E acetate used to adulterate cannabis-containing e-liquids, the media coverage of the initial outbreak was far more prominent than the subsequent explanation or the fact that both vitamin E acetate and THC-containing liquids are banned under U.K. rules,” the report pointed out.

    While some of those opposed to vaping might take comfort from the fact that fewer people correctly identify that vaping is less risky than smoking, they would be wise to hold the celebrations. The report points out, too, that only 34 percent of people correctly identified nicotine-replacement therapy as being much less harmful than smoking.

    Advertisement

    Additional discouragement

    So what would happen if, on top of the above discouragements, the vaping environment was hit by significant reductions in the generally popular flavors that were allowed to be used in e-liquids? It seems to me that there would be two major effects—one of which would negatively affect vaping’s image.

    The second major effect was described in the report itself. In 2019, the researchers asked current e-cigarette users what they would do if flavors were no longer available. “Around one in four said they would still try to get flavors, and just under one in 10 said they would make their own e-liquid,” the report said. “The most popular option after continuing to try to get flavors was using unflavored e-liquids/cartridges. However, just under one in five said that they would either smoke more or revert to smoking, and around the same proportion said that they did not know what they would do. Less than one in 10 said that they would stop vaping.”

    There is some encouragement to be had from that last sentence, but I would worry that it masks some potential major problems. I would be concerned about where those replacement flavors would be sourced because we could be setting the seeds for a serious disease outbreak as happened in the U.S. in 2019. And the idea that people might be forced back to smoking is one that no responsible politician should contemplate. As the U.K. Member of Parliament (MP) Gareth Johnson, a member of the All-Party Parliamentary Group for Vaping, was quoted as saying in the UKVIA’s response to the report’s findings: “Vaping is significantly safer than smoking, and false information to the contrary is literally costing lives.”

    What flavors are we talking about? In 2015, the researchers started asking e-cigarette users what flavor they used most often. At that time, tobacco was most popular (38 percent) followed by fruit flavor (25 percent) and menthol (19 percent). Now, fruit flavors are said to be the most popular (32 percent) followed by tobacco (23 percent) and menthol (22 percent). Very few users are using products with no flavors.

    It cannot be denied that there is some conflict here given that fruit flavors are also the choice of many young vapers. One of the report’s references takes the reader to a 2019 report, “Use of e-cigarettes among young people [11–18] in Great Britain,” which states that the most frequently used e-cigarette flavorings for young people have consistently been fruit flavors, the choice of 45 percent of users in 2017, the last time this question was asked. But this has to be set against the fact that, with age restrictions in place, the number of young people vaping is low and should remain low no matter what flavors are available. Under their key findings, the researchers say that data from the 2019 ASH YouGov Smokefree youth GB survey suggest that while some young people, particularly those who have tried smoking, experiment with e-cigarettes, regular use remains low.

    In fact, in reading the 2019 report, I was left with the feeling that young people are not particularly interested in e-cigarettes. I think this was summed up well in a section on brand awareness, which contained the comment, “Unsurprisingly, given the low levels of regular use, 55 percent of those who had ever tried e-cigarettes said they didn’t know what brand they used.”

    Vaping seems to be approaching a watershed at which it cannot afford to be hit by further unnecessary setbacks, such as the withdrawal of some of the most popular e-liquid flavors. “There are still 3.2 million vapers out there who have made the successful switch, but there are also 6.9 million smokers—of which nearly a third have not tried vape products,” said Dunne. “These smokers can still turn to vaping to quit cigarettes and benefit from harm reduction.”

    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.
  • The Next Level

    The Next Level

    Photos: Hauni

    Hauni has entered the hemp cigarette market with three machines for cylindrical pre-roll manufacture.

    By Stefanie Rossel

    In the past years, cannabis has rapidly transited out of its dirty corner, turning into one of the world’s fastest growing industries. Business intelligence companies outbid each other with forecasts for the category. According to a 2019 report by Arcview Market Research and BDS Analytics, for example, global licensed store sales are expected to reach $40.6 billion by 2024, and that estimate does not even take into account general retailers selling cannabidiol (CBD) products and cannabinoid-based drug developers selling marijuana-derived pharmaceuticals.

    The U.S. is projected to remain the world’s largest market with a forecast $30.1 billion in marijuana spending by 2024, the report says. Canada, which legalized recreational cannabis in October 2018, is expected to experience similar growth rates. Despite slower growth, the total cannabis market, including medical use, is forecast to generate up to $7 billion in sales in 2020 with $2 billion to $4 billion in the legal recreational market, according to cannabisbusinessplans.com.

    While recreational cannabis remains prohibited at the U.S. federal level, 11 states have legalized the substance since 2012. Medicinal use is legal in 33 states. According to New Frontier Data, 223 million Americans, or 68 percent of the population, now live in a state that has expanded access to CBD, medical cannabis or full adult use. The organization lists related investments of $13.8 billion and $11 billion in 2018 and 2019, respectively.

    The 2018 Farm Bill has turbocharged the boom: Among other things, it removed hemp’s low amounts of THC from the Controlled Substances Act. Furthermore, the bill allows hemp production in all 50 states for any use, including flower production and CBD or other cannabinoid extraction, as well as interstate commerce. The U.S. defines hemp as cannabis that contains 0.3 percent or less tetrahydrocannabinol (THC), the psychoactive substance in cannabis that produces the “high” people experience when they smoke marijuana or eat foods containing it. Legally, “marijuana” refers to cannabis that has more than 0.3 percent THC by dry weight. For an intoxicating effect, a THC content of 5 percent to 10 percent is required. The nonpsychoactive component in cannabis, CBD, is believed to provide health and wellness benefits.

    While Research and Markets expects the overall U.S. market for cannabis derivatives to increase at a compound annual growth rate of 23 percent by 2027, Nielsen has singled out smokable hemp as one of the fastest growing and most lucrative segments in the CBD and hemp industry. For 2020, the firm projects U.S. sales of smokable hemp to reach up to $80 million. By 2025, it is expected to stand at $300 million to $400 million, representing about 5 percent of the hemp-derived CBD consumer products category in the U.S., which Nielsen expects to increase from $1.7 billion to $2 billion in 2020 to $6 billion to $7 billion in the next five years.

    Opportunity for technological progress

    The considerable potential of the legal smokable hemp category suggests opportunity for suppliers of machinery designed for tobacco products. Almost two years ago, a U.S. provider of tobacco processing equipment already ventured into this field with dedicated cannabis drying and processing machinery. Now German tobacco machinery manufacturer Hauni Maschinenbau is entering the market. At the open house event of its Hauni Richmond subsidiary in October, the company launched three machines for cylindrical pre-roll making as well as a range of accompanying equipment.

    Thomas Gruss

    To efficiently increase production levels in the smokable hemp industry, technological advances are the next logical step, according to Thomas Gruss, head of business development for hemp/cannabis projects at Hauni. “Typically, the hemp cigarette industry consists of small-scale manufacturers that produce pre-rolls manually or semi-automatically,” he says. “To produce THC-containing pre-rolls made from processed cannabis flowers, the cones or tubes are stacked vertically into a tray. A so-called ‘knock box’ containing the ground cannabis flowers is put on top. By shaking the knock box, the blossom material is fed into the cones or tubes. Even some larger companies mainly work with knock boxes, which involves a lot of manual labor and is rather inefficient, resulting in an output of approximately 2,000 pre-rolls per day per operator.

    “There are other manufacturers that use machinery, but this allows only for a typical manufacturing speed of 30 to 40 pre-rolls a minute,” Gruss continues. “A third group manufactures ‘king-size’ hemp cigarettes that are made from biomass and resemble regular tobacco cigarettes. Those companies produce on old cigarette-making equipment. Overall, there is a clear trend within the industry toward machine-made production, and it is toward cylindrical tubes as hemp cigarettes become more of a mainstream product. With our machine models, we want to address all three manufacturer groups.”

