Category: Also in TR

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  • Knowing The Ropes

    Knowing The Ropes

    Harnessing decades of experience in process instrumentation, Ian Benson sets out on his own.

    By George Gay

    Photos courtesy of Ian Benson

    Shortly after starting a video call with Ian Benson at the beginning of April, I noticed that behind him, on the wall of his office, was a sign that read: “Gone sailing.” If only, he must have been thinking. You don’t have to speak with Benson for long to realize that he is not a man who takes easily to sitting around, and our call took place about a week into the U.K.’s coronavirus lockdown.

    His frustration, however, concerned not only his inability to access his boat, which, after having been cleaned over winter, had been returned to the water just three weeks earlier, but the fact that the lockdown was making it difficult to make headway in respect of two consultancy projects—one in progress and another recently negotiated—that he was undertaking as part of the company he set up in October last year, Ian Benson Consultative Solutions (IBCS).

    Benson, who has been involved since the 1980s in the design, development and implementation of online and QA/QC process instrumentation for manufacturing industries, such as those producing tobacco, flexible packaging and food, last year went out on his own offering a number of services, including the evaluation and optimization of online process measurements in factories. And it is noteworthy that one of the points he made in a letter sent out on setting up IBCS was that he was internationally mobile—able to visit manufacturing facilities wherever they might be.

    For many years, Benson’s life has revolved around travel, whether on water for relaxation or by air for work. Indeed, he mentioned a number of times during our call that he hugely enjoyed traveling, though what he really meant, I think, is that in the case of work travel, he enjoys arriving wherever he is bound for and, especially, meeting people, interacting with them and building relationships that straddle the workplace and restaurant.

    Interestingly, however, his work life could have been very different from how it panned out. He told me how, in 1978, after having obtained his chemistry degree and PhD (focusing on organometallic catalytic systems and spectroscopy) at Bristol University, U.K., he had “dreams” of harnessing all the “wonderful skills” he had learned, and so started looking for industry-relevant roles to exploit his knowledge. However, he said, it was not to be because such forward-looking opportunities were scarce if not nonexistent. Clearly, at that stage he could easily have slipped into academia had it not been for the fact that the area of research he was engaged in ran out of road. Looked at from today’s perspective, it’s hard to imagine that, at a time when the world was becoming paranoid about running out of oil, there would not have been enough interest in synthesizing organic oil, but that was apparently the case.

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    So, Benson, in his own words, “moved onto reality,” taking a job in the U.K. with the photographic film company, Ilford, where he initially worked as a research scientist but where he gradually moved to a technical services role, which involved product management—designing products for customers. This move, he said, confirmed to him that he didn’t want to pursue an academic career—that he preferred interacting with customers and providing things that companies needed. Benson laughed somewhat guiltily as he added that this was probably the start of his moving to the “dark side”—sales and marketing.

    It was a gradual move. After three years, he left Ilford and, in 1981, joined Infrared Engineering, then a private company of about 30 people, as an applications engineer. In 1992, Infrared was bought by, and became an operating company of, the Fairey Group (later renamed Spectris after Fairey bought Spectris), by which time Benson was working in sales and, shortly after the acquisition, was made a legal director—sales—of Infrared. After taking a number of marketing courses, his role evolved to embrace both sales and marketing; but, eventually, that role became too burdensome as the business grew and, especially, after Infrared acquired NDC Systems, a U.S. company specializing in instrumentation systems for the flexible packaging market, and became NDC Infrared Engineering. At that point, around 1997–1998, he had to choose between sales and marketing, and, having developed an “increasingly passionate” interest in marketing and having worked in sales for more than 10 years, he chose the latter.

    As a newly appointed applications engineer at Infrared in 1981, Benson began working with customers to design measurements they needed to make as part of their processes and that could be made using Infrared’s instruments, such as moisture or nicotine in tobacco. He quickly became the manager of what was then a small department and started to travel the world, relishing his immersion in different cultures. “It was a really interesting role and one that I would recommend to anyone who isn’t certain whether they want to get into the sales and marketing arena, because it is a gentle introduction,” he said.

    “Interesting” hardly describes things adequately. Benson smiled broadly as he recalled many years ago shivering in a suit and tie as he made a sales pitch during an Asian winter to tobacco company representatives rugged up in a cold, unheated venue, and watched them gradually fall asleep. In fact, a lot of the stories he tells have him as the fall guy. Benson told me also that he was very hands-on and liked to get on with things, though at times he should have been more patient. Once in a GLT plant in South America he quickly climbed a ladder, keen to see where gauges were going to be positioned above a conveyor. But where he climbed to was also an exit port for a strip-tobacco drying station, and he was hit by a nicotine rush that almost had him falling down the ladder. Seeing the state he was in, his hosts, hardly able to contain their laughter, told him they would have warned him had he waited five seconds.

    For many years, Ian Benson’s life has revolved around travel, whether on water for relaxation or by air for work.

    But such close engagements with tobacco processing and the people involved in it were key to Benson’s success, and he underpinned his company’s position in established markets and led it into new regions and countries. On one trip in the mid-1980s, he managed to hitch a ride on the private helicopter taking the president of Gudang Garam from Surabaya to the company’s headquarters in Kediri, Indonesia, and later returned home with an order worth £250,000 ($311,174), a huge amount of money for a relatively small company in those days. Importantly, too, Benson was one of the tobacco industry pioneers who broke into the China market as that country opened to the West. China became NDC Infrared’s biggest tobacco-sector market and was still the biggest when he left in August 2019.

    Later, it helped that, with NDC on board, Benson was able to make sales pitches that underlined the huge range of measurements that his company could offer. He told me that he could take a cigarette pack and tell potential customers that NDC Infrared could measure the thickness of the film that the tear-strip was made from, the adhesive with which it was attached and the thickness of the overwrap to which the tear-strip was stuck. Beyond the wrap, the company’s instruments could measure the moisture in the pack’s board and in the metalized film, and the coating applied to the aluminum foil to stop it discoloring. Finally, in the case of the cigarette itself, measurements could be made of the filter paper, the tow and, hugely importantly, the moisture, nicotine and sugar in the tobacco.

    With such a pitch, it was not surprising that NDC Infrared, and Benson in particular, built up close relationships with companies around the world, and he spoke with special fondness of bygone trips to the multiple factories operated by the then Spanish tobacco monopoly, Tabacalera, where he worked closely over long hours checking the performances of his company’s instruments with the monopoly’s engineers and technicians; and where, at lunch and dinner, he joined them again to savor the country’s fine foods and wines.

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    Driving forward

    But I have to be careful here because I shouldn’t give the impression that Benson is somehow stuck in the past, reminiscing about the good old days, because he isn’t. His naturally restless spirit tends to drive him forward, something that is illustrated in his letter to prospective clients where he points out that he can help in respect of old or new processes, existing or evolving technology, and with new and developing needs, even those where a solution has not yet been identified.

    But, having said that, there is one positive aspect of the tobacco instrumentation business that he mentioned as having been lost in more recent times, and it is illustrated above in the anecdote about Spain. In the past, he said, major tobacco manufacturers employed a lot of highly skilled engineers and technicians with whom instrumentation company people could work in situ in testing and improving established devices and developing new ones, but those engineers and technicians had disappeared, victims of cost reductions.

    Of course, Benson well understands the reasons why those cost reductions had to be made. After all, he has spent just about all his working life serving an industry that has been under ever-increasing pressure from anti-tobacco activists and regulators. And this raises an interesting point. Despite all of the consolidation the industry has undergone and despite all of the pressure that has seen smoking decrease sharply in at least Western markets, Benson never mentioned any major downturns having occurred in the demand for tobacco factory instruments, which logically should have been indirectly and negatively affected by these developments. And the reason for this is that there haven’t been any significant downturns. What has been lost on the swings has been gained on the roundabouts.

    As tobacco products have been changed in response to regulations or the need for cost savings, the need for measuring new or modified products and processes in traditional or new ways has increased, so the demand for the instruments that can make those measurements has increased also. Over the years, various “new” products have been added to blends, including stem, waste in the form of reconstituted tobacco and expanded tobacco of different types. And as Benson says, those changing processes have had to be controlled through new or modified measurements that have required a continuous development cycle in so far as instrumentation is concerned.

    And this demand for new measurements and instruments hasn’t been driven only by outside pressure. The increasing speed of cigarette manufacture and increasingly strict industry-set standards have required that whereas primary factories might have used one gauge in the past, now, some of them will be equipped with 40. And then there is the development of heat-not-burn products, the components of which, most of them highly differentiated, have to be measured with the utmost precision.

    There is clearly much still to do—well, once the lockdown is lifted and there’s been just a little time to go sailing.

    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.
  • Minting Substitutes

    Minting Substitutes

    Photo: JTI

    Cigarette manufacturers are offering alternatives to smokers left in the cold by the EU menthol ban.

    By Stefanie Rossel

    As the Covid-19 shutdown left many retailers unable to sell off their noncompliant products ahead of the EU menthol ban, tobacco industry representatives pleaded for an extension of the deadline to no avail: On May 20, article 7 of the Tobacco Product Directive (TPD2) entered into force. Since then, sales of cigarettes with “characterizing” flavors other than tobacco have been prohibited throughout the EU. The ban, which predominantly affects the menthol cigarette category, has ended sales of cigarettes with menthol capsules, click on, click and roll, crushball or dual menthol cigarettes. Vending hand-rolling tobacco with mentholated filters or papers is also illegal if they are supplied together. Exempted from the ban are menthol-flavored e-liquids for vapor products, separately available mentholated smoking accessories, menthol-flavored oral nicotine pouches and cigarillos. Outside of Germany, mentholated consumables for heated tobacco products (HTP) also continue to be legal.

    The ban has eliminated an entire class of cigarettes throughout the continent. Although menthol is a far smaller business in the EU than it is in the U.S., where it accounts for roughly one-third of all cigarette sales, its prohibition touches around 8 million adult smokers, according to the most recent Eurobarometer report (from 2017) on attitudes of Europeans toward tobacco and electronic cigarettes. The report finds that menthol cigarette consumption varies significantly throughout the common market, with the products being most popular in Finland (24 percent), Denmark (20 percent) and the U.K. (18 percent) and representing a small proportion of the markets in Slovenia, Cyprus and Greece with 2 percent each. Euromonitor International estimates that the category generates $11 billion in sales in Western Europe.

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    A matter of taste

    The question is how the millions of menthol smokers will respond when they can’t get their favorite fix anymore. Are they going to quit smoking altogether, as the European Commission hopes? Will they embrace regular cigarettes, resort to mentholated tobacco products that remain legal or switch to reduced-risk products (RRPs)?

    “It is still too early to predict what current menthol smokers will do once their preferred products disappear from shelves,” says Femi Namfua, corporate media relations director at Japan Tobacco International (JTI). “The EU gave menthol smokers a six-year transition period to switch to other products. We now have to wait and see how smokers will react. We hope the menthol ban in the EU won’t lead smokers to the illegal trade as this will completely defeat the purpose of the ban—something we warned regulators about during the proposal phase of the new regulation.”

    Eric Sensi-Minautier, head of British American Tobacco’s (BAT) EU office, shares this view. “It’s the million-dollar question,” he says. “I believe they will resort to looking for other possibilities available. That’s why it is essential that we are able to offer a greater choice of enjoyable and less risky products.”

