Category: Also in TR

also-in-tr.jpg

  • At the forefront

    At the forefront

    Altria is determined to lead the shift toward less-harmful products.

    Timothy S. Donahue

    The tobacco industry is changing rapidly. Next-generation tobacco products are quickly gaining share. Altria, the largest tobacco company in the U.S., and its subsidiaries have been steadily building a portfolio of noncombustible, nicotine-containing products with the potential for reduced harm. Marty Barrington, Altria’s chairman, CEO and president, says, “It’s a portfolio approach, and ‘portfolio’ is an important word.”

    During Altria’s 2017 investor day, held in Richmond, Virginia, USA, in early November, Barrington told attendees that while Altria has led the U.S. tobacco industry on the combustible side of the business for decades, it has simultaneously been preparing to win in the “emerging opportunity to provide adult tobacco consumers with noncombustible, nicotine-containing products” that are authorized by the U.S. Food and Drug Administration (FDA).

    “We strongly believe that businesses that are great over the long term—like ours—both maximize today’s business while preparing for tomorrow’s,” said Barrington. “And Altria has been doing just that.”

    Not all consumers want the same experience, so it’s important to provide them with product choices, said Barrington. At the same time, he cautioned that too many initiatives can dilute focus. Through its subsidiaries Nu Mark and United States Smokeless Tobacco Co. (USSTC), Altria is concentrating on the three platforms that it believes presently hold the most promise for U.S. adult tobacco consumers: smokeless tobacco and oral nicotine-containing products, e-cigarettes/vapor products and heat-not-burn tobacco products.

    Currently, the most profitable noncombustible tobacco product in the world is smokeless tobacco. An estimated 6 million U.S. adults use smokeless tobacco, and many of them are former cigarette smokers, according to research from the U.S. Centers for Disease Control and Prevention. This platform also includes other oral tobacco and nicotine products, including snus as well as nicotine discs and chews.

    U.S. Smokeless Tobacco Co.’s manufacturing facility in Tennessee.

    Brian Quigley, president of USSTC, said his company plans to file a modified-risk tobacco product application (MRTP) with the FDA for its Copenhagen snuff in the first quarter of 2018. “We believe USSTC is uniquely positioned to achieve this claim because we have been conducting the most comprehensive assessment of the health effects of smokeless tobacco in almost 30 years,” said Quigley.

    The Skoal brand also plays a targeted role in USSTC’s harm-reduction strategy, according to Quigley.  While growing profitability on Skoal overall, the company is investing to grow Skoal flavor blends and snus. “These products appeal to adult smokers who are interested in smokeless alternatives but are looking for familiar flavors and manageable forms to help them transition,” says Quigley. “Skoal snus is specifically positioned for adult smokers who are interested in oral alternatives to cigarettes, but who want a spit-free option.”

    USSTC is also testing Verve, which is designed to provide adult smokers with the ability to use tobacco discreetly, according to Quigley. “We’ve developed four forms of Verve: discs, chews, chewable dissolvables and melts—all in four different flavors. In 2018, we plan to expand the sale of Verve discs at retail in other geographies and through e-commerce,” he says. “We also plan to file our first Verve premarket tobacco [product] application [PMTA] in 2018.”

    Embracing vapor

    There are an estimated 27 million vapers worldwide, including 10 million Americans, according to Barrington. That makes the U.S. the largest vapor market in the world. Many of these vapers are former cigarette smokers. Nu Mark’s MarkTen e-cigarette, which is available in about 65,000 retail locations and does a substantial online business, has a U.S. share of 13.5 percent in mainstream channels, according to Barrington. “In major chain accounts where it’s been selling for the full third quarter, it’s even higher, at 27 percent,” he said.

    Jody Begley, president and general manager of Nu Mark, said 20 million U.S. adult smokers who have tried vapor products went back to smoking cigarettes. “With improved products and accurate relative risk information, we believe we can accelerate adult smoker conversion to e-vapor,” says Begley. “I fully expect Nu Mark to achieve our long-term goal, which is to lead the U.S. e-vapor category through a portfolio of superior reduced-risk products that adult smokers and vapers choose over cigarettes and that generate cigarette-like margins at scale.”

    Adult smokers and vapers are looking for a range of different formats, flavors, nicotine levels and vapor volumes in their search for products that will help them quit smoking cigarettes. In response, Nu Mark has developed a portfolio of products that addresses a broad spectrum of adult consumer preferences, which will be required to lead the U.S. vapor market, according to Begley. Nu Mark plans to file PMTAs for its MarkTen products, including MarkTen Bold, in 2018, with MRTPs to follow.

    Philip Morris USA’s cigarette factory in Richmond, Virginia, USA

    Through a joint development agreement with Philip Morris International (PMI), Nu Mark has exclusive rights to commercialize its Mesh technology, which it put on the U.S. market before the FDA’s Aug. 8, 2016, deeming deadline. The product consists of a closed tank of e-liquid that is heated through a mesh-like metal plate, rather than the traditional wick and coil method.  “We’ve received positive results from our initial consumer research, and as a result, we plan to further test this product—called Apex in the U.S.—as a line extension under the MarkTen brand,” says Begley.

    Nu Mark has also been working to build strategic partnerships to expand its access to additional products and supply chain capabilities. Two examples of these efforts include a closed-tank product designed specifically for current open-system adult vapers, called Vim by MarkTen, and a small pod-based product, called MarkTen Elite. Begley said both these products were on the market by the FDA’s deadline.

    Nu Mark also announced its recent acquisition of an additional pod-based product, called Cync, from Vape Forward. Cync is a small vapor device that uses prefilled pods, similar to the Juul.