    For tobacco cigarette manufacturing, the Hauni group of companies offers a range with a variety of production speeds. However, a one-to-one transfer of its tobacco manufacturing technology to the new category proved impossible. Cannabis is a more complex raw material than tobacco. The latter is consumed primarily for its main active substance, nicotine. The lion’s share of the world’s tobacco harvest ends up in combustible cigarettes, the dominant nicotine-delivery device. Farmers cure tobacco leaves—as opposed to blossoms—and manufacturers thresh it into a relatively dry, string-line mass that is comparatively easy to process.

    By contrast, cannabis contains more than 100 different chemicals, called cannabinoids, each of which has a different effect on the body. The various plant parts fetch greatly differing prices on the market. The dried blossoms, which contain THC in the shape of small resinous beads, are the most valuable, selling for about $2,000 per pound. This means they cannot be damaged during the pre-roll manufacturing process. Processing the blossoms is also challenging because they are sticky, thus requiring frequent machinery cleanings. The finished joints sell for $12 to $20 per piece; unlike tobacco cigarettes, THC-containing pre-rolls are sold in batches of seven units at most.

    To produce more affordable CBD-containing hemp cigarettes, which usually retail at $13 for a pack of 20, manufacturers use cannabis biomass, which consists of leaves, stems and blossom parts. This shredded hemp makes a crumbly filling, requiring the tube or cone to be twisted or closed at the end.

    In addition to the mechanical challenges of manufacturing cannabis products, most players lack the financial resources of their tobacco counterparts. “The cannabis market is quite sensitive when it comes to large investments,” says Gruss. “Players in the U.S. are not willing to invest millions of dollars in a higher speed maker as tobacco companies would, as most of them have to finance their equipment from their own resources. Besides, the market is still small compared to the cigarette market. Our objective, hence, was to offer machinery that costs well below the million-dollar figure benchmark.”

    For varying requirements

    To cater to the cannabis sector’s varying needs, Hauni has developed three different solutions. The company’s tube-filling TFM is an entry-level model with an output of 85 pre-rolls per minute. The machine automatically fills cylindrical, standard pre-manufactured hemp filter tubes and closes their ends with a folding motion rather than a twisting motion.

    Hemp or biomass is fed horizontally into the open tube, thereby avoiding any human contact with the raw material. The maker creates a homogeneous filling, which is compressed to make the material less likely to trickle out of the finished cigarette. Its careful handling of the filling material also makes the TFM suitable for larger companies manufacturing pre-rolls containing expensive flowers, according to Gruss. The machine layout has been kept simple, avoiding the need for a skilled operator. The TFM runs on household power, is easy to handle and to clean and allows for easy weight change.

    Cantos is a semi-automatic maker that can process hemp biomass as well as pure flower material. The machine is based on the company’s tobacco cigarette rod maker technology and coupled with a flexible filter assembler. The maker allows for cylindrical rod formation with or without a filter, running at speeds of up to 150 pre-rolls a minute. The plug-and-play machine enables flexible format settings with only a small amount of format parts required for diameter changes and no parts required for length changes. It can handle small batch sizes, has an online weight control system and allows for the attachment of different filter types.

    “For the TFM and Cantos, the stipulation was to design machines that require as little external infrastructure as possible,” says Gruss. “Unlike in the tobacco industry, there are few trained operators in the cannabis sector. The larger a machine, the more complicated and time-consuming the operating and cleaning process. We developed the Cantos in such a way that it is mostly cleaning resistant. The parts that need to be cleaned can be reached easily.”

    Nano-H is the company’s premium model—a fully automatic maker for industrial production that can manufacture up to 5,000 pre-rolls a minute and has been optimized for shredded hemp blends and processed paper. Heavy particles such as stems and seeds are separated, and a microwave system with closed-loop weight control allows for highly accurate rod formation for a homogeneous hemp rod with minimized waste. Manufacture is batch compliant. Hauni provides full operator training and technical support.

    Advertisement

    Full-service

    To handle the sticky raw material, Hauni deployed technology it had developed for other tricky products, such as kreteks. The cannabis machines are also capable of processing thin papers because cannabis consumers tend to prefer papers with gauges between 16 grams per square meter and 18 grams per square meter, which is thinner than papers typically used for commercial tobacco cigarettes. The construction of the filter in hemp cigarettes is equally important. Like the other components, it is supposed to be “natural” with low draw resistance and minimal taste adulteration. For many cannabis consumers, the primary purpose of a filter is not smoke filtration but to prevent particles from falling out of their cigarette.

    In response to such preferences, Hauni has developed a “crutch-type” filter maker that manufactures biodegradable filters typically made from natural fleece or paper bobbins

    To further support customers in their development of pre-roll products, Hauni also offers a hemp flavor collection and is testing a reconstituted hemp paper at its new pilot recon plant in Hamburg, Germany. “There is a lot of interest in the market to manufacture tobacco-heated products that contain hemp. Once the raw material has been processed into a reconstituted sheet, it can be used much more conveniently in a blend,” notes Gruss.

    For the time being, cannabis cigarette products remain largely unregulated. Gruss expects this to change soon. “Tar and carbon monoxide limits will become relevant as well as hemp-specific alkaloids,” he says. Anticipating such developments, Hauni has adapted its quality control, emission testing and smoke analysis equipment for cannabis smoking products. Completing its offerings, the company has added a hemp recovery unit. Increased automation, he insists, will contribute to both the quality of hemp cigarettes and the growth of the sector.

    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.
  • Changing the Narrative

    Changing the Narrative

    George Cassels-Smith
    (Photo: TTI)

    George Cassels-Smith hopes ELiquiTech’s new synthetic nicotine will help change the debate between the nicotine industry and regulators.

    By George Gay

    After reading a recent story by Timothy Donahue about SyNic, a synthesized form of nicotine that is said to be as pure as ultrapure, tobacco-derived nicotine, I had the opportunity of asking George Cassels-Smith, the CEO of eLiquiTech, the company with sole distribution rights for SyNic to the tobacco and electronic nicotine-delivery system industries, what the point of this new product was. Of course, I didn’t put it as bluntly as that, but I was interested in understanding why it was deemed necessary to launch a purer version of nicotine when tobacco-derived nicotine was available that already met the presumably exacting standards of the regulators overseeing the pharmaceutical industry and its various nicotine-replacement therapy products.

    His answer could be summed up as “Why not?” Of course, he didn’t put it as bluntly as that. After all, it had taken five years to develop SyNic in a program requiring the input of people with 40 years’ experience in synthesizing drugs and 30-plus patents to their names, working with sophisticated equipment under highly controlled conditions.

    Nevertheless, “Why not?” is a persuasively simple response, and it comes in a range of expanded forms. At one end of the range, it has to do with the nicotine consumer. Cassels-Smith said that, today, just about everybody has lived in environments in which we were exposed to toxic pollution over which we had little or no control; so the smart thing to do was to reduce our exposure to toxins wherever we did have such control. For instance, if you were going to consume nicotine, why not consume the purest form available?

    Meanwhile, at the other end of the range, you become caught up in something more complex: in the politics of tobacco—which, by the way, Cassels-Smith dislikes intensely but in which, inevitably, he finds himself entangled. He believes—perhaps “hopes” is a more accurate description—that SyNic might form part of a campaign to change the debate between the tobacco and nicotine industries on the one hand and regulators on the other. At the moment, regulators see tobacco and nicotine users only from the point of view of the harm they cause to themselves and the people around them, which leads those regulators to have as their ultimate goal the elimination of tobacco and nicotine consumption.

    But as Cassels-Smith says, if that is the position taken by regulators, there has to be room for a debate about the use of tobacco and nicotine products that don’t expose people to toxins and harm. All the concerns that regulators had could be removed by providing scientific proof that the user was not harming himself and that there was no secondhand exposure, said Cassels-Smith. An example might be where a consumer used a nicotine pouch manufactured with SyNic nicotine.