    Earlier this year, JTI surveyed more than 350 retailers in the U.K., a £11 billion ($13.67 billion) cigarette market of which JTI and Imperial Brands jointly hold an 80 percent share. Data that became available after the 2017 Eurobarometer report suggests that around a quarter of the U.K. market, or $3.42 billion, consists of mentholated cigarettes. Of the surveyed retailers, 25 percent believed that former menthol smokers would remain brand loyal within the ready-made cigarette (RMC) category, 19 percent thought they would switch to roll-your-own tobacco and 45 percent were confident that their customers would switch to vaping or other RRPs. Eleven percent expected previous menthol users to leave the category altogether.

    Imperial Brands is enticing former menthol smokers to embrace its vapor products.
    Photos: Imperial Brands

    Ban sparks innovation

    To meet all possible consumer preferences, cigarette manufacturers in recent months have become creative in their efforts to provide former menthol smokers with the widest possible range of products, including RRPs.

    “Menthol cigarettes account for a significant portion of the European market, so the removal of these products from shops last month means a number of smokers will be seeking to make alternative product choices,” says Simon Evans, group media and online communications manager at Imperial Brands. “It’s important that we provide a range of options at such a time of significant consumer ‘churn.’ Our Myblu vaping product is available in menthol and other flavored varieties, giving extra impetus for smokers to transition away from cigarettes.”

    “But we also understand that many menthol smokers will decide to continue to smoke and so we also focus on providing an evolving portfolio of products in line with their expectations,” says Evans. “Rizla Flavour Cards are flavor-infused sheets of card that can fit inside a pack of cigarettes. When left in the pack for at least an hour, the contents will take on the flavor of the card. Menthol and mint varieties are available. Rizla menthol filter tips are also available for consumers of rolling tobacco.”

    Aroma cards have been around from other suppliers for some time, for example from Frizc. For the flavoring of loose tobacco, companies like MacBaren offer ampoules with liquid menthol aroma.

    BAT, which is preparing for a future that is likely to be in noncombustible nicotine products (see “Beyond Tobacco,” Tobacco Reporter, May 2020), has been extending its vapor product portfolio to cater to former menthol smokers’ needs. In early May, the company introduced a range of new menthol e-liquid flavors and limited-edition starter kits for its Vype brand in the U.K. “Our strategy is to accompany smokers to move to less risky products,” Sensi-Minautier points out. “The entry into force of the EU menthol ban is a good moment for this.”

    According to the company, the new range of e-liquids now closely mirrors the experience of smoking a menthol cigarette, with new blends, an innovative tube filter and new formats across the range. BAT has also innovated its Pall Mall, Vogue and Rothmans brands to offer former menthol smokers attractive, nonmenthol cigarettes.

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    Providing more choice

    In March, JTI launched several alternative products with new tobacco blends in the U.K. Its New Dual range, which is available in the Sterling, Benson & Hedges and Sovereign brands, provides smokers with new, distinctive tobacco blends, replacing the company’s former menthol capsule cigarettes. The same blend will also be used for the “green” product variants of the Sterling, Benson & Hedges and Berkeley “New Superkings” ranges. As long as their products do not contain menthol, retailers are still allowed to sell cigarettes with names that were previously used to describe a menthol product, such as “green.”

    For all those who can’t do without their hint of mint, JTI in early February introduced a cigarette-sized menthol cigar, the Sterling Dual Capsule cigarillo, in the U.K. The product is marketed under the same name as one of JTI’s cigarette brands but is exempt from the ban because it is wrapped in tobacco leaf rather than paper. As its name implies, its filter contains a mentholated capsule, which smokers can click to release a peppermint flavor. Being a cigarillo, it sells at half the price of regular cigarettes.

    The company also broadened its RRP portfolio, introducing a variety of new menthol flavors for its Logic e-cigarette brand and its Ploom tobacco vapor products, and outside of RRP, its Nordic Spirit nicotine pouches.

    Philip Morris International (PMI) in March added a menthol kit to its IQOS heat-not-burn product comprising an IQOS 2.4 device and two packs of mentholated heat sticks. According to the company, 51 percent of menthol smokers would switch to IQOS when their preferred menthol smoke was no longer available, betterretailing.com reported.

    Despite the long transition period—the ban on menthol was announced in 2016, with the introduction of the TPD2—awareness of the new rules remained remarkably low among retailers and consumers alike as the deadline approached. In another JTI survey, carried out one week before the ban took effect, more than half (52 percent) of participating U.K. retailers said they expected adult smokers to remain brand loyal within the RMC category; 31 percent believed their customers would switch to vaping or other reduced-risk products; 11 percent think they will switch to roll-your-own (RYO); and just 6 percent expect adult smokers to quit the category altogether. The results show a significant shift in thinking compared to JTI’s previous survey, with more retailers now believing that their customers will remain brand loyal within the RMC category and fewer assuming smokers will switch to vaping, RYO or quit.

    Days before the ban entered into force, another poll, conducted for smokers advocacy group Forest, found that the lack of awareness of the ban also extended to consumers: Almost 40 percent of the more than 2,000 U.K. smokers surveyed were oblivious to the new rules. Only 16 percent believed that the ban would lead to a reduction in smoking prevalence whereas 46 percent of smokers thought that it would lead to an increase in illicit trade.

    To educate stakeholders, leading tobacco companies created dedicated websites, which also included information about alternatives to menthol cigarettes and companies’ buyback schemes for unsold menthol cigarettes.

    When Rizla Flavour Cards are left in a tobacco product pack for at least an hour, the contents will take on the flavor of the card.

    Unwanted side effects

    The justification for banning menthol cigarettes is that the minty taste masks the harshness of the inhaled tobacco smoke, which might make it easier for nonsmokers, including young people, to take up smoking.

    The tobacco industry has long disputed that line of reasoning. “Peer pressure and parental influence are the main reasons for starting to smoke, according to studies, not menthol cigarettes,” says Namfua. “Study results do not support the claim that menthol smokers start smoking at a younger age. There is no sufficient evidence to support the claim that a prohibition of menthol tobacco products will affect smoking rates as campaigners suggest. Such a ban is therefore an unjustified restriction on adult consumer choice and sets a dangerous precedent for other products beyond the tobacco category.”

    “Young people don’t start smoking because of menthol,” echoes Sensi-Minautier. “We do not believe the available science supports the idea that a menthol ban will reduce youth smoking or address the health impact of smoking more generally. Personally, I don’t believe that it will have more of an impact on smoking rates than plain packaging, which has had no effect.”

    Canada, which prohibited menthol cigarettes in October 2017, provides a cautionary tale. Several of the country’s provinces already had menthol bans in place at the time of the nationwide rule. A study published this February by the National Bureau of Economic Research found that the provincial menthol bans simply increased nonmenthol cigarette smoking among youths, leaving overall youth smoking rates unchanged.

    While the menthol ban may not achieve the desired reduction in EU youth smoking, it may very well bring about unintended consequences. “We now have to wait and see how smokers will react, but based on previous bans, what we often see is a coinciding increase in illegal trade and a decrease in tax revenues,” Namfua points out. “Government revenues are jeopardized in case of a ban in any market with mentholated tobacco products, especially in places where a large part of existing smokers choose them, like Poland, for example, as they may look to illegal channels to buy their preferred flavors in [the] future. U.S. law enforcement agencies are publicly opposing a menthol ban due to worries of an increase in organized crime, which remains an important concern.”

    If smokers of mentholated cigarettes switch to illegal channels, the impact on government revenues would be substantial. “Studies show that up to 25 percent of menthol smokers would buy cigarettes from the illegal market instead, meaning governments would lose millions,” says Namfua.

    In Europe, he says, criminal gangs started taking advantage of the menthol ban even before it was implemented. U.K. law enforcement agencies began finding packs of counterfeit menthol cigarettes as early as October 2019—seven months before the ban.

    “Any prohibition of a product may be a driver of illicit trade, but the situation might be more complex,” cautions Sensi-Minautier. “We need to be careful because we don’t know yet if current consumers of menthol cigarettes will consider menthol to be so important to them that they find an illicit source. It would also be interesting to see whether the criminal gangs will seize this opportunity to diversify.”

    JTI has broadened its RRP portfolio, introducing a variety of new menthol flavors for its Logic e-cigarette brand and its Ploom tobacco vapor products, and outside of RRP, its Nordic Spirit nicotine pouches.
    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 Unlikely Savior?

    The Unlikely Savior?

    Smoking, nicotine and Covid-19: What is going on?

    By Clive Bates

    Photo: maja7777 from Pixabay

    The world is enduring the worst crisis since the 1940s, and people are desperate for some good news. Could that good news come from a most unlikely source? Could smoking, or more precisely nicotine, have benefits in controlling the symptoms of Covid-19, the disease caused by the coronavirus SARS-CoV-2? There is emerging, though inconclusive, evidence that nicotine may have protective effects in preventing severe symptoms of Covid-19. If this turns out to be true, it would be extraordinarily good news—nicotine in its medical and recreational forms is widely available and easily affordable.

    The picture is quite complicated, but discussion should start with clarity about which outcomes may be improved. There are at least four relevant stages: infection (simply contracting the disease, often with mild symptoms); hospitalization (serious symptoms); admission to an intensive care unit (ICU) (life-threatening symptoms); and finally death. If there is a protective effect, the data suggest it reduces the number reaching hospitalization. For the purposes of fighting the pandemic and returning to economic normality, preventing the onset of symptoms serious enough for hospitalization is the highest priority.

    There are two main strands of evidence that suggest a protective effect: the apparent underrepresentation of smokers in Covid-19 hospital admissions and evidence from human biology.

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    Evidence from Covid-19 hospital admissions

    Most Covid-19 studies recording hospitalization and smoking status show smokers are strikingly underrepresented compared to the number that would be expected given smoking prevalence in the population. Being a smoker appears to make it less likely that a Covid-19 sufferer will end up in the hospital. There are many doubts and questions about the reliability of this data, but the effect is remarkably consistent across countries where the data is available. Greek cardiologist Konstantinos Farsalinos and his collaborators examined the literature available on April 25, 2020, to assess the smoking status of those entering the hospital with Covid-19 (see Farsalinos et al., “Prevalence of Current Smoking and Association with Adverse Outcome in Hospitalized Covid-19 Patients: A Systematic Review and Meta-Analysis”).

    An unexpectedly low prevalence of current smoking was observed among hospitalized patients with Covid-19. Hospitalized current smokers had higher odds compared to noncurrent smokers but lower odds compared to former smokers for an adverse outcome.

    These data suggest that fewer smokers are entering the hospital than we might expect, but once they are admitted, their outlook is worse. This is consistent with other findings showing a worse outlook for smokers once hospitalized. (For example, Vardavas and Nikitara, “Covid-19 and Smoking: A Systematic Review of the Evidence.”)

    Notably, in the largest study that assessed severity, there were higher percentages of current and former smokers among patients that needed ICU support, mechanical ventilation or who had died and a higher percentage of smokers among the severe cases.

    These authors did not draw attention to just how few smokers there were among the patients to start with—but that is the remarkable fact picked up by Farsalinos and his group. So, what could be going on? Farsalinos and colleagues have a theory:

    “The possibility that nicotine may have a protective effect in Covid-19, which may be masked by smoking-related toxicity and by the abrupt cessation of nicotine intake when smokers are hospitalized, should be explored.”

    So, it may be that nicotine is protecting smokers up to the point where they are admitted to the hospital. However, all respiratory wards require smoking cessation on admission, so smokers make an abrupt withdrawal from nicotine use. To understand what is happening, it is necessary to separate the effects of decades of smoke exposure, which may be causing underlying vulnerabilities through cardiovascular disease and other stresses, from the effect of nicotine, which may be protective. These two effects of smoking—one harmful, one protective—could be pushing against each other and may become relevant at different points in the progression of the disease.