    Begley acknowledged that the open-system segment is likely to face some regulatory hurdles. “That said, open systems represent a large e-vapor segment and an excellent learning opportunity,” he said.

    Recently, the company made a minority investment in Avail Vapor, one of the largest vape store chains in the U.S., with more than 100 company-owned stores.

    Richmond-based Avail sells more than 100 premium Avail-branded e-liquids and a wide range of predominantly open-system devices. The company manufactures its own e-liquids in a state-of-the-art ISO-certified clean room and has a full-service analytical science laboratory to support regulatory compliance.

    According to Begley, the investment is already paying off. “We’ve gained a better understanding of the vape store channel and adult open-system vapers, and [we] have access to extensive data around adult vaper purchasing patterns,” he says. “Through their retail stores, we’ve also learned a great deal about educating adult tobacco consumers about new products—insights Altria’s companies can apply to other areas of their reduced-risk portfolios going forward.”

    Heated expectations

    Altria’s heat-not-burn products have found success in numerous countries but are not yet authorized for sale in the U.S. market. The company hopes to change that, as it holds the exclusive right to commercialize PMI’s iQOS heat-not-burn platform and Heatsticks (tobacco sticks used in the device) in the United States once authorized by the FDA. IQOS will be marketed by Altria’s Philip Morris USA (PM USA) subsidiary, according to Sarah Knakmuhs, vice president of PM USA’s Heated Tobacco Products group.

    “For those U.S. adult smokers seeking an alternative to conventional cigarettes, iQOS will offer a great sensory experience with similar nicotine satisfaction in a familiar format, using real tobacco, but with no ash and less lingering odor,” said Knakmuhs. “And at the same time, PMI’s extensive regulatory filings for iQOS present a compelling case for the product’s harm reduction potential. For example, the research demonstrates that iQOS reduces levels of 18 harmful and potentially harmful constituents identified by the FDA by over 90 percent, and [it] reduces levels of 15 known carcinogens by more than 95 percent versus conventional cigarettes.”

    IQOS

    The FDA is currently reviewing both a PMTA and an MRTP application for the iQOS device and three variants of Marlboro Heatsticks, one non-menthol and two menthol. If authorized, PM USA will be able to sell iQOS in the U.S. without a modified-risk claim. PMI submitted the PMTA in March 2017, and the FDA accepted it for scientific review in August. The Tobacco Control Act guides the FDA to act on PMTA applications within 180 days of receipt, so a marketing order could be granted as early as February 2018, though the FDA controls that timing.

    The MRTP application was submitted in December 2016, and the FDA accepted it for scientific review in May 2017. If authorized, PM USA would be allowed to explain to consumers that iQOS use presents less of a health risk than combustible cigarette smoking. The FDA will hold a Tobacco Products Scientific Advisory Committee meeting on the MRTP application in January 2018.

    Moving forward, Altria expects to remain the undisputed leader in the U.S. tobacco industry, with the best products, brands, manufacturing and sales capability, and the strongest financial performance, according to Barrington. He says that decades of thought leadership and compelling advocacy to promote harm reduction has created both the enabling legislation and regulatory policy that now accepts harm reduction and innovation as the way forward for adult tobacco consumers.

    “So, with all that, it should be apparent that we applaud the policy change toward innovation and harm reduction that the FDA announced in July. In fact, we believe the FDA has articulated a compelling vision for the future of innovative products,” says Barrington. “We welcome that future and embrace the challenge. And because we have been preparing for it for years, we are ready to compete, to win and to sustain the leadership that we cherish, but have never once taken for granted.”

     

     

     

     

     

     

  • ‘On fire’

    ‘On fire’

    Heat-not-burn products continue their conquest of Japan.

    By George Gay

    There has been so much written about the arrival in Japan of heat-not-burn (HNB) products that it seems trite to say that they have enjoyed phenomenal success there. But I’ll say it anyway: They have enjoyed phenomenal success there.

    To give a flavor of what has been going on: In May, a Reuters story had Japan Tobacco’s (JT) president and CEO, Mitsuomi Koizumi, admitting that he had not foreseen the success of Philip Morris International’s (PMI) iQOS HNB device, which the previous month had captured about 10 percent of the Japanese cigarette market, up from 7.6 percent in January. At that time, JT was predicting that its combustible cigarette (hereafter cigarette) volume sales would be down by about 9.6 percent during the full year 2017. “It’s shocking,” Reuters quoted Koizumi as saying. “I am doing this business for more than 35 years, but I have never experienced losing 10 percent in volume in one year.”

    But it was only going to get worse from JT’s point of view. When, on Nov. 1, Koizumi presented his company’s results for the third quarter to the end of September, he said that the continuing cigarette volume decline was putting further pressure on JT’s domestic tobacco business, making it necessary to adjust full-year forecasts. One of those adjustments had JT’s domestic cigarette volume sales falling by 13.4 percent over the full year.

    Meanwhile, in presenting in July British American Tobacco’s (BAT) results for the six months to the end of June, CEO Nicandro Durante said that BAT had made good progress with its next-generation product business and was now present in 15 markets worldwide with its vapor products and Glo, its tobacco-heating product (THP). “In the Japanese city of Sendai, Glo continues to perform exceptionally well, reaching an estimated eight percent share and with one in three smokers in Sendai having purchased Glo,” he said. “We have recently expanded our coverage to Tokyo, Miyagi and Osaka, and national rollout in Japan is planned for October 2017. While it remains early days, the initial results in Tokyo are excellent, with performance ahead of [that of] Sendai over the same period.”

    Also in July, PMI’s CEO, Andre Calantzopoulos, in presenting his company’s second quarter results to the end of June, said that shipments of Marlboro HeatSticks—the consumable element of iQOS—during the quarter had represented more than 40 percent of PMI’s total shipments in Japan. And in an interview with Nikkei Asian Review he said that, due to the rapid takeup of alternative tobacco devices in Japan and South Korea, PMI was looking to begin talks with governments within five years on phasing out cigarettes.