    A product with potential—on multiple levels

    Skewed playing field

    This sounds persuasive, but one obstacle to such a debate’s getting started is the lack of a level regulatory playing field when it comes to the different products offered by the pharmaceutical and tobacco industries as a means of meeting the needs of those with nicotine cravings. Cassels-Smith said that, over the years, the advice for the use of pharmaceutical-industry-produced nicotine gum had gone from specifying occasional use and then quitting to, if necessary, chewing it all the time, anytime; and there was no reason why this latest advice for nicotine gum should not apply to nicotine pouches. “I believe in a clean nicotine-delivery future,” he said during a telephone conversation in October. “All the stimulation without any baggage.”

    At this point I asked whether Cassels-Smith was talking about a very limited range of tobacco- and nicotine-industry products, but he assured me that the ability of SyNic to deliver cleaner products was not as limited as might first be thought. He sees the opportunity and possibility, given the right regulatory framework, for the development of, for instance, many products based on the heat-not-burn principle whereby thermal processes applied to tobacco using temperatures below that needed for combustion was able to deliver the same taste and nicotine satisfaction as a traditional cigarette but without the tar. And he spoke enthusiastically of vapor devices based on SyNic that also were thermally regulated.

    Cassels-Smith conceded, however, that SyNic’s impact on traditional cigarettes would be limited only to providing for a delivery that was a little cleaner with higher levels of nicotine, which was what people smoked for, limiting the intake of other compounds. But in almost every other type of tobacco and nicotine product, it could be used almost exclusively to create a much more compelling argument with regulators—an argument that said the consumers of this product were healthy people who were not being made unhealthy by consistently using this product.

    Political minefield

    The trouble is, as things stand, there is no level playing field, something that was being reflected in the reaction to SyNic, which, when I spoke with Cassels-Smith, was due for launch within a couple of weeks. Whereas the pharmaceutical industry was looking at the new product secure in the knowledge that it could substitute SyNic for whatever nicotine it was then using without having to resubmit its consumer products for fresh regulatory approval (the synthesized nicotine molecule is identical to the tobacco-derived nicotine molecule), the mood within the tobacco and nicotine industries was different. Although, in theory, tobacco and nicotine companies could also make a straight substitution of the nicotine used in products with premarket tobacco authorization or premarket tobacco product applications (PMTAs) before the U.S. Food and Drug Administration, they were wary of doing so in case they were seen to be making medical claims for those products, which would put them on the wrong side of the regulations and might lead to the FDA categorizing those products as drugs.

    And this concern about the interpretation that might be put on the inclusion of SyNic in tobacco and nicotine products was at the base of one of the major issues that was clearly of concern to Cassels-Smith. Given that SyNic is a nicotine that offers the very highest level of purity, it would seem that the ethical thing to do would be to make it as widely available as quickly as possible so that the maximum good was delivered to the maximum number of people. But this is not going to happen—at least not immediately. SyNic will not be made available in the U.S. to consumers or to companies without premarket tobacco authorization or PMTAs under review by the FDA; and outside the U.S., it will be made available only to companies working within the regulations of the countries in which they sell their products.

    Why is this? Alas, we are back in Cassels-Smith’s least favorite world—the world of politics. He readily acknowledges the important work that a lot of independent, medium-sized and smaller-sized companies have put into creating products that effectively wean people from cigarette use, and he anguishes over the fact that because many of these companies do not have the resources to submit PMTAs, in effect, they are now being “thrown under the bus.” “Somewhere in the sensibilities of this American, that is anti-capitalist and anti-health,” he said. “I would vastly prefer a published set of standards to guide the industry.”

    But Cassels-Smith finds himself in one of those “we are where we are” situations. If he allowed sales of SyNic to individuals and companies without premarket tobacco authorization or PMTAs under review, the FDA, given its definition of a “tobacco” product, might take the view that eLiquiTech was using a nontobacco-derived nicotine to try to circumvent the agency’s authority. At the same time, in the U.S., a state could quickly ban SyNic if the authorities there decided, for whatever reason, that this product might undermine their ultimate goal of creating a smoke-free, nicotine-free world. Add to that the fact that selling SyNic to companies without premarket tobacco authorization or PMTAs under review might not go down well with those companies that have gone through the costly process of creating a PMTA, and it is easy to see how Cassels-Smith finds himself having to tiptoe through a political minefield.

    “In my heart of hearts, I want to sell it to everybody because a high tide raises all ships,” said Cassels-Smith. “But my problem is that it is too political an issue right now in the U.S. And rather than having the whole technology killed, I want to sell it to responsible manufacturers, get it widely accepted and then maybe there will be a chance for everybody else. But the product needs to survive to allow nicotine users to take it to the next dimension.”

    Advertisement

    Changing the narrative

    As we came to the end of our conversation, Cassels-Smith said he wanted people to know that he wasn’t against natural nicotine, which he had described earlier as having an impurity profile that was “still quite safe.” But he added that he was very much in support of a new alternative that could change the narrative with regulators worldwide.

    I would guess, however, that making such a change is not going to be easy, in part because of something Cassels-Smith alluded to above: the fact that the tobacco/nicotine debate largely concerns the regulators and the pharmaceutical industry while all but excluding the tobacco and nicotine industries.

    While reading up on nicotine before my conversation with Cassels-Smith, I was taken with the following sentence in a scientific paper: “This review aims to summarize literature on various modes of nicotine-replacement therapy methods currently used to treat nicotine dependence and to give an overview about future possible approaches to treat tobacco use disorder.” This is another example of the medicalization of tobacco and nicotine use, which often has it that tobacco and nicotine users are “patients” who have to be treated by doctors prescribing pharmaceutical products—often nicotine-based products.

    There is some truth in the idea that a consumer is a patient if she goes to a doctor seeking help to quit her habit, but I’m sure that those who don’t would not consider themselves to be suffering from a “tobacco use disorder,” whatever that might be. Take Cassels-Smith, for instance. He is an ex-smoker who now uses nicotine pouches, which he has in his mouth almost constantly; and this is what he told me about his habit: “Do I think I’m doing myself harm?” he asked. “No, because I’m taking the cleanest forms of nicotine that I can. Do I think it [tobacco/nicotine] is much maligned? Absolutely. Do I try and speak out as much as possible? Absolutely. But sometimes I believe I am talking to people who don’t want to find a solution; they just want to call it a problem and get rid of it.”

    Despite all this, Cassels-Smith ended on a positive note, saying that SyNic was a tool that could change the narrative. And partly, his positive outlook might be down to the fact that these are early days. One important nontobacco application for SyNic might turn out to be its use in nicotine patches. These patches could be used long-term by people trying to ameliorate the symptoms of Alzheimer’s disease, but long-term use can cause skin irritation among the older people who typically suffer from this disease. SyNic is said to be smoother on the skin and therefore allows for the necessary long-term use. As Cassels-Smith said, there are many different ways in which SyNic could be used, and there are “other unique things that I cannot mention right now because they are still in the process of being patented.”

    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.
  • Going Natural

    Going Natural

    Photos: Zig-Zag

    As consumer interest in untreated products increases, Zig-Zag has expanded its unbleached and hemp papers segment.

    By Stefanie Rossel

    Although a niche of the tobacco market, hand-rolled cigarettes have always had their fan base. Compared to factory-made cigarettes, they represent a less expensive way of smoking, especially in tax-heavy environments. As the Covid-19 pandemic continues to depress the disposable incomes of many people, the popularity of roll-your-own and make-your-own tobacco products is likely to increase. Affordability aside, hand-rolled cigarettes have another advantage: They allow their users to create a custom-made smoke. The right paper is key to the smoking experience.