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    Evidence from human biology—does nicotine suppress the “cytokine storm”?

    So far, this could all be wishful thinking based on poor quality data. However, the second line of evidence means it should be taken very seriously. This provides biological plausibility based on cell-level insights into the mechanism through which nicotine could provide a protective effect. A range of papers have explained the possible mechanism, starting with the renowned French neuroscientist Jean-Pierre Changeux who pioneered research on nicotine receptors in the 1970s (Changeux et al., “A Nicotinic Hypothesis for Covid-19 with Preventive and Therapeutic Implications”). This was followed by an in-depth peer-reviewed publication by Farsalinos and colleagues (Farsalinos et al., “Nicotine and SARS-CoV-2: Covid-19 May be a Disease of the Nicotinic Cholinergic System“).

    These theories converge on the role nicotine can play in suppressing the most dangerous symptom of Covid-19, a dramatic immune system overreaction to the virus, a so-called “cytokine storm.” Inflammation is a normal response to infection as the body responds with a series of immune reactions to neutralize invading pathogens. In this model, it is not the virus itself that does the harm but the body’s own immune system triggered by the virus into an excessive response that causes extreme inflammation and damage to the lungs or other organs and ultimately death.

    These technical papers suggest that severe Covid-19 symptoms arise from damage to the internal signaling and control system known as the cholinergic anti-inflammatory pathway. This system originates in the brain and makes use of the Vagus nerve, the signaling chemical, acetylcholine and nicotinic acetylcholine receptors throughout the body. Under this hypothesis, nicotine moderates the malfunctioning of the anti-inflammatory control system by inhibiting the release of pro-inflammatory cytokines.

    While Covid-19 is clearly new, the idea that nicotine may have therapeutic effects, including on inflammatory diseases rooted in the brain, is not new. In May 2020, researchers at Oxford University published a new finding from the 65-year study of British doctors started by Sir Richard Doll and Sir Austin Bradford Hill in 1951 confirming years of research suggesting smoking (in practice, nicotine) has a protective effect against Parkinson’s disease (Mappin-Kasirer et al., “Tobacco Smoking and the Risk of Parkinson Disease”). A 2013 paper by the U.K.’s bioweapons defense lab at Porton Down highlighted the role nicotine could play in controlling the cytokine storm and moderating some severe respiratory diseases (D’Elia et al., “Targeting the ‘Cytokine Storm’ for Therapeutic Benefit”).

    “Nicotine […] is able to suppress the production of proinflammatory cytokines by mimicking the binding of acetylcholine. It has been demonstrated that nicotine can selectively reduce the inflammatory response in a number of infection scenarios, including Legionella pneumophila and Chlamydia pneumoniae infection.”

    Following their observation that smokers were underrepresented in Covid-19 admissions to the Pitie-Salpetriere Hospital in Paris (Miyara et al., “Low Rate of Daily Active Tobacco Smoking in Patients with Symptomatic Covid-19”), French researchers are now planning a clinical trial of nicotine-replacement therapy for Covid-19.

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    Where does that leave policy and practice?

    With the Covid-19 pandemic raging everywhere, policymakers are in a position analogous to trying to repair an aircraft while flying it. It is not known for sure whether nicotine is protective against the more severe forms of Covid-19, just that it is suggested by data on hospital admissions and that it is biologically plausible. Yet decisions made today in hospitals and advice given to smokers and vapers could have life-saving or life-threatening consequences. The usual approach to such uncertainties would be to wait for more evidence and then make better-informed recommendations, but that is no different in practice to acting as though there is no protective effect.

    It would be wrong to advise people to continue to smoke because of the longer term health implications and the underlying vulnerabilities to Covid-19 caused by smoking. But if people are advised to quit nicotine, they may be losing a protective effect at the point of their greatest vulnerability. The way to resolve this dilemma is to make a working assumption about the effect of nicotine based on what is known and what remains uncertain taking account of the consequences of making the wrong assumption. Recommending continued nicotine use in a situation where it turns out there is no protective effect does not seem likely to cause serious problems. Conversely, advising or requiring nicotine users to stop using nicotine only to find later that nicotine was protective may cause lethal harm. On a precautionary basis, policymakers should probably assume there is a protective effect until proven otherwise.

    It follows that health professionals should advise smokers to quit smoking using any method that works but to maintain the use of nicotine—either by using nicotine-replacement therapy, vaping or some form of low-risk noncombustible tobacco—at least until there is a more complete understanding of the role nicotine plays. Vaping as an alternative to smoking should be encouraged not banned or locked down. What about people like me, who have never used nicotine and have no wish to—what should we do? Well, if I came down with Covid-19, I’d consider trying nicotine as a precautionary measure. What is there to lose?

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

    Feeling Their Pain

    The International Tobacco Growers Association is campaigning to help noncontracted farmers cope with the coronavirus pandemic.

    TR Staff Report

    Photo: Taco Tuinstra

    While the multinational cigarette makers are likely to emerge from the coronavirus pandemic with only minor bruises, some of their suppliers are in dire straits. For noncontracted tobacco farmers, who rely on busy sales floors and healthy farm hands to ply their trade, the crisis has been downright devastating. The International Tobacco Growers Association (ITGA) has started a campaign to alleviate their suffering. Using an appropriately socially distanced method of communication—email—Tobacco Reporter asked the organization about its initiative. Because the answers were compiled by a team, ITGA requested we attribute them to the organization rather than an individual.

    Tobacco Reporter: Which leaf-producing countries will be hit hardest by the coronavirus pandemic?

    ITGA: So far, the most affected is India due to the Andhra Pradesh marketing season disruption. The tobacco auctions were active both in Karnataka and Andhra Pradesh. The auctions were suspended in the two regions; however, in Karnataka, the auction was close to its ending date, while in Andhra Pradesh the marketing season had recently started, so the impacts of the suspension will be felt there more severely. The lack of international leaf dealers—especially from China—due to traveling restrictions during the Karnataka auctions was one of the reasons for prices not being higher.

    The difficulty of storing tobacco will affect Andhra Pradesh. The region’s tobacco production may suffer critical reductions due to this unforeseen situation. The decreased demand due to tobacco companies not being deemed “essential” will also affect tobacco growers by causing financial losses due to the erosion of both the quantity and quality of the production. In Andhra Pradesh, only 5 percent of the tobacco was sold [in early May] compared with 50 percent last year. The tobacco manufacturers and tobacco businesses had to close, and demand for tobacco products has been estimated to have decreased by 20 percent.

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    In South America, after a period of suspended operations, tobacco manufacturers and leaf dealers have resumed their operations and the activities are in full swing. In Argentina, the regional governments have put in place strict regulations to protect everyone involved in the marketing season. Dialogue between tobacco associations and tobacco companies has progressed with a deal having been struck for the tobacco purchased in the Misiones region, with a 59 percent price adjustment compared to the one paid last year. Argentina stands out for the macroeconomic difficulties the country was already facing; together with the Covid-19 disruption, that is sure to affect tobacco growers directly. The closing of the tobacco factories has caused shortages of cigarettes and tobacco cooperatives to be stuck with unsold tobacco.

    Afubra, the national tobacco growers’ organization of Brazil, has downgraded the value of tobacco products. The drought felt in southern states during December 2019 and January 2020 caused losses in the Rio Grande do Sul of around 16 percent. Both Argentina’s and Brazil’s tobacco associations have made a plea to tobacco manufacturers for an advance on the price of the tobacco bought that would be deducted from the final sale price. Tobacco growers would use the revenue to finance wages, inputs and other expenses during this period.

    Because the tobacco market in Andhra Pradesh was suspended shortly after it had commenced, the disruption there will be felt severely. Photo: Taco Tuinstra

    In African countries such as Zimbabwe and Malawi, which both depend heavily on tobacco as a foreign exchange earner, tobacco auctions have been suspended and then opened amidst the Covid-19 crisis. What impact do you expect for farmers due to the delay?

    The Malawi Tobacco Commission had announced at the beginning of April that excessive rainfall and the lower prices during last year’s campaign had affected the 2019 to 2020 tobacco crop. Tobacco output was estimated to decrease by 6.62 percent to 155,000 tons. There were growing concerns that if the marketing season were to be delayed further into the future that the tobacco could suffer in return due to the lack of facilities to adequately store tobacco for longer periods of time. An extended delay would result in part of the production to be lost, which would have an extremely negative impact on the livelihoods of those who rely on tobacco as a source of income.

    In Zimbabwe, the marketing season had been delayed before the Covid-19 [virus] became an issue in the country. Episodes of rainfall close to the beginning of the marketing season allowed for the crop to recover from episodes of drought that it faced earlier in 2020. The Tobacco Industry and Marketing Board has assessed that tobacco output will reach 225,000 tons, a decrease of 13 percent from last year’s production. The tobacco output was initially expected to be significantly lower due to decreased growers’ registrations and tobacco seed sales.

    Both Malawi and Zimbabwe are highly dependent on tobacco as a source of foreign exchange—a reality that the Covid-19-induced economic crisis will surely worsen. Therefore, this year’s marketing season must be a successful operation so that the livelihoods of the millions involved in tobacco growing do not suffer dramatically. Although, it is premature to assess the impact of the Covid-19 pandemic on the African marketing season. The auction and contract floors opened with higher measures of hygiene and protection with the aim to protect tobacco growers, leaf dealers and everyone involved in the sales. In Zimbabwe, even though the first bale received a lower price than last year—$4 versus $4.50—the amount of tobacco sold and the revenue generated on the first day was higher. Tobacco growers don’t usually send their best tobacco at the beginning of the season to better understand how prices will progress, thus saving the best for last. In Malawi, the introduction of a new bidding system has been singled out as the reason behind the higher rejection rates. As farmers adapt to this new system, rejection rates will likely decrease. Tama Farmers Trust and ITGA President Abiel Kalima Banda has called for a stakeholder meeting to address the problem and find a solution.

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    Most tobacco sales today take place under growing contacts. To what extent do you expect the current crisis to change this?

    Most of the tobacco growing is done through contracts; however, there is still a significant number of independent farmers. The trend of the increasing share of contract growers will persist or become even more evident. The Covid-19 pandemic will only exacerbate the differences between contracted and noncontracted growers. Independent farmers are much more exposed to the effects of the coronavirus as they don’t benefit from the tools and support the companies provide, while contracted growers are assisted by the companies with both knowledge and supplies. With the closing or demand turbulence of the auction floors or demand disruption, the only growers that are certain that their tobacco will be bought are the ones subject to contracts. That is the main reason behind our campaign—#Togetherwecare—to support the tobacco growers that are most undefended against a threat of this nature.

    What impact do you anticipate from the coronavirus crisis for the supply-demand of leaf tobacco?

    Tobacco production has been decreasing over the past few years as an effect of the lower demand for tobacco products. Tobacco growers are adapting to this situation by lowering the area under tobacco production. Due to weather events both in Brazil and Zimbabwe, the estimate for tobacco output has been adjusted downward from what was initially projected. As ITGA members are spread around the globe with significant economic and cultural differences, the ability to adapt and to respond to situations differs from country to country. Regarding the market adjustment, only when the marketing seasons are well underway can the effects be correctly assessed. The main Asian tobacco markets of China, India and Indonesia are key to understand if major demand shock will occur. For India, a 20 percent demand reduction has been estimated while Philip Morris International has confirmed a significant reduction in the Asian markets. Indonesia has also introduced minimum price regulation that may exert more pressure on the lower end of the market. With the economic effects following the pandemic with higher unemployment rates, smokers usually change to cheaper brands, an effect that is negated with the minimum price.