    Ploom Tech

    The time frame was based apparently on projections of when the number of people using “new smoke-free devices” would overtake the number of people smoking traditional cigarettes in those two countries. “If you extrapolate the figures, then logically we could reach the tipping point in five years,” Calantzopoulos reportedly told the Nikkei Asian Review during an interview in Seoul, South Korea. “That is when we could start talking to governments about phasing out combustible cigarettes entirely.”

    It is important to bear in mind, also, that the success that HNB products have had in Japan has been tempered by capacity restraints, especially in respect of JT’s Ploom Tech device, which is having to play catch-up from a long way back. So the question arises as to how much of the Japanese cigarette market these products would have grabbed if it had not been for these constraints.

    But other questions arise, too. When this report was being written, the government was mulling over a cigarette tax increase as a way of paying for that part of promised additional spending on education and child health care that couldn’t be funded by a consumption tax increase because of concessions that it needed to make in applying that increase. Formal discussions on tax reform were not due to start until Nov. 22, after this story was written, but, presumably, a stand-alone cigarette tax increase would be likely to accelerate the switch from cigarettes to HNB devices. But such a stand-alone cigarette tax seems unlikely. Those looking at taxes in the round will not be unaware of the already rapid changes that are taking place in Japan’s tobacco and nicotine markets, and it seems unlikely that HNB products will avoid the eye of the ministry of finance. As things stand, the ministry is de facto allowing HNB product manufacturers to pick up revenue being lost to the treasury, and that is not a situation it is likely to allow to continue.

    As I understand it, the business model of HNB products is supposed to work even if the tax on these products is set at the same level as that on cigarettes. Nevertheless, it is hard not to conclude that if taxes were harmonized in this way, a brake would be applied at the very least to the rate at which the market share of HNB products was advancing. This is not a given, however. Some argue that the success of these products in Japan is down in no small part to cultural factors. Of course, if this is true, it has repercussions for other markets, but that is outside the scope of this piece.

    Yet another question arises. I wonder also whether the success enjoyed by HNB products and the presumably noticeable fall in the number of smokers has emboldened anti-tobacco activists. And if so, will their activities prompt even more smokers in Japan to make the change from cigarettes to HNB products and, in turn, further embolden anti-tobacco activists?

    Swatting fireflies

    Writing on Japanese news blog RocketNews24 in August, Casey Baseel said that while Japan was often referred to as a smoker’s paradise, times were changing, leading to discussions about placing new limits on when and where Japanese smokers could light up. Baseel cited the Neighborhood Second-Hand Smoke Victims Society (NSSVS), which is based in Yokohama, Japan, and taking aim at people referred to as “firefly” smokers—smokers who go onto their apartment balconies at night to smoke, and the tips of whose cigarettes are said to resemble the luminescent insects. Baseel implied that, up to now, this was largely something for which the only recourse was to say nothing could be done. But with smoking rates dropping and greater awareness of the health risks associated with secondhand smoke, he said, people who were unhappy about a firefly smoker living below them had become more vocal. The NSSVS was seeking national or local requirements so that, in the case of a complaint about a firefly smoker, landlords and building managers would be obligated to take action to rectify the situation.

    JT’s headquarters in Tokyo

    What is interesting here is the anti-smoking leap that is being made. In a country that seems to be out of step with many other rich countries when it comes to smoking bans, activists are attempting to enter smokers’ homes, or at least their properties, which is something that is only just happening in countries that, unlike Japan, have long-established public smoking bans. Japan is a country where, earlier this year, the Ministry of Health, Labor and Welfare said it could not comply with requests for further exemptions to its public places smoking ban proposal because Japan would rank second to last on a four-tier World Health Organization scale even under the-then current proposal. The smoking ban is being pursued by some because Japan is to host the Summer Olympics in 2020.

    Meanwhile, by October, activists had entered the home, or at least they had in Tokyo. A story in the Japan Times told how a bylaw aimed at protecting children from passive smoking had been enacted by the Tokyo Metropolitan Assembly. What was said to be the first prefecture-level measure of its kind called on people not to smoke inside rooms or vehicles in which children under 18 were present. The bylaw, which carries no threat of penalties for violators, called on residents of Tokyo to try to ensure that children were not subjected to passive smoking anywhere. It called on parents not to smoke in rooms where children were present. Parents were urged not to let children enter facilities that had no measures to prevent passive smoking or designated smoking sections. In addition, the bylaw called on people not to smoke inside cars in which children were riding, on streets near parks, plazas, schools and facilities promoting children’s welfare, as well as similar facilities. And it called on people not to smoke on streets within seven meters of pediatric clinics or dental clinics for children.

    Companies are getting in on the act, too, seemingly feeling that it is their moral duty to save smokers from themselves and non-smokers from smokers. According to another story in Japan Today, at the end of October an increasing number of Japanese companies were stepping up efforts to protect employees from the health hazard of smoking. In June, the story said, the convenience store chain Lawson had introduced an all-day ban on smoking at its head office and all regional offices, with an eye to lowering the ratio of smokers in its workforce by around 10 percentage points by fiscal year 2018, from 33 percent in fiscal year 2016. The ban, however, carries no penalty for violators, and HNB products are not covered. Lawson apparently introduced the ban step by step, starting with a once-a-week nonsmoking day last year. But a public relations officer reportedly said the company was willing to take an even tougher anti-smoking measure in the future.

    The public space for smoking is shrinking even in Japan.