    In recent years, unbleached and “natural” papers have become more popular. “Over the long history of rolling papers, there have been numerous evolutions of preference for consumers,” explains Curtis Berry, brand director of Zig-Zag, a leading brand of rolling papers that originated in France 140 years ago. “At one point in this evolution, smokers wanted a consistent and cleaner looking paper, hence our whitening process that eliminates imperfections and provides a consistent look and performance, which is still preferred by many today.

    “Recently, there has been a growing consumer interest in products with natural attributes, including rolling papers, so we introduced the Zig-Zag Organic Hemp and Zig-Zag Unbleached products to satisfy that need. In addition, there is also interest in the pre-rolled cone form factor, which provides convenience with a perfect smoke every time. With the addition of our new products, we feel we are providing the widest range of premium papers that meet the diverse preferences within the marketplace.”

    The company’s first unbleached paper was the Organic Hemp Paper, which it introduced in the U.S. at the start of 2018. Zig-Zag unbleached paper, made from a different blend of fibers, was created and first released in Canada in late 2018 followed by the U.S. launch in early 2019. The products are available in an extra thin and ultra thin quality as thinner papers tamper less with the flavor profile of tobacco.

    “Out of the gate, we’ve had very positive feedback,” says Berry. “Consumers love the natural hue, ease of rolling and smoking characteristics. We feel like we really created a great product that adds to our well-rounded portfolio of Zig-Zag paper. From that feedback, we decided to add an unbleached version of our Classic Ultra-Thin Cones.”

    Zig-Zag’s unbleached offerings cater to growing consumer interest in products with natural attributes.

    What’s left out

    The manufacturing process of unbleached rolling paper is basically the same as that for regular rolling paper and has a centuries-long artisan tradition. “Paper is essentially a mixture of fibers from various sources,” says Berry. “The creation of every Zig-Zag rolling paper begins with the sourcing and selection of the finest 100 percent natural plant fibers. The manufacturing process has two key phases, pulping and sheeting.”

    In the pulping phase, the raw vegetal matter is broken down into small fibers. These ground fibers are further refined using a high temperature and pressure-washing process. For its classic white papers, Zig-Zag uses a proprietary “whitening” process, which is skipped for the production of unbleached papers thus allowing the finished paper to reflect the natural hue of the fibers. “Some uninformed people have claimed that ‘unbleached’ means that white papers are made with household bleach or something like it,” Berry points out. “That is simply ridiculous. The bleaching step for white papers utilizes an oxygenation process, with no residue of any kind on the paper. There is no ‘bleach’ or chlorine used in the whitening process. ‘Unbleached’ merely refers to the absence of the oxygenation process in making the paper, which means the paper has that natural hue of the fibers versus a classic white look.”

    The washed fibers are then suspended in a solution of pure water. This solution only contains a few ounces of fibers per gallon and is around 99.5 percent water. This fibrous solution is sprayed onto a large canvas “forming table” where the fibers naturally interweave, and water is drained away. The material goes through a series of presses and heated cylinders to compress and finish drying the sheet. These sheets are then rolled up and cut into reels of paper to be ready for a complex watermarking operation, natural gum application and packaged in interleaved booklets originally invented by the founders of Zig-Zag as Berry points out. All Zig-Zag papers are vegan, genetically unmodified, bleach-free, dye-free and cruelty-free.

    Since all papers the company manufactures are made in the same process, little conversion was required to produce unbleached and hemp papers. “The investment came in developing the right blend of fibers and then skipping the ‘whitening’ process of the pulping stage to allow the natural characteristics of the fibers to be present in the final paper.”

    Here to stay

    While a large variety of materials, including more unusual inputs such as rice or esparto (a harsh needle grass), can be used to manufacture rolling papers, Zig-Zag uses only four types of fibers within its blend: hemp, flax, soft wood and hard wood. “Each of our papers uses a unique blend of fibers from various plants that are sustainably harvested,” says Berry. “The fiber blend of a paper will change how the final dried sheet comes out. Different combinations of long and short fibers from these various plants will change the paper’s strength, feel, thickness, porosity and burn rate. Unbleached paper has its own unique blend of these fibers.” Consumer preferences are varied, he adds. “Some consumers prefer the classic white look. Others prefer a natural hue. Still others prefer all hemp fibers over any other blend. Either way, we have them covered.”

    Berry says he sees nothing but upside for the unbleached paper and cone segment: “We are excited to continue to explore other opportunities within this category. We believe the unbleached category is here to stay and will continue to grow.”

    The company has witnessed increasing demand for its accessories. “We’ve had rollers for many years, and our trays were launched around the same time as our organic hemp papers. Just like with our paper portfolio, we want to be able to cater to the wide range of smokers, and we know this involves providing the right tools and accessories that assist in the different rolling rituals each one of us has.”

     

    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.
  • The Irreconcilable Conflict Principle

    The Irreconcilable Conflict Principle

    Photo: Nataliia Shcherbyna – Dreamstime.com

    The governing idea of tobacco control

    By Clive Bates

    Sometimes defining an iron rule or governing idea and reorganizing our understanding of the world around it can be immensely revealing. Einstein developed the special theory of relativity from an assumption that the speed of light in a vacuum is unwaveringly constant. The most surprising results follow from that. Darwin showed that a simple mechanism, variation and natural selection, could explain much of the astonishing complexity of the natural world. Governing ideas are found everywhere: supply, demand and prices in economics; innocent-until-proven-guilty in criminal justice; and mutually assured destruction in arms control are further examples.

    So, is there a governing idea in tobacco policy? Something that shapes everything and means that the world is understood through rigorous application of that rule? I think there is, but it is playing an ever larger, more polarizing and counterproductive role. The starting point is Article 5.3 of the World Health Organization Framework Convention on Tobacco Control (FCTC). Though often overstated, Article 5.3 is fairly innocuous:

    In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.

    When read as originally intended by the FCTC drafters in 2003, this aims, quite reasonably, to guard against the improper commercial influence of Big Tobacco on public health policy. There is nothing wrong with that. Many governments would quite happily apply the same principle to Big Oil in climate change policy or Big Pharma in healthcare policy. It is essentially an expression of good practice in policymaking.

    Advertisement

    But Article 5.3 didn’t stop there. In 2008, the concept was developed into Guidelines for the implementation of Article 5.3. Note the title—it does not suggest new treaty provisions are introduced but that the guidelines will implement the treaty as it is. However, the guidelines do more than this. Much more. They set out four guiding principles for Article 5.3, and the first of these is the most troubling:

    Principle 1: There is a fundamental and irreconcilable conflict between the tobacco industry’s interests and public health policy interests.

    Wow—that’s quite a statement. Let us refer to this as the “irreconcilable conflict principle.” First, it is qualitatively different from Article 5.3: It is a finding of fact rather than a principle that governs the process of policymaking. The finding is also permanent and inescapable—under this principle, no matter what the tobacco industry does or becomes, its actions will always be in conflict with public health. This is not merely expressed as a cautionary note from history, a lesson for which there is at least some supporting evidence. It is binding on the future and expressed as a permanent truth.

    I think the irreconcilable conflict principle is the governing idea, the iron rule of tobacco control. I do not wish to imply that this emerged in 2008 or because of these guidelines. The direction of causation is the other way. This was coded into the guidelines because it is the governing idea of tobacco control. In agreeing to this at the urging of tobacco control activists, complacent or complicit bureaucrats greatly extended the reach of the FCTC, apparently without appreciating the potential negative consequences.

    Advertisement

    This means that anything that is in the interests of tobacco companies must, by definition, be bad for public health. It means nothing can be both in interests of public health and the tobacco industry. In the same way that Einstein assumed the speed of light was a constant and his understanding of the world was reshaped around that, so we see tobacco control reshaping its worldview around the irreconcilable conflict principle. The important difference is that Einstein was basically right, and his radical insight advanced human understanding. For tobacco control, this governing idea is wrong—at least some of the time and in several ways. Consider the following implications.