    How will this affect cigarette manufacturers, most of whom claim to have sufficient stocks?

    Tobacco manufacturers are not to suffer from reduced sales due to the nature of tobacco products demand. The consumption of cigarettes, heated-tobacco units and other types of nicotine-delivery systems is not expected to be affected by the coronavirus. Analysts from the Jefferies Investment Bank have characterized tobacco stocks as being “recession-proof,” the reason for this being that smokers are less worried about health concerns. Smokers have been bombarded with ever-increasing warnings for a long time and have developed a certain immunity to health warnings. Also, the link between anxiety and the use of tobacco products has been the subject of many studies, and the fact that a relevant percentage of the world’s population is being motivated to stay at home can increase the levels of anxiety which would lead to an increase of the consumption of tobacco products. Tobacco manufacturers have reported strong first-quarter results with important revenue growth. The tobacco operations are spread throughout the world although the main manufacturing centers are in the regions that were most affected by the pandemic, with several operations having closed for some time. The main tobacco companies have, however, reiterated that the supplies of tobacco products are sufficient for up to two months.

    ITGA_TWC_COVID-19_size_21x29_7_A4_Tobacco Reporter
    The goal of the ITGA’s #Togetherwecare campaign is to support the tobacco growers that are most vulnerable to the Covid-19 threat. Image: ITGA

    Is the crisis an opportunity to rethink established supply chains and processes in the leaf-producing sector?

    Without doubt, this has been one of the most challenging quarters in recent history. The Covid-19 pandemic has affected the world as a whole. One of the side effects of the pandemic has been its ability to disrupt the global supply chain. Globalization affected the way companies and industries operate. Supply chains have evolved to a planetary dimension and it is common to consume products that are produced half a world away. Despite the disruption to the global supply chain, the trend of moving tobacco production from developed countries to developing countries is not expected to change. The reasons behind moving the sources of tobacco have not changed with the pandemic. The pressure on tobacco products demand means companies will continue to lower costs along the entire value chain. As tobacco volumes will not increase, companies can search only for efficiency and margins gains.

    Please elaborate on ITGA’s campaign to help small, noncontracted growers.

    The ITGA has been in close contact with its members to assess the difficulties that this pandemic has been posing. Despite the global character of the outbreak, certain difficulties are particular to each region. Our members in the most affected regions have highlighted that they are starting to notice a lack of inputs for tobacco farming and that travel and transport restrictions have impacted the regular operations of growing tobacco. As tobacco is a labor-intensive product, any disruption to the movement of workers or to the hiring process could disrupt the harvesting season. The difficulty in earning a work visa or blocking the travel particularly affects products that rely on seasonal migrant workers. Our campaign is focusing on raising awareness and bringing basic equipment to smallholder farmers. Prevention and information are key at this phase to avoid a much more uncontrollable situation in these countries with fragile health systems and infrastructures. We have been seeking support since early April in view of the start of the selling season, which was delayed until the last week of April in Malawi and Zambia and the beginning of May in Zimbabwe. Coordination in these three countries has been outlined. It is very unfortunate that the ITGA acted in advance, foreseeing the free movement of noncontracted growers and inappropriate gatherings between farmers lacking basic protective equipment, but our plans in coordination with our members are set back in the absence of support.

    As ITGA members are spread around the globe with significant economic and cultural differences, the ability to adapt and to respond to situations differs from country to country. Photo: British American Tobacco

    It is imperative that the sector unites to protect the chains most exposed to the difficulties highlighted by Covid-19. As studies show, tobacco is grown as a cash crop in a multi-production system. Most tobacco growers do not exclusively produce tobacco. As other sectors and supply chains are disrupted by the outbreak, the noncyclical nature of the tobacco sector and its ability to outperform other industries during economic slowdowns is key to reinforcing the role of tobacco as the source of income for many growers.

  • Grace Under Pressure

    Grace Under Pressure

    Industry leaders relate how they have been coping with the coronavirus pandemic.

    By Stefanie Rossel

    Photo: Taco Tuinstra

    Roughly six months have passed since China announced the outbreak of a mysterious lung disease, and Covid-19 is still raging around worldwide. On its journey around the globe, the virus has prompted governments to introduce strict measures to curb infections. Entire industries have been paralyzed, supply chains have been disrupted and global travel has been placed into an artificial coma. Under anti-coronavirus restrictions, consumer behavior changed in many countries as distribution channels were cut off and the question of what constitutes an “essential business” was hotly debated.

    Living up to its reputation, the tobacco industry has so far appeared resilient (see “An Ill Wind,” Tobacco Reporter, May 2020). Amid growing uncertainty, Philip Morris International (PMI) in April announced strong quarterly results, generating net revenues of $7.15 billion in the first three months of 2020, up from $6.75 billion during the same period last year. However, CEO Andre Calantzopolous expected the pandemic to adversely impact PMI’s full-year results. The pandemic, he said, had already severely reduced the company’s duty-free sales, slowed IQOS user acquisition and delayed minimum price enforcement in Indonesia. “We also have to assume that, in certain markets, unemployment and related reductions in disposable income will have a temporary impact on market dynamics or the ability of certain small retailers to operate,” said Calantzopolous.

    The company reemphasized that it maintained sufficient inventory of inputs and finished goods and didn’t expect to see a disruption to its supply. According to the press release from April 21, all heated-tobacco unit facilities were operational while manufacturing facilities representing 20 percent of the company’s cigarette production were closed.

    British American Tobacco (BAT) and Japan Tobacco International (JTI) provided a similar picture in their first quarter 2020 results. While acknowledging that the impact from the Covid-19 pandemic is difficult to predict, both maintained their full-year forecasts. BAT, which at the end of April stated that most of its factories were open and operating at full capacity, said it expected the global industry cigarette and heated-tobacco product volume to decline by around 5 percent, compared to 4 percent earlier, but maintained its forecast for a 5 percent drop in the U.S.

    Iqbal Lambat

    Increased demand

    Analysts insist the cigarette industry continues to offer a haven in the current uncertain business environment. In a survey of 2,000 consumers, Morgan Stanley found that smoker behaviors and attitudes toward cigarettes appeared unaltered by the pandemic—an observation shared by Iqbal Lambat, president and CEO of Star Agritech International (SAI). Headquartered in Turkey and operating in 40 countries, SAI sources its leaf worldwide and thus has a good feel for the state of the global industry.

    “Cigarette consumption has probably increased since social lockdowns were enacted,” says Lambat. “Our clients have also benefitted substantially from this phenomenon. As an example, in Italy at the start of the outbreak, the Italian government shut down all industries in the north in the Vicenza area. Two weeks later, the government declared cigarette production an absolute necessity and allowed cigarette factories to resume production. Our tobacco shipments to these clients have doubled as the factories try to keep up with demand. Demand has also grown with most of our clients worldwide, except in South Africa where the government imposed a complete ban on the sale of cigarettes, tobacco products and alcohol to minimize social gatherings.” The ban was not lifted when South Africa eased its lockdown restrictions on April 24. It is expected that the ban will only be lifted when the country declares a level 2 pandemic versus the current high level 4.

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    The global reach of the pandemic is forcing tobacco firms to rethink their supply chains, which increasingly relied on just-in-time deliveries and minimal stock keeping. According to Lambat, SAI was already well positioned for the new operating conditions. “Star is the only leaf merchant in the world that has established tobacco depots within close geographic proximity to that region’s clients,” he says. “We store in these depots the most popular tobacco grades and tobacco derivatives, such as reconstituted tobacco, DIET, CRES, fines and stems for the clients of that geographic cluster.

    “As such, we have tobaccos in Antwerp, Belgium, to service the EU; Kostrama, Russia, to service the CIS states; Johannesburg, South Africa, to service Southern Africa; Jember and Malang, Indonesia, to service South East Asia; Busan, South Korea, to service North Asia; and Santiago, Dominican Republic, to service cigar manufacturers in [the] Dominican Republic and Nicaragua.

    “These depots are well stocked and replenished. So when the pandemic struck beginning [in] March, we were in excellent shape to continue supplying globally ex-depot. As the industry knows of our stocks’ availability, we even received requests to supply from our depots to new clients whose orders were blocked at origin.”

    Several sourcing countries suspended their tobacco auctions due to the coronavirus crisis. SAI experienced disruptions in Argentina, India, Indonesia and China. “There were short temporary disruptions from Brazil,” he adds.

    Most of the company’s Indian tobaccos are destined for Europe. “We typically carry a three-month rotating stock for these tobaccos in Antwerp,” says Lambat. “The late starts of auctions in Malawi and Zimbabwe will not affect Star Agritech as, over the years, we have migrated much of that sourcing to Argentina, Brazil and Tanzania.”

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    A lesson to be learned

    While warehouses will sustain the supply of leaf in the short term, replenishment of raw tobacco will become a challenge as travel restrictions persist. Buying tobacco usually involves the physical examination of leaf quality by the merchant. “This has become a problem,” says Lambat. “Fortunately, we work with excellent suppliers that minimize the risk of the merchandise not being in correlation with the received reference sample on which the order is placed.”

    Assessing the future impact of the pandemic on the leaf sector, Lambat recalls the years 2014–2016 when the tobacco industry struggled with severe oversupply. “This was created by major buyers’ ‘bean counters’ who decided that manufacturers should not procure but de-stock to carry one year of inventory versus two years and minimize working capital,” he says. “As I respond to your questions, I am in lockdown in Turkey with most of the world in a similar situation. So this can go on for a long time.”

    The lesson companies should learn from the coronavirus crisis, says Lambat, is about security of supply. While multinational manufacturers have the working capital to cope with the disruption, smaller players should consider partnerships with merchants that can ensure non-balance sheet security of supply, he suggests.

    Bolstered by sufficient inventory of inputs and finished goods Philip Morris International expected to avoid a disruption to its supply. Photo: Philip Morris International

    Two-months’ halt

    Home to a state-of-the-art PMI cigarette/tobacco-heating unit factory and several prominent tobacco machinery manufacturers, Italy was among the hardest hit countries in the pandemic. On March 23, the Italian government extended its mandatory closure of nonessential commercial activities to heavy industry.

    “The wise decision of our government, which perhaps came a little late, was very useful for the health of our population, and we are seeing and appreciating the good results now,” says Lorenzo Curina, chief operating officer and sales director of Godioli & Bellanti, a company specialized in leaf processing and primary equipment.

    But economy is a different story, he notes. Production at Godioli & Bellanti was at a complete standstill for almost two months. “Now we have begun to work again—since April 28 at ‘full steam,’” says Curina. “With [the] corona[virus] being a pandemic, our international clients understood such a situation, and they have adapted to such an emergency. International solidarity!”

    Throughout the crisis, Godioli & Bellanti kept in touch with its customers daily. “Thanks to smart working, ourselves and our engineers and our technicians operated locked down at their homes,” says Curina. “We utilized communication platforms to talk about work, to exchange technical opinions and to give each other psychological support in the sense of ‘don’t worry, our company is alive in spite of such an epidemic.’”  

    Italy’s statistical office estimates the economic damage of the lockdown at around €100 billion ($108 billion) per month in addition to a loss of added value of €27 billion. The country’s government has announced a €400 billion aid program for companies, which may also help some of the tobacco engineering firms affected by the crisis.

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    Reviving Italy’s industries

    Regarding the impact of the pandemic on his company’s supply chain, Curina distinguishes two phases: the period of deep lockdown and the current reopening. “During lockdown time, everything was slow: couriers, suppliers, providers, bankers,” he says. “Thank God we had in our warehouse most of the components and pieces necessary to continue assembly and production.”