    Meanwhile, Sompo Japan Nipponkoa Himawari Life Insurance was said to have introduced an all-day smoking ban at its head office and business outlets across Japan. It has converted smoking rooms at its head office into rooms where people may rest, and it is providing subsidies for employees participating in tobacco cessation programs. This is all very well, but there is something that, in my view, is rather unpleasant here. Masayuki Seto, an executive officer of the insurance company, who smoked for 30 years and who was one of the participants in such cessation programs, was quoted as saying, “I am no longer shunned by nonsmokers, as I have rid myself of the odor of cigarette smoke. Moves to quit smoking have spread among staff working under my supervision.”

    But the most interesting company intervention, in my view, was described in a story in The Telegraph (Japan) at the end of October, which told how a marketing company based in Tokyo was giving its nonsmoking employees six more paid holidays a year than it was giving to their smoking colleagues. The nonsmokers had apparently complained that they were working more than were workers who took time off for cigarette breaks.

    This story was picked up by a number of media outlets, and Matthew Haag, writing in The New York Times, said that nonsmokers at the agency had complained about the unfairness [my emphasis] of this situation. I take it that the company agreed that this situation was unfair, worked out how much time a smoker spent outside smoking during a year and added that amount of time to the annual holiday entitlement of nonsmokers.

    But I don’t think that it is a given that the situation that existed was unfair, nor that the remedy was fair. For instance, if the company in question wasn’t required by law to make its smokers go outside to indulge their habit, you could argue that what it did wasn’t fair because firstly it forced its smokers to go outside unnecessarily, and then, de facto, penalized them for obeying its orders. And even in the case that the company was required by law to make smokers go outside to smoke, the company is de facto punishing them for obeying the law, which seems odd.

    Perhaps HNB products can help get around such unfairness issues, while at the same time providing a less hazardous habit for smokers.

  • Staying sharp

    Staying sharp

    In the cigarette paper industry, innovation remains key to staying competitive.

    By Stefanie Rossel

    The reinvention of nicotine consumption has created new opportunities not only for tobacco companies but also for their suppliers. The advent of tobacco heated products (THP), for example, has raised hopes for renewed growth in the paper segment, which over the past four years has been characterized by decline due to shrinking sales of combustible cigarettes.

    According to Euromonitor International, global cigarette volumes excluding China contracted by 1.3 percent in 2016. The drop was accompanied by an unprecedented volume decline of almost 6 percent in China. For the first time in decades, the share of cigarettes as a proportion of total tobacco sales fell below 90 percent.

    Following various waves of acquisitions, five players dominate the global cigarette paper market outside of China, as Schweitzer-Mauduit International (SWM) estimated in a recent investor report. According to the U.S.-based company, SWM in 2015 held 36 percent of the global cigarette paper market—without tipping and plug wrap paper, and excluding China—followed by Delfort of Austria (33 percent), BMJ of Indonesia (9 percent), Miquel y Costas of Spain (9 percent), and Julius Glatz of Germany (5 percent).

    “The past five years have been characterized by a highly competitive business structure,” notes Martin Zahlbruckner, CEO of Delfort.

    “China is still the biggest market as per cigarette consumption, and while continuously growing in the past, it now also decreases,” says Roman Reischl, managing director of Julius Glatz. “There are even countries with considerable increases in cigarette consumption, but in the majority of cases they either have a low consumption [to begin with] so that growth in total numbers is not significant, or they are countries with low incomes where people cannot spend much money on high-quality products.”

    BMJ’s CEO, Omar Rahmanadi, forecasts further contraction in the sector. “In the next five years, inefficient cigarette paper factories will be forced out of the conventional cigarette paper market. At the same time, cigarette paper manufacturers will try to come up with more specialized paper, for instance for heat-not-burn (HNB) cigarettes,” he says. Competition has increased, especially in conventional cigarette paper, he adds. “For specialized cigarette paper, such as [low-ignition propensity] (LIP) paper, the market is also getting more competitive but at a lesser degree because it is still protected by patents.”

    LIP stagnates

    Driven by regulation, LIP paper has enjoyed steady growth over the past decade. The fire-safety product became mandatory in the United States in 2010 and throughout the European Union (EU) in 2011. It is also required in Australia, Canada, Iceland, South Africa and South Korea, and it covers roughly 20 percent of the global population and 20 percent of the world’s manufactured cigarettes, according to the World Health Organization.

    “LIP has proven to be one of the most technologically challenging developments within cigarette paper products over the past several years,” says Alex Boone, business development director of global papers at SWM. “Meeting stringent regulatory requirements while not impacting the consumer experience was a major hurdle.” For SWM, LIP paper continues to be a key profit driver. The company says it holds the vast majority of the market in North America. In the EU, it has a 40 percent direct market share and another 40 percent share through a license agreement with a competitor.

    Further opportunities in this category, however, are limited. LIP paper has become mandatory mostly in large, high-income nations, where cigarette consumption has declined further than it has globally, on average. As future adoption of LIP legislation in other countries is driven by governmental regulation, the timing remains uncertain. “Although LIP remains a critical product for our customers in many markets globally, new market development requiring such legislation has been stagnant since 2012,” says Boone. “Changing economies and legislative priorities have moved government focus elsewhere, including a strong emphasis on excise tax increases worldwide. Although several countries have discussed enacting [LIP] legislation over the past several years, none have presently.”

    Driving innovation

    In the conventional cigarette paper category, innovation remains key. Manufacturers observe a growing tendency among their clients toward greater individualization of products. “We perceive a very strong trend toward absolutely individualized, tailor-made solutions for each customer instead of ‘off the peg’ products,” observes Thomas Zoepfl, Delfort’s head of SBA thinprint papers. “Our innovation rate is well above 10 percent, and more than 300 patent applications speak for our innovative power.”