    First, the irreconcilable conflict principle drives implausible explanatory theories. The experience of snus in Sweden clearly challenges the guiding principle: Widespread use of a tobacco product made by tobacco companies is responsible for Sweden’s unusually low smoking prevalence and with that, an unusually low level of cancer and heart disease in the male population. This alone should be enough to justify abandoning the principle. Yet Sweden’s public health establishment has been driven to find ever more desperately implausible reasons to explain the observed reality. These include absurd ideas about the role of Sweden’s generous paternity leave system and Sweden’s involvement in the Second World War. Tobacco control advocates have consistently opposed any lifting of the European Union ban on snus because to do so would be to violate their guiding idea, the irreconcilable conflict principle.

    Second, the irreconcilable conflict principle is shifting the goals of tobacco control. With the rise of vaping, tobacco control objectives have steadily shifted from tackling the health consequences of smoking, something that can be eliminated with technology. Now they increasingly stress opposition to nicotine use itself, something that is intrinsic to the industry. In this way, the industry can always be at fault and the inviolability of the principle maintained.

    Third, the irreconcilable conflict principle distorts science. If your iron rule is that nothing good ever comes from tobacco companies, then you are motivated to develop science demonstrating conflicts with public health. So, we see more scientists claiming that there is no difference in risk between smoking and vaping or that the data are so uncertain that nothing is or can be known about relative risk. Both are plainly wrong. Randomized controlled trials (RCTs) show vaping is more effective for smoking cessation than nicotine-replacement therapy. After years of lamenting the paucity of vaping RCTs, tobacco control activists have pivoted to express doubts about their validity or redefined quitting smoking to mean quitting nicotine.

    Advertisement

    Fourth, the irreconcilable conflict principle has made mainstream tobacco controllers into enemies of innovation. The U.S. Food and Drug Administration (FDA) recently granted the right to a tobacco company to claim that its heated-tobacco product was a reduced-risk product after concluding that it was appropriate for the protection of public health. A calamity: that would violate the irreconcilable conflict principle. Predictably, this triggered a backlash of denial and desperate arguments to show that the FDA was somehow mistaken and that there was no benefit to public health even though FDA was merely allowing a statement of the obvious to be made.

    Fifth, the irreconcilable conflict principle has created a self-amplifying echo chamber in tobacco control. Suppose there are people in public health who do think that some of the things done by tobacco companies are positive. Under the guiding principle, how can that be unless such people have a conflict of interest or are in some way working to further the interests of Big Tobacco? We can see this in some of the extraordinary efforts that tobacco control fora have made to exclude these dissonant voices. That includes the hurdles to achieving observer status at the FCTC itself and attending major events like the World Conference on Tobacco or Health. This conference has eligibility criteria explicitly based on the irreconcilable conflict principle and contains a catch-all exclusion for anyone who “works to promote tobacco products, their sale or to limit their regulation.” What if you think (like me, for example) that it would be good for public health if smokers switched to snus or heated-tobacco products and that regulation should be proportionate to risk rather than “unlimited”? The aim is to define this norm-challenging perspective as pro-industry and therefore anti-health and thereby to keep it out of earshot. An Australian anti-tobacco activist has even proposed an “Article 5.3 for civil society,” in which “reinforcing Big Tobacco’s pariah status” would be the purpose.

    Sixth, the irreconcilable conflict principle distorts rather than protects policymaking. Those who adhere to the principle cannot recommend policies that would encourage low-risk nicotine products at the expense of cigarettes as that would be to accept that they have a role in public health. So we see that tobacco control activists and many academics have adopted hostile regulatory paradigms for reduced-risk products: prohibition, pharmaceutical or equivalence to cigarettes. All are designed to reject the notion of any benefit from reduced-risk tobacco products. When Bloomberg Philanthropies recently advertised a new round of tobacco control grants, it stressed the “passage and implementation of Article 5.3” and linked this to Michael Bloomberg’s preferred MPOWER policy framework for tobacco control. Mr. Bloomberg is on record favoring vaping prohibition, and he sees no role for reduced-risk products. Perhaps public health policies now need to be protected from these vested interests?

    There should be one guiding principle for tobacco control: to reduce harm to the greatest extent and as quickly as possible. The irreconcilable conflict principle is a relic of the past and fails a modern reality check. It is the reason why tobacco control activists may now be doing more harm than good.

    Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).
  • Joining the Race

    Joining the Race

    Suthira Taychakhoonavudh (left) and Waranyoo Phoolcharoen

    Thailand is developing its own tobacco plant-based coronavirus vaccine.

    By Stefanie Rossel

    It’s been almost a year now since Covid-19 broke out, and the pandemic still rages around the world. The spread of the virus has set off a global race for a vaccine—consensus among experts is that only an effective inoculation will end the contagion. As of Sept. 28, 40 candidate vaccines were in clinical evaluation and 151 were in the preclinical trial phase, according to the World Health Organization (WHO).

    However, speed isn’t everything. Russia, which on Aug. 11 became the first country to approve a Covid-19 vaccine, soon faced criticism by researchers who highlighted questionable data in the vaccine trial results. AstraZeneca and Oxford University temporarily put on hold clinical trials for their Covid-19 serum after a participant showed an adverse reaction. In the U.S., President Donald Trump has politicized coronavirus vaccine approvals, insisting a serum was likely to be approved by election day (Nov. 3), despite reservations expressed by regulatory bodies such as the U.S. Food and Drug Administration (FDA).

    While the trials are still ongoing, the WHO, physicians and vaccine manufacturers have already begun to develop different scenarios for the distribution of a serum once it has been approved. A vaccine shortage is likely in the early stages, and the issue of fair sharing has yet to be resolved. Several high-income countries have already secured contracts with leading pharmaceutical and life science companies, putting lower income countries at risk of missing out on a coronavirus vaccine.

    To avoid this scenario, Thailand is developing its own vaccine. The kingdom is keen to avoid a repeat of its 2009 experience when the swine flu hit Asia. Although a vaccine against the swine flu was ready within two months after the outbreak, and Thailand had worked out deals with overseas developers to buy 2 million doses, the goods arrived only after the pandemic had subsided. By the time it was over, the virus had infected more than 47,000 Thais and killed 347.    

    First of its kind

    Although Thailand has been doing comparatively well in the Covid-19 crisis, with roughly 3,600 infections out of its 68 million population by the end of September, the country nevertheless wants to avoid depending on imports. In August, the Thai government gave thb1 billion ($31.6 million) to the National Vaccine Institute (NVI) to support development and production of vaccines against the coronavirus and other diseases. Compared to other nations, the sum is small—the U.S. federal government, for example, has invested more than $9 billion, spread among seven companies, in the development of a Covid-19 vaccine. But if one of Thailand’s vaccine candidates will be approved for human trials, it will be the first such anticoronavirus vaccine developed in Southeast Asia.

    “Governmental funding in Thailand is quite limited,” explains Waranyoo Phoolcharoen, associate professor in the Department of Pharmacognosy and Pharmaceutical Botany of Chulalongkorn University in Bangkok and head of development for a Covid-19 vaccine candidate. “To date, most vaccines are imported. There is currently no facility to produce the vaccine entirely—from laboratory to manufacturing and human trial—in Thailand.”

    Chulalongkorn University, which has two centers in vaccine research and development, has become the focus of present vaccine developments against the coronavirus in Thailand. One initiative has applied mRNA technology transferred from the U.S., and another is using tobacco plants to develop an inoculation.

    Tobacco plants have proven their potential as an efficient biopharmaceutical producer of vaccines. It’s a road other contenders in the race for a cure have chosen as well, among them U.S.-based Kentucky BioProcessing, a subsidiary of British American Tobacco, and Medicago, a privately held Canadian biotech company in which Philip Morris International bought a stake in 2008.