    Curina believes it’s to early to judge how the reopening will proceed, but he takes comfort from history. The greatest economic boom of the 20th century, Curina recalls, recurred after one of its greatest disasters—World War II. “I feel that people want to restart, want to work, want to show that they are alive,” he says.

    The continuing travel restrictions, however, are an issue for Curina and his sales force as well as for his engineers and technicians. “This is a real problem and will be the last problem to be solved,” he says. “The pandemic is a world problem. Perhaps Italians will be authorized to fly out in the next few months while few countries where our customers live will still be locked down.”

    Curina is cautiously optimistic that his country’s economy will recover. “I don’t have a crystal ball but today, Monday, May 4, is the first day we, as Italians, are authorized to begin production again, to open our factories just like before. If, in the next 15 to 20 days, the curves indicating the number of newly infected people and deaths do not rise, we can begin to cautiously think that the worst is over.”

    Lorenzo Curina

    E-cigarette delivery bottlenecks

    The Covid-19 pandemic has also created considerable challenges for the vapor business. Because the pandemic originated in China where more than 90 percent of the world’s e-cigarette hardware is manufactured, the electronic nicotine-delivery system (ENDS) category experienced significant supply chain disruptions early on.

    According to a report published by TMA in April, the coronavirus outbreak shuttered factories throughout Guangdong Province—the epicenter of China’s e-cigarette manufacturing industry—between January and mid-February 2020.

    What’s more, the pandemic came on the heels of new restrictions on the online sales of vapor products in China to discourage underage access. As a result, many e-cigarette manufacturers were in the process of shifting sales to physical stores just when the pandemic hit. Coupled with the Covid-19 outbreak, the industry was hence dealt two heavy blows in a short time. By April 20, only a few enterprises in the ENDS industry had resumed production.

    Horst Winkler

    “The majority of technical components is being produced in China,” says Horst Winkler, spokesman of Verband des e-Zigarettenhandels (VdeH), a German association of e-cigarette retailers. “Since the corona[virus] outbreak there already led to extensive limitations and quarantine measures at the beginning of the year, there were delivery bottlenecks even before the pandemic reached Europe. Meanwhile, the China-based companies have recommenced manufacture under strict safety measures and are able to supply [their customers]. However, companies’ dispatch logistics are under enormous pressure, which causes further delays.”

    VdeH is in continuous contact with its members in China. “We keep each other up to date with regard to the situation,” says Winkler. “As restrictions are increasingly being eased and the situation in China slowly begins to normalize, we expect the situation to improve in the short term.”

    To comply with national regulations, most e-liquids for the German market are produced domestically or in other EU countries. When it comes to hardware, however, most countries depend heavily on China. “The production in Europe and especially in Germany is restricted to a few high-end devices that cannot replace Chinese products—neither in quantities nor in pricing,” says Winkler.

    Cigarette consumption has likely increased as smokers cope with greater anxiety and fewer restrictions to indulge while cooped up at home.

    Is vaping essential?

    Distribution of sales outlets

    presented another problem for the German vapor industry during the early weeks of the pandemic. The decision of whether vape shops could stay open because they provide an essential service was made at the federal, state and local community levels, creating a patchwork of inconsistent rules until all shops with sizes up of to 800 square meters were allowed to open on April 24.

    “Some retailers tried to compensate for the complete loss of revenues with collection and delivery services. But even in places where such services were possible, only a fraction of the otherwise usual turnover could be generated,” says Winkler. “Nevertheless, it was important to show some presence to regular clients and to enable them to cater to their needs.”

    Many vape shops fear for their existence. “This could have been avoided if politics had assessed the meaning of e-cigarette retailers in the primary care of the population correctly from the start,” says Winkler. “Some shops have been closed permanently, but we do not have any concrete data yet. We will probably be able to determine the impact of the crisis only in a few months.”

    Without doubt, he concludes, online retail was the big winner. His organization observed a considerable increase in the quantities ordered through that channel—although the gain was partly offset by capacity limitations among shipping companies.

    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.
  • Shots on Goal

    Shots on Goal

    Two tobacco plant-based vaccine candidates have entered the race for a serum against Covid-19.

    By Stefanie Rossel

    Photos: British American Tobacco

    As the coronavirus pandemic continues to take a devastating toll around the world, the race for a vaccine against Covid-19 among pharmaceutical and biotech companies, universities, research institutes and other stakeholders has accelerated. According to a report by Verband Forschender Arzneimittelhersteller, the German association of researching drug manufacturers, there were more than 70 vaccine projects for the novel coronavirus SARS-CoV-2 globally in early April. The aim of such a vaccine is to create an adaptive immune response in the form of antigens in the vaccinated person that will protect against an invading microorganism and the disease it causes, in this case an infection with the coronavirus. Vaccines, which are biological preparations, are considered the most effective preventive measures against infectious diseases.

    Coronaviruses, a group of viruses that belong to the family Coronaviridae, have always been around. Infections caused by other members of that family include severe acute respiratory syndrome (SARS), which appeared in 2002 to 2003, and the Middle East respiratory syndrome (MERS), which appeared in September 2012. On both occasions, vaccines were developed, but to date, none of them has received drug approval—in comparison with other infectious diseases, such as influenza and HIV, SARS and MERS produced relatively few and locally restricted cases, thus lowering the willingness to further invest in vaccine development. Nevertheless, this earlier research may now help scientists in their quest for an antidote against SARS-CoV-2, which, with its high transmission rate and resulting numerous deaths, is of a different caliber.

    To combat the novel virus, scientists have a range of processes at their disposal. Depending on the disease-causing agents, how it infects the cell and how the immune system responds to it, they decide which type of vaccine might be the most promising. Current options include live attenuated vaccines, which use a weakened form of the virus or bacteria that causes a disease, and inactivated vaccines that contain bacteria or viruses that have been killed by a chemical treatment or heat. Subunit, recombinant, polysaccharide and conjugate vaccines use specific pieces of the virus or bacteria—like its protein, sugar or capsid. Finally, toxoid vaccines use a toxin made by the virus or bacteria that causes a disease.

    In the production of vaccines, embryonated chicken eggs play an important role. In 1931, they were discovered to be the perfect bioreactors for growing viruses and thus the best tool to produce vaccines. Almost 90 years later, 95 percent of all flu vaccine doses still contain egg-grown viruses, according to the German Max Planck Society. It’s easy to imagine that this production process will quickly near its limits in the case of a pandemic that affects millions of people.

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    Tobacco as a bioreactor

    Enter tobacco. Since the early 2000s, the plant has proven its potential as a highly efficient biopharmaceutical producer of vaccines—more precisely, of recombinant therapeutical proteins. Basically, the process involves identification and reception of genetic sequences from a pandemic strain to produce a virus-like particle (VLP). VLPs resemble a virus, allowing them to be recognized readily by the immune system; however, 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—or antigen—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. Reportedly, the process, which employs Nicotiana benthamiana, a close relative of the tobacco type used for cigarette manufacture, can deliver a vaccine for testing in less than a month after production of the VLP.

    In a virus outbreak such as the current one, rapid serum production of scale is vital. Two biopharmaceutical companies working with tobacco-based systems joined the race early on for a vaccine. Medicago, a privately held Canadian biotech company in which Philip Morris International bought a stake in 2008, in April announced that its candidate coronavirus vaccine could be ready for human trials by July or August; the company plans to submit a dossier to authorities to get approval for the drug by November 2021.

    Kentucky Bioprocessing’s plant-based vaccine has several potential advantages over conventional serum production technology, including safety, speed of development and stability at room temperature.

    Advantages over conventional technologies

    David O’Reilly

    The other player is U.S.-based Kentucky Bioprocessing (KBP), a subsidiary of British American Tobacco (BAT). The company’s candidate vaccine uses BAT’s proprietary fast-growing plant technology and TAP platform, a new system for vaccine production that allows antigen selection closer to the time it is needed to avoid mutations. The serum is presently also in the pre-clinical testing phase that is expected to finish soon. “We have been engaging with government agencies to bring our candidate vaccine to clinical testing as soon as possible,” explains David O’Reilly, BAT’s director of scientific research. On May 15, the company announced that it was ready to start testing its vaccine on humans once it gets approval from the U.S. Food and Drug Administration (FDA).

    Through collaborations with government and third-party manufacturers, KBP hopes to produce between 1 million and 3 million doses per week from June, says O’Reilly. “We will be ready to start clinical trials in late June and start manufacturing in parallel. It is impossible to say when it will be available, and this will become clearer when we know what testing governments will require.”

    The plant-based vaccine has several potential advantages over conventional serum production technology, according to O’Reilly. “It is potentially safer given that tobacco plants can’t host pathogens which cause human disease. It is faster because the elements of the vaccine accumulate in tobacco plants much more quickly and with high fidelity—six weeks in tobacco plants versus several months using conventional methods. The vaccine formulation KBP is developing remains stable at room temperature, unlike conventional vaccines, which often require refrigeration. And it reproduces the antigen with high fidelity every time without making unwanted changes.”

    He is not worried about the frequent headlines about the progress of other conventional vaccine manufacturers. “This is noncompetitive, and BAT is fully prepared to work with other vaccine companies with our unique vaccine development technologies,” says O’Reilly. “As such, BAT is looking for help from governments to accelerate clinical trials to demonstrate the candidate vaccine is safe and effective. We also need help with downstream manufacturing in terms of conjugation and dispensing and are open to working with governments and other partners to build scaled-up manufacturing.”

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    Long-winded approval process

    Even though other candidate vaccines appear to be one step ahead, it doesn’t mean that they will be the first and only ones that become approved and commercially available. Each new vaccine project must go through a six-stage process to get approval by the FDA or the European Medicines Agency. The stages include analysis of the virus, design of the vaccine and animal testing in the pre-clinical phase, which is followed by trials with volunteers, approval procedure and mass production of the vaccine. Although the process has been significantly accelerated in recent years due to new technology and previous experience with serum developments against related viruses, it may nevertheless take up to 36 months—under normal conditions. Will the unprecedented dimensions of the Covid-19 pandemic speed up matters?

    “Testing any vaccine candidate for safety and efficacy is paramount. This requires extensive and complex clinical testing and evaluation of the results,” O’Reilly explains. “During clinical testing and through pharmacovigilance, i.e., drug safety assessment, potential side effects can be identified. If they are serious then this is likely to mean the vaccine will not be authorized for use. Under pandemic emergency situations, regulators have the option of ‘emergency use authorization.’ The U.S. FDA authorized our ZMapp Ebola treatment through this pathway in 2014.”

    Together with Mapp Biopharmaceutical, KBP developed an Ebola drug that came to be considered the standard of care after a small study suggested it might reduce mortality rates. Long-term studies, however, showed that the treatment didn’t provide the anticipated degree of protection, so it failed to receive permanent approval.

    Each new vaccine project must go through a six-stage process to get approval by the FDA or the European Medicines Agency.

    Costly development

    Time can become the decisive hurdle in drug development. History has shown that the search for a suitable vaccine sometimes is too slow: In 2009, the swine flu outbreak quickly waned, leaving drug makers sitting on their vaccine. “That’s a real problem and it remains to be seen how quickly vaccines can be developed, tested and approved in the case of Covid-19,” says O’Reilly. “We must also remember that there are other lines of attack being developed such as treatments to reduce the effects of the disease once contracted. There’s also an emerging view that SARS-CoV-2 may be with us for some time and return every year in the way that the seasonal flu virus does. If this happens then vaccines will play an important role.”