    Reischl, who sees more innovation in the areas of tipping papers and filters than in cigarette papers, points out that many of Julius Glatz’s papers are made exclusively according to the requirements of its customers, and he expects more of this in the future: “More demand in specialty papers, many orders in smaller volumes, orders or switches in paper grade on a short-term basis, which results in the necessity of flexibility as per production planning, adjustment of machines and equipment, etc.,” he says. “During the past five years, there have been quite a number of innovations and ideas, but they were more or less specialties and nothing that generated big volumes.”

    As far as compositions of cigarette paper are concerned, customer requirements remain very stringent, according to Boone. Regulations in the U.S. and the EU limit, and sometimes even exclude, ingredient changes and additions. “We have a dedicated group for product stewardship and compliance that supports our efforts to understand and comply with the most recent standards our customers are subject to,” says Boone. “They also remain an integral part of our adaptation to new and pending regulations, taking a scientific approach in our efforts to bring new and innovative ideas to market.”

    In the light of increasingly strict regulations affecting tobacco products packaging, cigarette paper is taking on a new role as a means of communication with the consumer. In tobacco markets with generic cigarette packaging, cigarette manufacturers are focusing on visual and sensual differentiation properties of cigarette paper, according to Boone. “Brand awareness in an increasingly difficult regulatory environment, as, for instance, plain packaging, is critical for our customers,” he says. “Cigarette paper can play a major role in providing alternatives to these traditional means, and SWM sees this in embossed and filigreed papers, for example. Whether a specific pattern or a brand logo, SWM has multiple technologies to meet these needs, depending on scale, and without compromising the functionality of the final product. With the uniqueness of this process and specific designs, our customers also have the assurance of brand security in the fight against illicit trade.” In January, SWM announced the expansion of its filigree paper capacity at its plant in Saint-Girons, in the south of France.

    Hope on heated products

    Alex Boone

    THPs pose the next big challenge in cigarette paper innovation. The paper used in the tobacco sticks employed in many such devices must meet different requirements than that used in traditional cigarettes. “Heat-not-burn products need to be designed in such a way that the papers can be exposed to high temperatures without starting pyrolysis,” explains Zahlbruckner. “These product specifications require the specialty papers to feature further properties, such as the ability to support the changed thermal management of the products or their further processing, especially with regard to their dimensional stability.” Owing to its comprehensive know-how in the specialty paper segment, Delfort has a range of technologies to develop solutions for these extended requirements in particular combinations, he says.

    SWM, too, is actively engaged in this field, “Not only have we developed specific technologies and solutions, but we have also invested in development facilities that will assist our customers in specific approaches,” says Boone. “Our OneFiber application laboratory at our paper manufacturing facility in Quimperle, France, is one such example. It is dedicated to the next generation of products. From ideation, to concept, to prototyping and on through to market—with speed and efficiency—is the primary goal of our value proposition.”

    THPs are expected to grow considerably over the next years. In a recent webinar, Euromonitor’s Shane MacGuill predicted that the top 10 markets for heated tobacco products by value and penetration, led by Japan, the U.S. and Turkey, would have a combined value of $15 billion in 2021. “As HNB products are still in the minority, they are of course growing,” cautions Reischl. “It’s pleasant if for these products cigarette papers are used, but there is a big gap between the growth of HNB and the decrease of cigarette paper, and so far HNB cannot absorb it.”

    Closer to the client

    Martin Zahlbrucknet

    So what does it take to remain competitive in such a complex business environment? Being close to your customer is one approach, says Rahmanadi. “Multinational cigarette companies have closed their less efficient factories and reallocated the production activities to a few large factories to cope with shrinking cigarette consumption,” he says. “This trend brings growth opportunities to cigarette paper manufacturers whose locations give better access to these large factories.”

    It’s a strategy Delfort has been following closely for the past few years. In early January 2016, Delfort announced its acquisition of Mundet Group in the U.S. The deal gave the company manufacturing sites in Virginia and Tennessee in the U.S., as well as in Toluca, Mexico. In August of the same year, Delfort took over Shamrock Specialty Papers in Greensboro, North Carolina, USA.

    “Being physically present in a growing market helps us increase both the reach and efficiency of Delfort’s global supply chain,” says Zahlbruckner. “Both companies offer design, printing and converting expertise for flexible packaging and the tobacco industry. With this strategic acquisition we underline our 100 percent commitment to the tobacco industry. We have made significant investments in technology and equipment in order to offer advanced production capabilities and world-class products for the industry.”

    In December 2014, the company took over Glatz Finepapers Vietnam, which has been renamed Wattens Vietnam. “We are very excited about the capability of the enthused and young local staff who have done a tremendous job over the past two years,” explains Zoepfl. “Wattens Vietnam has integrated seamlessly into the group, standardizing systems and reporting standards while also sharing best practices and expertise to carry over into the new business structure. Close cooperation and coordination between mills, R&D centers and customers [has] been essential to the success of our investments and integration processes. Wattens Vietnam has initiated new investments into R&D and machinery in order to grow capacity and product range. The efforts and investments are paying off, with 20 percent sales growth. This has been significant and is encouraging for new investments, which we will inform the public about once they are due.”

    SWM, too, has built a strong presence in Asia over the past decade. It is one of only a few Western companies to partner with the Chinese state tobacco monopoly, with which it has entered into two joint ventures—one for reconstituted tobacco leaf, established in 2014, and another one for cigarette paper, set up in 2008. The latter, China Tobacco Mauduit (CTM), has a leading share in many premium domestic brands and contributes several million dollars to SWM’s annual net income. “China is a large market for SWM, and CTM is a successful and mature investment dedicated to the production of cigarette paper,” says Boone. “SWM continuously evaluates global investment opportunities, including but not limited to investments in alternative tobacco products such as heat-not-burn solutions.”