    Basically, the manufacturing process involves identification and reception of genetic sequences from a pandemic strain to produce a virus-like particle (VLP), or antigen. VLPs resemble a virus, allowing them to be recognized readily by the immune system, but they lack the core genetic material, making them noninfectious and unable to replicate. Before the genetic construct representing the protein of interest is inserted, plants are seeded, germinate and grow. They are then genetically modified with the VLP in a technique known as transient expression.

    With this transformation, plants incubate for several days during which they are reproducing the target protein. At this point, they are harvested and crushed to create a green-juice slurry. This liquid passes through filtration processes and sophisticated purification techniques to produce a final product. The process, which employs Nicotiana benthamiana, a close relative of the tobacco type used for cigarette production, can deliver a vaccine for testing in less than a month after production of the VLP.

    Using tobacco plant technology has several advantages over conventional vaccine production processes. It can reproduce the antigen consistently with high fidelity and allows for rapid production of scale within a short period of time. It is also potentially safer given the fact that tobacco plants can’t host pathogens that cause human disease. In contrast to conventional vaccines, which often require refrigeration, a tobacco plant-based formulation remains stable at room temperature, making it suitable for distribution in warmer climates.

    For Thailand, using tobacco has the additional advantage that the country can rely on its own resources, says Phoolcharoen. According to The Bangkok Post, Thailand has 10,450 tobacco growers, of whom 15 have production capacity of more than 12,000 kg a year. “Although we use different species of the tobacco used for cigarette manufacture, people have approached us and want to grow tobacco for our vaccine. The cost for tobacco cultivation is very low in Thailand—farmers view it as a business opportunity. Although funding is limited, molecular pharming matches the country.”

    Plant technology reproduces antigens with high fidelity and allows manufacturers to rapidly scale up production.

    A chance for young researchers

    For Phoolcharoen and her team, the Covid-19 vaccine project represents a unique opportunity. Eighteen months ago, she established Baiya Phytopharm, a biopharmaceutical startup, together with Suthira Taychakhoonavudh. The plant technology-based platform can produce biopharmaceutical products within weeks rather than months or years, which results in faster and lower cost research and development, Phoolcharoen points out. The team also worked on a cure for the hand-mouth-foot virus, which is widespread among infants in Thailand. The company also has products against rabies, cancer and the Ebola virus in the pipeline. With the advent of Covid-19, the platform shifted its focus and capacity completely to produce SARS-CoV-2 vaccines and therapeutic monoclonal antibodies.

    If approved by Thailand’s Food and Drug Administration (FDA), the company’s vaccine would be the first to be produced from the laboratory to clinical trials in the country, Phoolcharoen says. “The business environment in Thailand differs largely insofar that the big pharmaceutical players only have their marketing side in our country but not the R&D and manufacture. For graduates in Thailand’s pharma industry, this means that there are hardly any adequate jobs. As a consequence, there is a lot of brain drain among highly qualified young scientists.”

    Baiya Phytopharm aims to promote the commercialization of biopharma research in Thailand. “With the startup, I wanted to create a workplace for my students,” explains Phoolcharoen. “The company is based on the campus. My partner, the CEO of Baiya Phytopharm, is also a faculty member in the faculty of pharmaceutical sciences [at] Chulalongkorn University. She is a pharmacoeconomist taking care of business models, marketing and fundraising. I am responsible for research and use the platform for my students to give them practical lessons and experience. The students are all employees of Baiya Phytopharm and use the company’s project as their theses. We have post-doctoral researchers, Ph.D., master and undergraduate students presently work on different variations of the Covid-19 vaccine. This way, the students learn about planning, marketing—and about being rushed. We hope that there will be more biopharma startups like us in Thailand. The ecosystem will build up the capacity in the country, and in the future, we will be able to develop drugs and vaccines in the region, for the region.”

    Advertisement

    Positive results

    In March 2020, Baiya Phytopharm launched a Covid-19 test kit and started studying its vaccine candidates in mice. Further trials of the vaccine on monkeys in June showed promising results: All primates generated neutralizing antibodies, which means that the antibodies induced by the candidate vaccine can block the coronavirus from penetrating or damaging cells. Meanwhile, the company has started toxicology testing on rats and is preparing for the clinical trial phase, which it hopes to begin next year in June.

    Much of the timing depends on finding the right facilities for the production process. “In order to be allowed for use in humans, the tobacco plants with the inserted Covid-19 proteins need to be purified; tobacco proteins have to be removed,” says Phoolcharoen. “There are only two facilities in Thailand which can be used, but they have never done any purification of proteins.”

    Her company is in talks with the NVI to see if it is ready to collaborate in the purification process of the vaccine candidates. If so, the vaccine could be ready for human trials around the beginning of next year. Otherwise, a new plant would have to be built, delaying the process by about nine months. Once facilities are available, more than 10 million doses of the vaccine could be produced in one month. The aim is to offer an affordable vaccine, possibly also to other Southeast Asian countries.

    So far, Baiya Phytopharm mostly used the co-founders’ money and the donation for a Covid-19 test kit for its vaccine research. However, the startup is raising funds to finance the phase I clinical trial and is hoping for private investors. “We will start with a crowdfunding campaign,” says Phoolcharoen. To her, the vaccine development is a long-term engagement. “We know that something like the Covid-19 outbreak is likely to happen again. So it makes sense to be prepared.”

    Baiya Phytopharm employees are working on different variations of the Covid-19 vaccine.
    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.
  • Recon Revival

    Recon Revival

    Photos: SWM and SAI

    New applications are creating new opportunities for reconstituted leaf tobacco.

    By Stefanie Rossel

    While many industries are still suffering the impact of the Covid-19 crisis, the reconstituted tobacco leaf (RTL) sector has remained largely unaffected. RTL suppliers report positive developments and remain optimistic. Also known as homogenized tobacco or recon, RTL was developed by SWM International (SWM) in the 1950s to save the valuable raw material by combining remnants of virgin tobacco during production. Today RTL is used for a multitude of applications.

    In addition to reducing the filling cost of various tobacco product blends and reducing waste, RTL plays a vital role in cigarette blend design. What’s more, a dedicated form of recon, custom-made from carefully blended tobacco leaves, is the essential component of the consumables used in tobacco-heated products (THP).

    There are several ways to produce reconstituted tobacco. Next to SWM’s papermaking method, there is the nano fiber technology developed by Star Agritech International (SAI) and a process called band cast, which is also known as slurry-type recon. Each of these types can be used in THP consumables.

    Bruno de Veyrac

    Bruno de Veyrac, SWM’s new generation product (NGP) director, says the RTL industry has held its own in the current challenging business environment. “So far, the Covid-19 pandemic has not affected our customers’ recon demand,” he says. “On the contrary, demand remains very strong during this period. We haven’t faced any supply disruption on both product lines conventional and THP. We have had to be creative to keep all our development programs with customers on track. And the global travel restriction makes it challenging to maintain close contact with our customers as we work to develop new products and to promote our product portfolio. We are working on virtual events to overcome this situation and will be sharing details on these events in the coming weeks.”

    Advertisement

    SAI president and CEO Iqbal Lambat says that his company’s recon sales were impacted as many countries locked down. “This resulted in some of our client’s factories completely shutting down for three to four months. As a result, deliveries were delayed.”

    Like de Veyrac, however, he remains optimistic. With global consumption of combustible cigarettes declining for years now, demand for recon was shrinking even before the pandemic. Currently, there is a discrepancy of about 50 percent between global RTL demand and capacity, which SWM estimates at 335,000 tons.