    Historically, just 6 percent of vaccine candidates end up making it to market, according to a Reuters report. “Vaccine development is tremendously challenging and complex. Most candidates will fail during development, so it’s great news that so many candidates are being developed for Covid-19. Of the 75 plus in development, hopefully enough will succeed to cover the world’s needs,” says O’Reilly.

    Developing a vaccine is also an enormous investment. According to the U.S. Biomedical Advanced Research and Development Authority, development of a vaccine and treatment will cost $1 billion each. “We are in the early days of this, and the costs are not yet significant. Total costs will become clearer when we better understand the testing requirements going forward,” says O’Reilly.

    While remaining a commercial operation, KBP intends to carry out its Covid-19 vaccine work on a not-for-profit basis. “The most important issue here is to find a vaccine that beats the virus,” O’Reilly says. “It is about collaboration for the greater good and the benefit of society at large. That’s why for Covid-19, we are operating on a ‘not-for-profit’ basis.”

    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 New Normal

    The New Normal

    Photo: Taco Tuinstra

    Shenzhen’s vapor hardware manufacturers have resumed operations, but it’s hardly business as usual.

    TR Staff Report

    The Covid-19 outbreak hit Shenzhen hard. From mid-January to mid-February, authorities ordered factories and offices in the southeastern Chinese city to suspend their operations to prevent the spread of the coronavirus. That had severe implications for many supply chains, including those for vapor products.

    Shenzhen is the world’s workshop for a wide variety of electronic products ranging from cutting-edge drones to ordinary lightbulbs. Its factories produce not only Apple’s iconic iPhone but also the anonymous circuitry that powers appliances around the globe. Many of the world’s electronic nicotine-delivery system (ENDS) manufacturers, too, are based in Shenzhen.

    Because China was the first country to be hit by Covid-19 in 2019, it was also the first to start easing its lockdowns. Most Shenzhen ENDS companies restarted their operations in the second half of February. However, the disruption of the lockdown combined with pre-Covid challenges—such as the Chinese government’s November 2019 directive to cease internet sales of vapor products—and new working requirements such as social distancing are presenting formidable obstacles for ENDS manufacturers as they resume operations.

    Tobacco Reporter spoke with Amei Zhang, senior economic analyst and China specialist at TMA, about the outlook for Shenzhen as the world’s vapor product manufacturing capital.

    Tobacco Reporter: Please illustrate with some statistics the importance of Shenzhen to the global vapor business.

    Amei Zhang: Over the past decade, the e-cigarettes produced in Shenzhen accounted for 90 percent of global ENDS production. According to statistics of the Electronic Cigarette Industry Committee of the China Electronics Chamber of Commerce, as of August 2018, there were 678 e-cigarette factories in China and there were 1,558 companies operating in the “electronic atomizer” category. Shenzhen-based manufacturers account for 86.7 percent of those 678 makers.

    How severe was the Shenzhen lockdown? Were businesses required to cease operations altogether, or could they continue manufacturing at a low level?

    On the evening of Jan. 23, Guangdong Province initiated a first-level response to a major public health emergency, and as a result, all factories were closed until Feb. 10. During that period, none of them could continue manufacturing even at a low level. Many ENDS companies restarted their operations between Feb. 16–19 while some started later because they had to wait for approval from the government.

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    By how much did the output of Shenzhen’s ENDS manufacturers decline following the lockdown?

    There is no number regarding total output of ENDS production decline, but there is information about some specific cases.

    The period between New Year’s Day and the Spring Festival on Jan. 24 is the traditional peak season for sales, but the outbreak of the coronavirus ended the peak season early. Electronic cigarettes companies faced difficulties in funding, sales and getting back to work.

    Flow, a brand manufactured by Flowclub International, reportedly did not pay its employees for two months while [also] laying off 70 percent of its workforce. SnowPlus, another famous brand, laid off more than 50 percent of its employees. After the negative information about Flow became public, dealers began to sell many goods to pay off debts. Distributors reduced their product prices from CNY20 per piece to as low as CNY10 per piece while the official retail price of Flow is CNY39 per piece.

    However, some brand-name e-cigarettes have proved very resistant to risks during the epidemic. Bode Electronic Cigarette for example on Feb. 18 started recruiting workers for more than 100 positions involving sales, operations, research and development, products and other departments.

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    Do you expect customers to reduce their reliance on Shenzhen by sourcing more vapor products from other sources in the wake of the crisis? Are there alternatives to Shenzhen?

    In my view, currently, it is nearly impossible for the ENDS customers to reduce their reliance on Shenzhen or find alternatives. The reasons are as follows: 1) Many of Shenzhen’s e-cigarette producers have been in business as producers of small electronic devices since the 1990s and have lots of experience conducting foreign trade; 2) the supply chain is located in Shenzhen, which provides geographic convenience for upstream, middle stream and low stream companies; 3) over the past decade, those Shenzhen companies have accumulated overseas customers and strong skills in design and manufacturing—characteristics that help them easily attract capital from the domestic market. In short term, Shenzhen’s ENDS manufacturers are unreplaceable.

    There are some signs, however, that should not be neglected. In Indonesia, there are now about 200 producers and traders of new-type tobacco products, although the Indonesian government prohibited e-cigarettes in November 2019.

    There are also signs that Shenzhen companies have adjusted their supply chains to deal with the high tariffs from the U.S. in 2018. They split accessories, declare the origin as a third country or simply set up a factory in a third country to avoid U.S. tariffs. But recently, the United States has begun to strictly investigate whether the origin of goods and the names of declared products are consistent with the actual situation.

    Whether the e-cigarette manufacturing supply chain [will] be gradually transferred overseas remains a question.

    How do you expect the crisis to impact the Shenzhen manufacturers in the future?

    In this pandemic, larger and more competitive companies have more chance than small companies to survive. Therefore, the ENDS sector may reshape its current structure while small or less competitive companies are likely to merge, be acquired or go out of business.

    It has been reported that Flowclub is now producing face masks, which may help the company to compensate for the losses it incurred during the lockdown.

    Whether Shenzhen will recover its previous output is difficult to say.

  • The Green Gold

    The Green Gold

    Can oriental tobacco regain its preeminent status in Bulgaria?

    By Sebastian Zimmel

    Tobacco merchant Franz Szoncsitz of SilverSun may be considered “the last man standing” of the former Austrian tobacco empire. Coincidentally, perhaps, his head office is not far from Schoenbrunn, the former imperial palace in Vienna. Today, Szoncsitz is active mostly in Bulgaria where he works with oriental tobacco. After a remarkable career in the international tobacco business, holding positions of increasing seniority with companies such as Dimon, CdF and Hail & Cotton, leaf tobacco veteran Gustav Stangl also holds a considerable share in SilverSun.

    Lighting one of his last oriental oval cigarettes, Szoncsitz explains the benefits of oriental tobacco. At the start of the 20th century, oriental tobacco dominated the taste of European cigarettes. The oriental tobacco plant is characterized by its small leaves and pink blossoms. One kilogram of dried oriental tobacco contains 1,400 to 1,500 dried leaves with an average size of about 10 cm. A kilogram of Virginia tobacco, by contrast, contains 100 leaves to 200 leaves with an average size of 40 cm. These plants grow up to 2 meters tall—twice the length of oriental tobacco plants.

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    Unlike other tobacco plants, oriental tobacco is harvested by hand. After the harvest, workers thread the leaves on strings and let them cure in the sun for about eight weeks. Next, they are de-stringed and packed in cartons prepared for sale in November.

    Oriental tobacco grows mostly in the Balkans—in Turkey, Greece, North Macedonia and Bulgaria. Oriental tobacco grows in poor, often stony soils. The farms are small, often run by families of Turkish ethnic origin. The average age of farmers is about 60. Bulgaria’s former communist regime was not keen on the Turkish culture, forcing ethnic Turks to adopt Bulgarian names, for example. Over the summer of 1989 when the communist reign ended in Bulgaria, some 300,000 ethnic Turks left for Turkey.

    Oriental tobacco fields are generally small; the yearly production of dried oriental tobacco is about 500 kg to 1,000 kg per farm. Between 40,000 people to 50,000 people in the region depend on tobacco for their livelihoods. Like other Eastern European countries, Bulgaria has suffered a severe drop in its population; the number of inhabitants dropped from 9 million in 1990 to 7 million today. This makes it challenging for companies such as SilverSun to find skilled staff.

    Franz Szoncsitz inspects a shipment of oriental leaf.

    Oriental tobacco in cigarette blends

    Nonetheless, the company has managed to attract talented employees. One of them is Stefan Kuzmanov, who serves as the leaf manager of SilverSun Bulgaria, which is headquartered in Haskovo, about two hours by car from Sofia. A former chief blender at Bulgartabac, Kuzmanov describes the different blends. Up to World War II, an oriental cigarette—usually oval shaped—contained 50 percent or more oriental tobacco (also see chart).

    Cigarette blend

    (Old) American blend

    European blend
    (after 1945)

    Cigarette blend
    today

    Approximate average price

    Flue-cured Virginia

    50 percent

    50 percent

    60 percent

    $5 per kg

    Burley

    30 percent

    20 percent

    30 percent

    $4 per kg

    Oriental

    20 percent

    30 percent

    10 percent

    $8 per kg

    Note: This chart leaves out a certain percentage of stems and tobacco foil that are also are used in cigarette blends.

    Oriental tobacco is labor intensive, which means it is expensive. What’s more, over the past decades, the market has shifted toward “lighter” cigarettes with lower tar deliveries, which can be achieved using filter and paper technology. With a significant concentration of sugar and aetheric oils, oriental tobacco has a higher tar yield than other tobaccos but also more taste and aroma. Tobacco connoisseurs value the leaf’s mild and sweet taste.

    In Kuzmanov’s opinion, cigarette brands are losing their individuality, a development that he attributes to globalization. Today, there are only four big companies, all of them listed on the stock exchange. By contrast, 50 years ago, nearly every country had its own cigarette company, either state owned or family owned. As a result, the global production of oriental tobacco is now far lower than that of burley and Virginia tobaccos.

    The average age of oriental tobacco farmers is 60, and the industry is having a tough time attracting younger people to the business.

    The Bulgarian tobacco business has faced many ups and downs. Ivanka Varkova, who has worked for Bulgartabac Sofia since 1996, notes that over the past 30 years, the business has changed beyond recognition. Within COMECON, the economic organization of communist countries, Bulgaria was the tobacco and cigarette specialist. Oriental tobacco production was stable at around 100,000 tons per year. Some 75 percent of this volume, including 50 billion cigarettes and 20,000 tons of tobacco, was sold and shipped to the former Soviet Union. Bulgaria cultivated 13 varieties of oriental tobaccos.

    The collapse of communism in Eastern Europe brought massive changes. Hastily assembled “working brigades” could not replace the exodus of skilled ethnic Turkish labor and harvest the deserted fields. So quantity and quality decreased to a historic low.

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    Socotab is in a strategic partnership with Universal and operates in all Balkan countries growing oriental tobacco. Present in Bulgaria since 2002, the company operates a leaf processing facility in Plovdiv. Other players include Seke and Missirian.

    Austria Tabak affiliate AEO entered the market in the 1990s and sold its operations to Dimon (now part of Pyxus subsidiary Alliance One International) in 1994. Szoncsitz and Beatrix Fiala helped build exports of Bulgarian oriental tobacco, first with AEO and later with SilverSun. They faced many ups and downs, inflation, new EU tobacco regulations and finally a slow economic recovery in Bulgaria. Bulgarian oriental tobacco is divided into Basma from the southern region and Kabakoulak from the northern region. Farmers still get some national subsidies for their production.