  • Rebel with a cause

    Rebel with a cause

    At the helm of Forest for nearly two decades, Simon Clark continues to champion the right of adults to make their own decisions.

    By George Gay

    “The clue’s in the name,” said Simon Clark, the director of Forest, partway through an interview with Tobacco Reporter in October. Indeed it is, but it is a cryptic clue, as perhaps befits this studious-looking man. Forest here is an acronym for the U.K.-based Freedom Organisation for the Right to Enjoy Smoking Tobacco. So what Clark was alluding to, I think, was that his organization is primarily focused on the freedom of consumers to be able to make their own choices. Sure, freedom to smoke tobacco, but also freedom to indulge in any other activities that are legal and that don’t cause undue stress to others—with emphasis on the undue: No precious souls need apply for redress.

    Forest was formed in 1979, and Clark—who had always been supportive of the organization, and who had known each of his three predecessors—became its director in 1999 for what, at the time, he imagined would be about three or four years. Clearly, it was a senior position, but you have to wonder what made him join at a time when tobacco was already a pariah industry. After all, he had left the University of Aberdeen in Scotland in 1980 with a degree in English and the ambition to become a journalist. And, indeed, he had worked as a journalist in a wide variety of roles for 15 years before joining Forest.

    Well, the way he tells it, he didn’t consider being the director of Forest as a tobacco industry role; it was about consumers and their rights—though “rights” is a word he shies away from now. I would speculate, however, that there was slightly more to his career choice than that. Part of his journalistic activities were devoted to radical/reactionary—depending upon which side of the fence you are looking from—student publications; and he says that he came to Forest from the “fringes of libertarian politics.” He was, I would guess, something of a rebel without sufficient cause, and Forest provided a cause.

    And I would speculate, too, that this has worked well for Forest. Clark might be studious-looking and—dare I say it?—avuncular, but he is also engagingly combative. He can smile while, if not being a villain, then certainly playing parts that require growing a moustache. He opposed the ban on smoking in cars when young people are present, and he supports people being allowed to smoke upon hospital grounds. These are not causes for the fainthearted, even though his arguments for taking the positions he does are hard to fault and display empathy for those not looked on sympathetically by everybody.

    It is at instances like this that Clark engages what I would describe as his combative empathy. He seems to understand smokers even though he is not a smoker and never has been—something that is interesting in itself given that, from an early age he was exposed to tobacco advertising and, as a regular pub-goer when he was in his 20s, he experienced the sights and smells of cigarette packs and smoking, all of which we are told can draw nonsmokers into becoming smokers.

    Second-class citizens

    In fact, it was empathy that got him hooked on Forest, and it is probably one of the reasons that he has overstayed his three or four years. Shortly after joining the organization, he attended an international conference for about 12–14 smokers’ rights groups, as he remembers it. He turned up concerned that it was going to be a meeting of fairly hardcore libertarian activists, but the people he met, he said, were ordinary smokers from around Europe, mostly volunteers representing groups of people who simply enjoyed smoking and who came across as rather bemused by the anti-smoking movement and the increasing restrictions being foisted on smokers. All they had wanted was to be left alone to enjoy smoking. They didn’t want to upset anybody, they didn’t want to inconvenience other people, and they were happy with reasonable restrictions on where they could smoke. Clark said he felt very strongly that they needed a voice and that they should be supported.

    Fast-forward, and things have become decidedly more hostile for smokers. Attempts have been made by their enemies to denormalize them, and they have been abandoned, or are being abandoned, by their erstwhile friends, with the exception of Forest and a few like-minded organizations. Although smokers were already under attack when Clark joined Forest, they were still allowed to smoke in most public places, and tobacco advertising was allowed. At that time, he said, there was far more of a sense that adults should be allowed to make their own decisions without excessive government interference. So the biggest change since then had been the buildup of a huge level of intolerance toward smoking. Smokers were now treated like second-class citizens in a way that they weren’t 15 years ago, and in no small part this could be laid at the feet of the smoking ban, which is still the issue that rankles most with U.K. smokers and Forest.

    This sense of frustration is partly down to the fact that, contrary to popular belief, while the general public had supported smoking restrictions when they were proposed, only about 30 percent had supported a comprehensive ban, so the government essentially ignored public opinion—much of it garnered by Forest through an initially successful but ultimately doomed campaign—and imposed a ban that was unnecessary and unwarranted. Even today, independent Forest-funded surveys show that a majority of people in the U.K. would accept the establishment of separate smoking areas in pubs. And it is not even as if the ban has been successful in one of its key goals. Smoking rates fell only modestly after the ban came into force.

    Being heard

    Given all of the anti-tobacco legislation that has been passed in the U.K., it would be easy to see Forest as a failure, but this would be unfair. It must surely be the case that while things are bad for U.K. smokers, they could have been a whole lot worse without Forest having provided a consistent, rational voice for them—a voice that is not provided in many countries.

    Clark, though, is modest about the achievements of his organization, even though it cannot be easy getting across the smoker’s view in the present climate. He insists, however, it is just a matter of running the office as a professional operation: making people available to answer questions from the media at any time and being on the ball with a press release when a story breaks. “We have a loud voice, and we try to use it—and we’re quite persistent,” he said. “Sometimes we will have a run-in with broadcasters about why they omitted a comment from Forest in a story, and we often get stories updated. We don’t let it go.”

    In addition, Forest has an active and lively website, issues regular bulletins, and runs events aimed at maintaining its profile in political and media circles. For instance, it holds regular events at Westminster and attends political party conferences. And once a year it thumbs its nose at public smoking bans with Smoke on the Water, a smoke-friendly trip on the River Thames aboard The Elizabethan, otherwise known as Battleship Potemkin.