    De Veyrac believes demand for recon will grow for several reasons. “First, apart from all multinationals and most tobacco monopolies, recon is not fully understood among small[-sized] and medium-sized companies. These companies represent 10 percent of global production. Second, the price of recon is cheaper than most tobaccos in the world. Having a ‘cheaper’ constituent in the blend with substitution rates of 10 [percent] to 20 percent and higher filling power than tobacco lamina drives better blend cost optimization. Third, with increasing legislation on lowering tar and nicotine levels worldwide, recon addition to the blend is one avenue to achieve this without compromising taste and draw.”

    According to de Veyrac, recon can follow a different trajectory from cigarette sales as the inclusion rate can be adjusted upward or downward. “Thus it can offset or amplify the impact of the cigarette market attrition rate,” he explains. “This can vary from one customer to another and from one region to another. For the moment, we have been successful in mitigating the cigarette market attrition impact with our footprint in growing segments like cut rag and by promoting innovative products.”

    De Veyrac cites SWM’s Nexfill as a success story. “This tobacco product was developed to deliver added value, such as an improved sensory experience, and allows blenders to substitute some tobacco strips thanks to advantages such as consistency, low degradability and immediate availability,” he says.

    Since 2014, SWM has a joint venture with the China National Tobacco Corp.

    Preparing for China

    Meanwhile in China, the world’s largest market for combustible cigarettes with 350 million smokers, the excess RTL capacity versus demand remains unchanged, according to Steven Shu, general manager at SWM China. This is despite efforts in recent years to add a higher proportion of recon to cigarette blends, which traditionally have a rather low share of homogenized tobacco.

    Steven Shu

    Since 2014, SWM has a joint venture with the China National Tobacco Corp. (CNTC). “Functional, i.e., flavor sensory, RTL offers added value compared to cost-driven combustible cigarette blends,” Shu points out. “Therefore, the cost-driven RTL has higher share among low-end cigarette brands while the functional RTL has a higher share among medium-to-high-end brands. The key success factor in this market is the unique value offered for cigarette designing and processing. Indeed, the RTL product applications can be extended to cigarette peripheral applications such as cigarette paper, tipping paper and filter media. The commercialization and scale-up of THP products is a unique opportunity to boost overall RTL demand in China.”

    Although China manufactures most of the world’s vapor hardware, domestic sales of next-generation products are comparatively small. “China has banned most electronic cigarette categories arguing that electronic cigarettes would take away market share from conventional cigarettes and progressively destroy the livelihoods of millions of farmers and workers employed by the tobacco sector,” Lambat explains. “There are some 30 million people engaged in the tobacco sector in China.”

    For THP, no regulation has been implemented yet. According to Tobacco China Online, the CNTC is actively pursuing THPs. By March 2020, there were 852 open patents for THP and 56 patents for THP-related RTL, most of which were owned by the CNTC, the publication found.

    “In the field of THP, China tobacco companies have made technological innovations and introduced various heating methods, such as chemical heating, infrared heating or other heating methods, to bypass Philip Morris International [PMI] IQOS’ heating method with a heating blade in order to reduce the possibility of intellectual property disputes with PMI,” says Lambat. “However, there are no THP products commercialized at present in China.”

    Shu says that SWM is ready to supply the Chinese THP market as soon as it opens. “We have built a great expertise on THP papermaking recon over the past seven years, and we have the necessary assets to anticipate the THP market start in China. For the moment, CNTCs is conducting some market tests outside China with varied success. Product designs may evolve in the coming months, building on early consumer feedback and the challenging patent environment. Chinese authorities will most probably allow THP product sales in China only when they will be fully ready with the right products.”

    Demand on the rise

    China left aside, THP demand for RTL has increased remarkably in recent years, according to de Veyrac. “Over the last four years, we have managed to slow the erosion of recon papermaking in the conventional market, and it is now eroding less quickly than the conventional market. Indeed, papermaking recon sales for the THP market have been growing and now represent more than 20 percent of our recon sales. The THP market has shown some volatility, such as in Japan with the plateauing situation observed in 2018–2019, but hopefully the Japanese market is growing again. The launch of THP products in other markets, such as CIS and Europe, supports the global demand of THP papermaking recon, even if the growth rate is smaller than in Japan.”

    The recon weight-per-stick on today’s THP consumable is eight times to 15 times that of the conventional cigarette, he explains. “A current THP stick contains 100 percent of recon as opposed to 5 percent to 15 percent in a conventional cigarette. So the growth of THP papermaking recon demand is much faster than the attrition of conventional recon demand.”

    SAI selectively supplies recon to THP manufacturers, relates Lambat. “To be forthright, there is only one successful THP product in the world—IQOS,” he says. “There are many companies looking at the segment, but none have been remotely successful. Initially launched in 2014 in Nagoya, Japan, and Milan, Italy, IQOS is being gradually rolled out to other countries. As of October 2019, I have been informed that IQOS is available in 49 countries. However, I am equally informed that as much as 90 percent of all IQOS sales take place in a single country—Japan.”

    Last year, SAI developed a THP device and tobacco sticks with its Chinese partner, Global Leaf. The design of the product, named XGen, however, was changed into a Juul-like vaping device in light of Juul’s promising development. “Our foray into XGen in the test market of South Africa has been highly successful apart from the lockdown—i.e., total smoking ban—period [of] April to August.”

    SAI nanofiber supplied as cut rag

    All eyes on IQOS

    Many expect the U.S. to become the next major market for IQOS. Following premarket approval by the Food and Drug Administration (FDA), PMI launched the product in select markets in 2019. In July 2020, the FDA granted PMI “exposure modification” orders for IQOS, allowing the company to tell consumers that the product releases fewer harmful chemicals than a combustible cigarette.

    Initial growth has been slow and has likely been impacted by the Covid-19 pandemic, according to de Veyrac. PMI is vertically integrating for recon supply, he adds, so this is unlikely to impact the supply-demand balance. “However, the significant step of FDA recognition of IQOS as a ‘reduced exposure product’ is very positive for this segment,” he says.

    Another development that might bring new opportunities for the RTL sector has not materialized yet. The FDA intends to restrict the amount of nicotine in cigarettes and other tobacco products to make them “minimally addictive.” To date, however, the agency has taken no action to achieve this goal. “Should this legislation pass, then the opportunity for recon will be significant in the USA as well as internationally as other countries follow a USA-copycat approach,” says Lambat.

    “We believe that papermaking recon is a strategic tool for the reduction of tar in general and nicotine in particular,” de Veyrac explains. “The challenge will be to reduce the nicotine while maintaining an acceptable taste, but we can also consider blending some botanicals, which will deliver natural flavors without adding nicotine. We are working on this topic with cigarette manufacturers in this region. In parallel, our experience with THP helps as papermaking recon in this environment plays a central role for taste generation and nicotine regulation. Moreover, we have found that in this new field there is no limitation on the percentage of recon in a blend. It is very difficult to predict the impact on recon sales of this type of maximum nicotine rule as we do not know what thresholds will be set or where and when they will be applied. Nevertheless, we do not see a shortfall of capacity even in this region.”

    Reconstituted tobacco leaf originally was developed by SWM International.

    Opportunities ahead

    SWM diversified from tobacco in 2013, complementing its traditional tobacco and paper business now part of its Engineered Papers unit, with a second business unit, Advanced Materials & Structures, which specializes in resin-based materials for a variety of industries and applications. RTL, however, continues to play an essential role.

    De Veyrac believes that papermaking recon capacity will remain higher than demand for the foreseeable future. “I see this as a great opportunity for developing new recon utilization in various product lines,” he says. “THP is one, and we believe that new platforms will be launched in the near future which are not cigarette-like, and papermaking recon will remain the major active component to generate the aerosol and transfer the natural nicotine and taste contained in the original tobacco. We also see that papermaking recon is still attractive to conventional cigarettes and OTP products, such as shisha, RYO or snus. The change and volatility of some markets and the pressure on some crops due to geopolitical or weather effects provide some uncertainty on the balance between the tobacco supply and demand and give more incentive to balance risk on blend structure. Papermaking recon is a sustainable product with permanent availability and short lead-time delivery. In addition, the high control and standard of those next-generation products will be maintained and even reinforced. An industrial process such as papermaking will ensure that those standards are fully respected, which is critical for our customers.”