    Climatic conditions were favorable in 2019, and tobacco quality has been excellent, according to local experts. Though volumes of all tobacco types went down by an estimated 21 percent, Bulgarian oriental tobacco stabilized at about 6,000 tons compared with 70,000 tons in Turkey, 26,000 tons in North Macedonia and 16,000 tons in Greece.

    Will oriental tobacco ever recover its status of “Bulgarian gold”? Szoncsitz looks at the future with mixed feelings. He struggles with a massive loss of manpower and a shrinking demand. The future of oriental tobacco, he says, lies in the hands of its users—the international tobacco companies and, of course, their customers, the smokers.

  • A Seismic Shock

    A Seismic Shock

    Photo: Taco Tuinstra

    Investment and strategy analyst Erik Bloomquist assesses the coronavirus crisis’ impact on the nicotine business.

    By Stefanie Rossel

    It’s hard to exaggerate the impact of the coronavirus crisis. The pandemic has not only taken a tragic human toll, but it has also disrupted economic activity on a scale unprecedented in modern history. Supply chains have been disrupted, factories shuttered and workers sent home. Consumers, meanwhile, find themselves with plenty of time but reduced incomes. How will the nicotine industry recover from this calamity? Tobacco Reporter spoke with investment and strategy analyst Erik Bloomquist about the way forward.

    Tobacco Reporter: Tobacco has a reputation for being recession proof or at least recession resilient. How do you expect the industry to fare during the coronavirus crisis?

    Erik Bloomquist: I think the global nicotine industry will hold up well, especially relative to other industries and even in comparison to other consumer staples with the exception of grocery retailers and perhaps alcoholic beverages. The stock market has been relatively quick to appreciate this as shown by the material rebound in tobacco stock prices from the approximate March 23 low. Adjusting for the unique circumstances of the individual companies, some like Swedish Match are nearing all-time highs.

    This robustness is driven by two structural factors that have always underpinned the investment case: the steady consumer demand for the products; [and the] steady need of governments for the taxes generated by the industry. Related to the former are the distribution channels for cigarettes in particular, which tend to be mostly through outlets deemed essential by many jurisdictions (e.g., gas station convenience stores).

    With respect to the latter, governments everywhere are even more pressed for money than before the coronavirus/Covid-19 pandemic, and tobacco specifically is often a key reliable contributor to the government finances.

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    We have seen South Africa ban cigarette sales during its 21-day lockdown. How do you think such instant tobacco control measures will impact the industry’s recession resilience?

    There are clearly some in the anti-tobacco and anti-nicotine “quit or die” camps that want to take advantage of the Covid-19 pandemic to advance their extreme agendas. While submitted before the coronavirus became a worldwide issue, one especially egregious example is the study “Towards Quantifiable Metrics Warranting Industry-Wide Corporate Death Penalties.” The paper argues that its study shows “[t]he results clearly warrant industry-wide corporate death penalties for both industries [tobacco and coal mining] in America.”

    I would expect some in the anti-tobacco lobby to seize on this combined with concern about smokers’ potentially higher risk from Covid-19. Of course, the irony is that many of those in this camp remain adamantly opposed to tobacco harm reduction with lower risk products that consumers actually like, and they have attempted to conflate nicotine vapor users’ risks from conditions created by prior smoking with harm from nicotine vapor.

    There are also intriguing studies and theories emerging about the potential beneficial effects of nicotine (via smoking or potentially vaping) in reducing susceptibility to the Covid-19 virus. The preliminary report by Konstantinos Farsalinos et al., “Smoking, vaping and hospitalization for Covid-19,” examining available Chinese and USA data provides support for that potential conclusion, though as reviewer Carl Phillips notes, “[t]he result of this analysis is, if true, enormously important. But there is so much uncertainty about the data and so much fundamental material missing from the analysis that we cannot conclude anything based on what is presented.” The analyses are particularly important as the conclusions are counterintuitive given the demonstrable harms associated with smoking and therefore likely greater risk to smokers from the Covid-19 virus.

    My expectation is that measures that are temporary responses will likely remain temporary, driven by the key structural factors (consumer demand and tax needs). For example, the South African ban on cigarette sales will only exacerbate the consumer demand for black market cigarettes, which was already a severe problem. Enforcement of the lockdown in the townships will become difficult as people’s livelihoods are threatened. My guess is that the South African government will belatedly recognize that banning legal sales does not push all consumers to quit and so accelerates a shift to the black market, not to mention the incentive to buy cheaper products when incomes are slashed.

    In light of such tobacco control moves, how do you expect smokers’ behavior with regard to consumption to change in this period of crisis?

    I think smokers may reduce their consumption, and some will no doubt use the event as a catalyst to quit. However, the proportion of consumers leaving the category may be offset by those returning to smoking, whether as a way to alleviate stress or because their preferred alternative (an open system vapor device and nicotine liquid) is no longer easily available.

    How do you think the vapor sector will develop?

    The outlook for nicotine vapor within global nicotine is more complicated since its distribution is more varied with the open systems largely sold through dedicated nicotine vapor shops, some of which are not allowed to remain open, and it as a segment has suffered from increasing uncertainty by consumers about the relative risk benefit versus smoking cigarettes and additional potential Covid-19 risks.

    The pandemic and resulting severe, fast economic slowdown caused by government mitigation measures will put further pressure on the weaker players across global nicotine, particularly in the less established and consolidated nicotine vapor space. Independent nicotine vapor shops not only may have restrictions on the ability of their consumers to purchase from them but on the supplies needed to sustain the business with such a large proportion sourced from China and the ability to restore product pipelines unknown at this point in time.

    How do you think the coronavirus crisis will impact the transition of smokers to less hazardous nicotine-delivery products such as vapor devices?

    I think the pandemic and resulting effects on nicotine vapor offerings, especially those not offered by the tobacco majors or larger nicotine vapor firms, will reduce the transition by consumers to lower risk products. One of the most disappointing results of years of misinformation about the relative risk of nicotine vapor reduced-risk products [RRPs] is the increasing proportion of consumers who believe them to be as harmful as cigarettes—a belief exacerbated by the U.S. Centers for Disease Control and Prevention’s [CDC] poor performance in the 2019 severe lung injury THC vape vitamin E acetate contamination event. This misperception has demonstrably occurred in the USA and U.K., and my suspicion is that similar shifts in consumer belief, to some degree or another, have taken place across the world.

    A Euromonitor survey released in March 2020, “Exploring the Global Nicotine Landscape,” showed that perceptions of the lower relative risk of nicotine vapor by both users and nonusers of nicotine products were declining, i.e., that nicotine vapor was as harmful or more harmful than smoking. The survey also showed the largest driver globally for decreasing or ending nicotine product consumption remained to improve health; if the utility of RRPs in that goal is minimized or nonexistent while the net benefits of continued nicotine consumption remain—likely through cigarettes—it seems likely that many people will continue to smoke.

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    How do you anticipate the global nicotine vapor sector to develop under the current circumstances? Will the crisis be the final blow to the fledgling industry whose image and sales already largely suffered from the “vaping sickness” in the U.S.?

    The global nicotine vapor sector is under the most pressure it has ever experienced with the combination of the Covid-19 pandemic effects, increasing restrictions or bans in many jurisdictions and deteriorating consumer perceptions. Despite this pressure, I expect it will survive, albeit after a period of contraction, consolidation and retrenchment.

    In my view, the most important driver of this is the regulatory environment, and the outlook there is challenging with the U.S. Food and Drug Administration’s [FDA] determination to press ahead with its PMTA [premarket tobacco product application] process for nicotine vapor and the World Health Organization’s [WHO] unfortunately hostile stance toward tobacco harm reduction [THR] and RRPs. Since they are the two most influential health bodies globally—sadly the Public Health England or broader U.K. public health stance on nicotine vapor has not been given as much credence—regulatory restrictions are likely to remain or increase.

    Offsetting this hostility is consumer demand and recognition that in fact RRPs are lower risk than smoking cigarettes and so a better alternative for those for whom nicotine is beneficial. With internet access and webs of THR advocates around the globe, consumers can learn the truth and select lower risk products. The absurd element is that so many of the “public health” establishment are trying to prevent that transition and so entrench cigarette consumption.

    What will the tobacco industry look like a year from now?

    Broadly speaking, dividing global nicotine into tobacco—dominated by cigarettes—and nicotine vapor—whether the aerosol is from heated tobacco or vapor, from an open or closed system—I believe the tobacco businesses will not look materially different. In contrast, I expect nicotine vapor to be smaller in consumption and sales and more consolidated with fewer larger players surviving, particularly in the USA, as the one-year premarket tobacco product application review period ends—for now in September 2021—and the FDA begins enforcement. 

    Shops selling open system nicotine vapor devices and liquid are likely to be especially hard hit by the combination of retail opening restrictions, restrictions on product—e.g., the New York state retail and online sales ban passed at the beginning of April, which prohibits the sale of vapor products in flavors other than tobacco—and lingering consumer concern about risk, whether from the spate of severe lung injury cases or from concerns about vapor and Covid-19.

    More specifically, I expect a couple things are likely to become evident.

    Regulation/taxation will remain the most important driver of the shape of the industry, not least in the USA even with the PMTA submissions for electronic nicotine-delivery systems [ENDS] delayed until September 2020. This importance is also emphasized by the U.S. Federal Trade Commission’s complaint against Altria’s purchase of a 35 percent stake in Juul Labs. Such influence matters in part because of its effect on consumers’ perceptions and behaviors, for instance, the further damage the CDC’s response to severe lung injury cases—also known by the misnomer EVALI—did to the perception of nicotine vapor and because it shapes and limits the offerings for consumers.

    There does appear to be some good news with some countries, such as Italy, France, Spain and Switzerland, recognizing with the help of THR advocates that closing nicotine vapor outlets would force consumers back to higher risk cigarettes. However, there are countervailing examples, such as in New Zealand where some advocates suggest that vapor be “nicotine or chemical free” or even in the U.K., which has not designated nicotine vapor shops as essential and open for in-person purchases, though online and home delivery options remain.

    The criticism of PMI’s [Philip Morris International] donation via its Greek subsidiary of 50 ventilators in response to a request by the government to [the] industry by traditional anti-tobacco/anti-nicotine advocates implies limited scope for improvement in the view of tobacco companies as inherently and eternally unethical for a significant proportion of the tobacco control community.

    Which effects are we likely to see in the market due to the pandemic?

    Although overall demand for nicotine products is unlikely to decrease by much, the severe and sudden cut to many people’s incomes will likely have a secondary effect—downtrading.

    The downtrading dynamic—from premium brands to lower price brands or to RYO/MYO tobacco in some markets or to the black market in other jurisdictions—is likely to be particularly acute in cigarettes since in many countries, more of those consumers tend to be in lower socioeconomic strata and so if [they are] employed in Covid-19 restricted occupations, [they are] especially affected.

    The hit to consumer disposable income could be offset to a degree in countries like the USA where petrol is a significant household cost to the degree the current oil price war and 20-[year] to 30-year lows are passed through to retail customers. But on balance, I expect the downtrading effect to be larger and longer lasting than relief at the petrol pump or in household energy prices. In “dark” markets, the downtrading may exacerbate the erosion of premium brands, though the tobacco majors retain enviable pricing power.

    Since the cost of nicotine vapor is usually less—often much less with open systems—than cigarettes and seen as a viable substitute by many, downtrading pressure would usually, ceteris paribus, push consumers toward vapor options. In my view, the negative perceptions and constrained availability likely mean such a transition will be limited.