    It also holds the annual Forest Freedom Dinner at which it embraces a wider community of businesses and people whose freedom to enjoy, say, eating and drinking certain things, is increasingly coming under attack. One of Clark’s disappointments, in fact, is that Forest has never been able to build long-term relationships with other industries that are at risk from excessive government interference. This is partly because those industries have not wanted to align themselves with the tobacco industry, partly because they have tended to stick their heads in the sand about the dangers they face from restrictive legislation and partly because Forest has been kept busy fighting the fires lit by organizations such as Action on Smoking and Health (ASH).

    Having said that, Forest did set up a campaign called The Free Society, through which it organized events on a range of issues not just having to do with smoking but also having to do with libertarian causes such as alcohol consumption, free speech and surveillance. The Free Society developed a loose network that worked well when it came to opposing the standardized tobacco packaging issue, where, it could be said, Forest won the argument but lost the battle to realpolitik.

    No to the nanny state

    Clark is careful not to rant about tobacco and tobacco legislation, but his language becomes fairly robust when on the subject of ASH. He said he thought that most people were pretty tolerant about smoking—as had been made clear by the results of a series of opinion polls on issues such as taxation and smoking bans that Forest had put together under the title Enough is Enough, and that might well have had some effect in moderating recent government policy toward tobacco. But, at the same time, there was a hard core of anti-smokers driven on by campaigns mostly funded by the public purse. Clearly aggrieved, he described as “ludicrous” the situation in the U.K. whereby public funds were given to groups such as ASH, and that money was used to lobby the government to introduce more restrictions to harass smokers.

    A large part of Forest’s donations come from tobacco companies, but Clark insists that the organization’s voice is the voice of certain smokers, the voice of adults who smoke, who enjoy smoking and who don’t want to quit; it was not the voice of tobacco manufacturers. “I am passionate about maintaining Forest’s independence,” he said. And, he added, when it came to responding to requests for media comments: “We don’t have to go through a committee. We don’t have to wait for approval. We don’t have to wait for lawyers We don’t take instructions from the companies.”

    Clark’s robust language is not reserved only for ASH, and he can sometimes surprise with those of whom he approves and those he doesn’t. He will tell you that at university he was one of a minority of students who were on the center-right politically, but one of the people he speaks most warmly about is the former Labour Party Health Secretary John Reid, who was not in favor of a total public smoking ban. And he described tobacco taxation—something that had soared during the past decade—as highly regressive because it had relatively little impact on those who were well-off but hurt the low-paid or elderly with modest pensions, people for whom smoking might be one of their few pleasures. Clark said it was immoral to use taxation for social engineering and to “punish” these people for consuming a legal product. “What we are seeing is an attack on ordinary working-class people,” he said.

    He’s critical, also, of councils that complain about the litter caused by discarded cigarette butts but that won’t provide bins in which people can safely stub out their cigarettes on the grounds that to provide such bins would be to “re-normalize” smoking.

    And he doesn’t like the U.K.’s current “nanny state,” which, he says, treats adults like children and children like idiots. Indicating his avuncular girth, he said that he would like to lose weight, but that he didn’t want the government forcing him to do so. Similarly, some smokers wanted to quit or cut down, but they didn’t want the government to force them to do so through punitive taxation or by banning smoking everywhere and making it physically impossible to smoke.

    And this is where he sees smokers’ biggest challenge coming from in the future—finding a place to smoke legally. They were going to end up with very few places where they could smoke without being prosecuted, and, with tobacco being a legal product, that seemed to be an extraordinary situation.

    It is perfectly possible within a civilized society to accommodate the majority who don’t smoke and the minority who do smoke, he said. Given that we could land a man on the moon, it is clearly possible, using modern, proven technology, to provide smoking and nonsmoking accommodations for people.

  • Tools for tomorrow

    Tools for tomorrow

    Machinery suppliers are developing new technologies to manufacture next-generation products.

    By George Gay

    Success usually comes with some excess baggage. Take heat-not-burn (HNB) devices; they are meeting with success on a number of markets and with what can be described only as phenomenal success in Japan. In fact, I wouldn’t dare say what share of the combustible cigarette (hereafter, cigarette) market the consumable elements of these devices (hereafter, HNB sticks and capsules) have taken in Japan because my figure would certainly be out of date by the time this story is published—possibly by the time it is finished. Suffice to say that in presenting its results to the end of September, Japan Tobacco (JT), which has a stable 61 percent share of the local market, had revised its estimate for full-year 2017 cigarette volume to 92 billion. That’s 13.4 percent down on its 2016 volume.

    Of course, it was to be expected that cigarette volumes would have been cannibalized by the new products because, in the main, manufacturers of HNB sticks insist they are aimed only at smokers. Clearly, however, the extent of this switch from traditional to new products came as something of a surprise or shock because it has brought with it capacity headaches.

    I take it that when HNB sticks were first being developed, they were made on minimally modified existing machinery within factories built to produce cigarettes. After all, the structure of some of them is not far removed from that of cigarettes, and they would have had to have gone through a number of iterations before commercial versions were developed. But the demands of efficiency and the need to eliminate cross-contamination clearly mean that, as volumes increase, manufacturers are and will be switching to higher-capacity machines running within dedicated factories.

    For instance, Philip Morris International (PMI) said in July that it was planning to invest about €490 million ($570 million) in transforming its cigarette production factory near Bucharest, Romania, into a high-technology facility for manufacturing Heets, the HNB sticks used with the electronic tobacco heating device iQOS. The conversion of the factory into a Heets production facility had already started and was expected to be fully operational by 2020, the company said.