    SWM has also used its expertise in the papermaking process to explore another promising business category: Through its LeafLAB botanical-based product platform, SWM produces hemp “recon,” a malleable sheet from hemp leaf and flower biomass that allows for custom-made blending (see “Recon Mission: Hemp,” page xx).

    SAI has chosen a different road, diversifying within the field of tobacco. According to Lambat, the company is on its way to transform itself from being a trader to being a producer. It therefore has invested heavily in derivatives. Among other things, it runs two recon factories.

    “In the past 12 months, we have had a full year of ownership and management of our nano fiber recon plant in Santa Cruz, Brazil,” says Lambat. “The Brazilian senior management team has further perfected the manufacturing line and increased the plant’s output by 25 percent through efficiency generated modifications. Our full capacity of 3,000 tons per annum is fully booked. This line produces both Virginia and American blend recon,” says Lambat.

    SAI has created a team to focus on capacity expansion. “This will consist of establishing a brand-new nano fiber recon plant with a target capacity output of 6,000 tons per annum. This will be housed in a new, dedicated building in Santa Cruz and will bring together our leaf trading team under one roof. We expect the new Brazil plant to be operational in the second half of 2021. The current recon line in Brazil will be deployed to Asia, and the selection of country is not yet decided, but Malaysia and South Korea are high up on the selection list. The capacity of Brazil, Asia and South Africa will exceed 12,000 tons per annum.”

    The company broke new ground when it opened a recon line in Surabaya, Indonesia, in June 2019 that is devoted exclusively to the clove-flavored kretek sector. “In Indonesia, our recon plant in Java is now serving multiple clients with multinational and local manufacturers,” says Lambat. “It has also started exporting to the Philippines, Malaysia and Australia. The main service in Indonesia is toll production of clients’ kretek waste to kretek recon. We are evaluating establishing a recon line in southern Africa, most likely producing band cast as it is simpler to produce than nano fiber. And finally, we are evaluating an RTL line in Europe that will focus on the production of recon for cigar wrapper and binder in machine-made cigars. Both projects are slated for implementation in 2021.”

    SWM is also considering such options.

    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.
  • On the Right Track

    On the Right Track

    Photo courtesy of Covectra

    Leveraging serialization technology to combat tobacco tax evasion and counterfeiting

    By Terrence P. O’Neill

    Over the years, the U.S. federal government has endeavored to reduce tobacco use by heavily taxing products such as cigarettes, cigars, dips and nicotine pouches. A primary target of this strategy are underage consumers who tend to be price-sensitive and must be at least 21 years old to purchase these products at retail outlets since President Donald Trump signed Tobacco 21 legislation into law in December 2019.

    Unfortunately, the lack of tax harmonization at the state level has created lucrative arbitrage opportunities for diverters to smuggle tobacco products from lower tax states to those with higher taxes. The unintended consequences include billions in lost local and state revenues and the development of gray markets that often supply the unauthorized channels servicing underage consumers.

    Historically, states have depended on tax stamps or other static markings to maintain the integrity of its tobacco commerce; however, over time, savvy diverters developed product sources and supply chain partnerships to circumvent these checks and balances that were better suited for a simpler time.

    Today, there are smart, cost-effective packaging technologies that provide beneficial value for all the stakeholders: agencies looking to maintain the integrity of the tax system or discourage underage tobacco use as well as those who manufacture these products—solutions that create a new level of transparency by uniquely identifying products that are monitored as they traverse the supply chain to the point of sale and to the consumer. Disruptive technologies that raise significant barriers to product diversion/tax evasion can also be the foundation on which new e-commerce and brand loyalty programs are launched.

    Advertisement

    Fundamental benefits

    Barcode identifiers have been permeating world commerce over the past 30 years, documenting data such as manufacturer, production dates and product codes. Initially its use was much like a tax stamp—one barcode for the many units in a production lot. Technology evolved; serialization enabled manufacturers to uniquely serialize each unit of production and aggregation allowed for each of the unique serial numbers involved in the packaging process (unit, pack, pallet) to be linked and then shared among trusted supply chain partners. New production and trade capabilities were created, and consequential efficiencies have been realized.

    Track-and-trace solutions utilize the aggregation data shared between organizations by monitoring the product as it moves (tracking) and providing a history of where it has been (tracing). Like many new technologies, the initial benefits of track-and-trace were garnered within the internal business units from which the data was derived; however, over time, forward-thinking organizations have developed new strategies and solutions few could have imagined.

    When one considers the factors that lead to tax evasion, the benefits of track-and-trace to enhance supply chain security are fundamental. Increased visibility to the movement of product from the manufacturer to the point of sale and the ability to develop an investigatory thread of who handled the product creates opportunities to prevent, monitor and respond to threats diverters pose. Additionally, as other internal organizations discover new methods of leveraging the track-and-trace data and supply chain partners become more sensitive to channel irregularities, the barriers to diversion are greatly reinforced.

    Advertisement

    Brand loyalty and e-commerce

    The value of track-and-trace can be a shared benefit for all the stakeholders as well. A recent supply chain assessment conducted among small, medium and large tobacco wholesalers revealed several opportunities where track-and-trace could improve operations—particularly for wholesalers that service many retail customers who spend vital resources and time reconciling returns. Many of the organizations advised that they are certain they pay rebates on products they did not sell; however, they are reluctant to risk the business relationship debating their suspicions. Unit-level track-and-track eliminates any disagreements as the wholesaler and retailer will be able to verify all returns with 100 percent accuracy. It also eliminates return debates with manufacturers, especially for products that experience frequent price changes or are periodically offered at discounts.

    Manufacturers are also finding innovative ways of incorporating track-and-trace into other commercial initiatives such as brand loyalty programs and e-commerce models. Cloud-based solutions enable omnichannel branding platforms for targeted emails, SMS campaigns, games/contests/sweepstakes/points-based systems that create personalized messaging and enhance the depth of knowledge relative to customers, all of which can be connected through a consumer’s smartphone and track-and-trace integration.

    Online tobacco e-commerce requires sites to maintain comprehensive information pertaining to all sales. Unit-level serialization provides an efficient method to track each transaction to its lowest level as well as to link with other processes required to complete the transaction, such as age verification.

    When looking to partner with a company to develop and execute a track-and-trace strategy, it is important to look for those that have experience bringing together cross-functional organizations within a manufacturer across the supply chain and other external entities such as government regulatory agencies. Understanding how change will affect people, processes, data and technology needs to be thoroughly understood from production to consumption.

    Advertisement

    A manageable endeavor

    Technology should be adaptable and developed to be interoperable across IT systems not proprietary black boxes that require you to adapt to them. Integrating line, packaging, printing and vision systems, while complex, should not be presented as or understood to be a Herculean endeavor.

    Track-and-trace solutions tend to rapidly grow in scope as the organization learns and discovers new ways of using the data and capabilities. Projects will require strict prioritization of goals and multigenerational delivery schedules to prevent scope creep from becoming a bottleneck or overwhelming an organization’s capacity for change.

    Lastly, the regulatory requirements in the tobacco industry often change and evolve. Track-and-trace solutions offer manufacturers the opportunity to have a good faith dialogue with these agencies by demonstrating their efforts to comply with and improve upon the government’s interest in reducing tax evasion and addressing underage consumption. This provides a rare and vital opportunity to be a proactive partner in molding what the regulatory future may look like rather than being a passive onlooker waiting to react.

    Terrence P. O’Neill serves as director of new product development at Covectra, a leader in track-and-trace solutions. O’Neill can be reached at toneill@covectra.com.