    Assistance from governments may modestly mitigate the financial pressure, but restoring consumer disposable income will require employment recovery. Only then is downtrading likely to slow or stop.  Recovery of pre-Covid-19 employment levels implies [that] the shift to cheaper products—whether legal or illegal—will probably last well beyond the containment of the pandemic.

    The tobacco industry recently expanded into the cannabis sector. How do you expect this industry to develop in the coronavirus crisis?

    The cannabis sector has lost its luster, with the stocks down significantly over the last 12 months—U.S. names down around 40 [percent] to 75 percent, Canadian names down around 60 [percent] to 90 percent—in part driven by oversupply for the prominent listed Canadian companies. The coronavirus pandemic is forcing cannabis legislation off the agenda for the time being, for example, New York’s governor stating on March 31 [that] they would not be moving forward on legislation as previously anticipated in January 2020. As well, there are some company-specific problems, such as the revenue overstatement at Cronos in which Altria is a $1.8 billion investor. The mismatch between legal demand and supply suggests there may be consolidation among the Canadian-listed cannabis suppliers too.

    That said, Washington, Oregon, California, Colorado, Illinois, Michigan, New York, New Jersey, Ontario and Quebec have allowed their cannabis retail stores to remain open during the pandemic, so once legally established, the trade appears resilient and politically insulated. Until the pandemic is brought under a semblance of control, legal market development in the USA may be impeded.

    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.
  • An Ill Wind

    An Ill Wind

    Philip Morris International temporarily halted production at its factory in Bologna, Italy.

    Famous for its resilience in times of crisis, the tobacco industry may be facing its toughest challenge yet in the coronavirus pandemic.

    By Stefanie Rossel

    During past major global crises, the tobacco industry gained a reputation for being recession-proof or at least recession resilient. From the financial meltdown of 2008, which led to a worldwide economic recession, the three leading international cigarette manufacturers, Philip Morris International (PMI), British American Tobacco (BAT) and Japan Tobacco (JT) emerged as winners; while companies in other sectors were struggling, they achieved record sales.

    This time, as the coronavirus pandemic progresses and the outcome of the crisis remains uncertain, confidence appears to prevail too. In a research note quoted by Business Insider in late March, Jefferies analysts said that the outbreak could even encourage smoking as people confined to their homes struggle with boredom and depression.

    From the farmer to the consumer, the coronavirus has impacted all links in the tobacco supply chain.

    They may have a point—witness the reports on panic buying of tobacco products in various countries. During its capital markets day on March 18, BAT declared it had seen no material impact from the Covid-19 crisis yet as consumers continue to make purchases even in harder hit countries. The company maintained its forecast of 3 percent to 5 percent constant currency adjusted revenue growth.

    The forecast robustness may persist for the big players and their core business of combustible cigarettes. Even temporary production stops, such as those at Altria’s cigarette factory in Richmond, Virginia, USA, and PMI’s facility in Bologna, Italy, which makes 50 percent of the company’s IQOS heat-not-burn units, may end up merely denting the companies’ annual results. For other stakeholders in the tobacco industry, however, things may turn out differently as the coronavirus spreads. It’s difficult to imagine that smaller players will be able to weather extended factory closures as well as their bigger counterparts

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    A different animal

    Unlike the 2008 crisis, which was limited to the financial sphere, the outbreak of Covid-19 has reached into every aspect of life, affecting health, personal freedoms and the ability to travel, regardless of geographical location or social status. The total economic damage is yet to be determined.

    In the light of the unprecedented dimensions of the outbreak, companies such as Scandinavian Tobacco Group (STG) have become cautious. In mid-March, the Danish manufacturer of cigars and pipe tobacco suspended its full-year guidance for 2020, arguing that the measures to fight the coronavirus had disrupted tobacco purchase and consumption patterns.  

    Tobacco auctions tend to be crowded places that don’t lend themselves to ‘social distancing.’

    “This leads to a situation where we have significantly less transparency on consumer behavior and consumption, and retail customers are changing behavior as they try to respond to the constantly changing environment,” STG said in a press release. “As the situation develops from day to day in countries around the world, we are currently unable to accurately assess the short-term impact of these developments on our business.”

    Like its competitors, STG may experience supply issues at some point. In mid-March, several Central American countries, including Honduras and the Dominican Republic where many cigar companies have factories, closed all “nonessential” businesses, shutting down all industries except health and food. Closures were announced as temporary, and cigar companies emphasized their large inventories, but what makes the current crisis so extraordinary is that no one can predict when it will be over.

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    Impact on supplying industries

    With shutdowns in most countries, suppliers of nontobacco materials and tobacco manufacturing equipment are likely to be hit too. One of the hardest hit countries, Italy, is home to several prominent tobacco machinery manufacturers. In late March, the government expanded the mandatory closure of nonessential commercial activities to heavy industry.

    What the coronavirus crisis will do to the livelihoods of tobacco farmers, many of whom live in developing countries, is anyone’s guess. Growers who sell at auction are likely to be hit harder than their counterparts who contract with buyers directly. Because auction floors are crowded places that don’t lend themselves to “social distancing,” several tobacco-cultivating countries have delayed the marketing season.

    In the Indian state of Andhra Pradesh, thousands of farmers were worried as an ongoing tobacco purchase auction in Prakasam was suspended for 10 days. They feared that their tobacco bales might spoil in the meantime. Many of the district’s tobacco farmers had hoped to export their produce to China, but most buyers didn’t show up. India is expected to be hit exceptionally hard by the coronavirus crisis. In early April, the World Bank approved a fast-track $1 billion Covid-19 emergency response and health systems preparedness project.

    Malawi and Zimbabwe postponed the opening of their tobacco marketing seasons, which normally kick off in spring. Malawi banned gatherings of more than 100 people and closed auction floors on March 26. The country’s Tobacco Control Commission (TCC) and the tobacco industry agreed to observe the situation for at least one month before deciding whether to resume sales. The Tama Farmers Trust cautioned that rescheduling the marketing season would be disastrous for the local economy, and on April 6, Malawi President Peter Mutharika ordered tobacco markets to be opened and allowed to operate without disruption.

    According to the Foundation for a Smoke-Free World, Malawi is the world’s most tobacco dependent country, despite being only the 13th producer by weight in 2016. In 2019, the country earned an estimated $345.5 million in foreign exchange from leaf exports. In 2017, raw tobacco represented 71.3 percent of the country’s total exports, according to the Observatory of Economic Complexity. Zimbabwe also relies heavily on tobacco, with leaf exports representing 5.5 of its gross domestic product. At the time of writing, the country’s Tobacco Industry Marketing Board planned to open auction floors on April 22.

    Policies toward tobacco and vape shops have been inconsistent, with some countries forcing them to close and others declaring them essential businesses.

    Vaping in times of Covid-19

    The impact of the current pandemic will also differ from that of the financial crisis because the tobacco industry has changed significantly since 2008. As global cigarette volumes have fallen, reduced-risk products such as e-cigarettes and heated-tobacco products have gained traction. Adult smokers have taken to vapor devices in large numbers in order to wean themselves off combustible cigarettes, thus creating large vapor markets in the U.S. and Europe. While scientists, meanwhile, more or less agree that e-cigarettes are safer than combustible cigarettes, the sector’s image suffered a blow last year when the U.S. saw an outbreak of vaping-related diseases. Sales of e-cigarettes contracted worldwide although it was quickly determined that the illness was caused by illegal e-liquids containing tetrahydrocannabinol (THC) and there were no similar incidents in other markets where vapor products are subject to stricter regulations.

    The coronavirus pandemic could similarly deter sales as governments are forcing retail outlets to close to prevent the spread of Covid-19. The definition of an “essential business” differs from country to country.

    Interestingly, New Zealand, a country with strict tobacco control measures and the intention to become smoke-free by 2025, permitted Imperial Brands’ cigarette factory to continue production even as it forced vape shops, bakers and butchers to close. The prime minister justified the decision by arguing that Imperial Brands supplied supermarkets, which were allowed to remain open.

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    Even the U.K., normally a beacon of tolerance when it comes to vapor products, treats vape shops as nonessential in the current crisis. In Germany and the United States, the decision to close or open vape shops is made at the state level.

    Italy, which initially also forced vapor stores to close, revised its decision. In some European countries, including Austria, Belgium, Bulgaria, Hungary, Poland and Portugal, buying vapor products online is no longer possible as distance sales have been banned, Ecigintelligence reports. Consumer rights organizations and trade associations have urged governments to exempt vape shops from lockdowns, fearing a relapse to smoking as vapers will not be able to meet their basic needs and have access to specialist advice. Vapor advocates argue that vape shops offer a valuable public health service at a time of stress and uncertainty.

    While sales channels are partly affected, supply shortage may become another issue for the global vapor sector. China manufactures about 90 percent of the world’s vapor hardware. Most of production takes place in Shenzhen and was disrupted when China restricted worker movement in February. By March 25, factories had resumed most of their operations, saying they were implementing new standards and processes to keep employees and customers safe.

    BAT subdsidiary Kentucky Processing has been working on a Covid-19 vaccine using tobacco plants.

    Tobacco’s untapped potential

    Meanwhile, the coronavirus crisis has presented tobacco control activists with another stick to bash the industry. When Greece’s leading cigarette manufacturer Papastratos donated 50 ventilators to a hospital, the move was criticized as “a shameful publicity stunt” by the U.K. anti-smoking organization Action on Smoking and Health (ASH).

    Several studies were released that found that smokers and vapers were at a higher risk of contracting Covid-19 than nonsmokers. Although the correlation between vaping and the course of coronavirus infections was refuted by Konstantinos Farsalinos and others, the studies were reproduced by media all over the world and prompted a group of doctors in the state of New York to ask for a temporary ban on the sale of tobacco and vapor products. Apparently unaware of the low chances of smokers successfully quitting cold turkey, the doctors hoped that acting quickly to reduce smoking would significantly reduce the number of patients who contract the virus and need to stay in a hospital or breathe with the help of a ventilator.

    South Africa went even further and banned the sale of cigarettes during its 21-day lockdown. Drug policy nongovernmental organizations and BAT have urged the government to lift the ban, saying it would force smokers to leave their neighborhood in search of outlets willing to defy the ban, thereby bringing about greater movement of people and more interactions apart from possibly boosting illicit trade.

    The pandemic, however, also presents an opportunity for the tobacco industry. Two biopharmaceutical firms associated with leading cigarette companies have entered the race to create a Covid-19 vaccine.

    Medicago, which is partially owned by PMI, is using a virus-like particle grown in Nicotiana benthamiana, a close relative of the tobacco plant, to develop a vaccine against the coronavirus. In late March, Medicago announced that it was ready to begin preclinical testing for safety and efficacy. The company estimated that human trials would begin this summer.

    BAT subsidiary Kentucky BioProcessing (KBP) is involved in a similar effort. To produce the potential vaccine, KBP cloned a portion of Covid-19’s genetic sequence and injected it into tobacco plants, which developed a potential antigen, the company stated in a press release. The antigen was then inserted into tobacco plants for reproduction, and once the plants were harvested, the antigen was purified.

    BAT is exploring partnerships with government agencies to start clinical studies as soon as possible. Through partnerships with third-party manufacturers, the company envisages to manufacture between 1 million and 3 million doses per week. While KBP remains a commercial operation, BAT stated, the intention is that its work around the Covid-19 vaccine project will be carried out on a not-for-profit basis.

    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.