    Romania will join a growing list of countries where PMI manufactures HNB sticks for iQOS. Also in July, the company announced plans to install two new high-tech production lines in Neuchatel, Switzerland, to produce Heets. In June, it announced it would expand capacity at its HNB sticks manufacturing facility in Bologna, Italy, and that it would build a new facility for manufacturing Heets in Dresden, Germany. In addition, PMI is thought to be in the process of converting its cigarette factories in Greece and Russia.

    Meanwhile, JT is on record as saying that next year its capsule capacity will more than quadruple as high-capacity production is introduced. With the installation of high-capacity machines, JT believes that output will be expanded quickly from the start of 2019, by which time it expects to be marketing its Ploom Tech device nationally.

    Of course, there is more to the market for HNB devices and sticks than iQOS and Ploom Tech. British American Tobacco has its Glo device, while R.J. Reynolds Tobacco, now part of the BAT stable, has the Eclipse, for which it has lodged with the U.S. Food and Drug Administration a substantial equivalence application for an improved version. In fact, there are a number of other devices out there—and any number of others in development. Indeed, iQOS is one of what PMI refers to as its four scientifically substantiated smoke-free product platforms under development.

    New machinery

    Interestingly, what most of these devices have in common is that they are different from each other—either subtly different or substantially different. Compare that with the industry most of us have been involved in up to now, where cigarettes are all more or less the same. And this means, I assume, that unless one HNB product type comes to dominate the market—and that cannot be ruled out—up to a point the future must look bright for traditional tobacco machinery suppliers, especially in respect of those products whose structure most closely resembles that of cigarettes. And even though the importance of the relationships built up over decades between tobacco product manufacturers and machinery suppliers cannot be overstated, some space must have started to appear for other companies, including those specializing in bespoke machinery, especially given that some of the new products being developed will come from companies other than the major tobacco manufacturers.

    Certainly, traditional tobacco-machinery suppliers must be feeling better than they were when it looked like e-cigarettes were going to win the day—something that, of course, still might happen, or at the very least might happen in some markets. E-cigarettes, despite their name, mark a cleaner break with cigarettes than do HNB devices, and this clean break certainly snaps off at the level of machinery.

    Of course, when PMI became serious about iQOS, it set up facilities in Bologna, Italy; so it has to be assumed that G.D has played and is playing a major part in the development of high-capacity HNB sticks machinery. But I believe that at least one other major supplier of traditional-cigarette machinery is developing such machinery. And given the fragmentation of the market that might occur, others might be following along at a distance governed by the perceived level of risk that this new generation of products might still go belly-up.

    In fact, one other machinery maker is in front of the game. Aiger Engineering offers a complete make-pack production line for the consumable elements of HNB products. Aiger’s business development director, Arek Druzdzel, told Tobacco Reporter in October that his company offers a flexible system that allows it to meet the requirements of at least two types of HNB specifications: those for use with iQOS-like sticks and those for use with Eclipse-like systems.

    The existence of such machinery might seem surprising because it is easy to get into the way of thinking that assumes that manufacturing sticks is all very new. But when asked what the future holds for tobacco machinery suppliers given that the industry seems to be moving at some speed toward electronic nicotine-delivery/vapor products, Druzdzel issued a reminder that it was about 10 years ago that multinational tobacco manufacturers realized that the cigarette, which had been around for more than a century, was coming to the end of its natural life. And they knew that this meant their future products would have to be very different from those cigarettes.

    Since then, the pace of development of next-generation products (NGPs) had been accelerating every year, he said. E-cigarettes came along, which were devices that didn’t necessarily need tobacco, while novel HNB products needed far less tobacco than was used in a cigarette: tobacco whose desired volatile compounds were released when heated—not burned—to a temperature in the 100–300 degree C range.

    When considering sticks manufacture, it is easy also to concentrate on the secondary department, as often happens in the case of cigarettes, but all areas of processing and production are affected—though, again, the changes required for different products vary considerably. HNBs and tobacco-free nicotine-delivery products, Druzdzel said, required alternatively processed tobaccos and practically no standard cut rag. This implied the end of standard, traditional primaries: large tobacco-processing plants, producing tons of cut rag per hour. Some of the next-generation tobacco products required new primary processes handling sheet tobaccos, special casings and heat/pressure-treated tobaccos. Others required micronization/granulation processes that produced tobacco pellets of controlled porosity and/or permeability, nicotine extraction and powder/liquid fine-dosing.

    In the future, Druzdzel said, tobacco-containing components would be delivered through modular plants, complying with pharmaceutical-like containment standards and performing production processes already known in the pharmaceutical and food industries. And new types of machinery, such as that for the pre-forming and extrusion of tobacco, charcoal, and bioactive (herbal) sheets and pellets would be needed, along with more sophisticated controls.

    Substantial modifications

    The cigarette make-pack departments of today would see a similar evolution, said Druzdzel, driven in part by the changes that would occur in respect of manufacturing materials. For instance, noncombustibles and nicotine vaporizers would require changes to the traditional function and specification of a filter. Standard monoacetate filters would be gradually replaced by specialty combined filters, selective filtration membranes and/or filtration tablets similar in length to the shortest segments used in combined filters nowadays. Leading products would call for more biodegradable and sustainable components, and hence demand alternative, eco-friendly materials and adapted production methods.

    Certainly, this novel product-driven change would require the abandonment or substantial redesign of the manufacturing machinery currently used and, in the long run, demand a new generation of production machinery.

    Also, packing machinery would be subject to substantial modifications. In the next few years, said Druzdzel, packing speed would be less important than would be the flexibility to pack new shapes into increasingly complex pack specifications. Packing flexibility, quick format change and, certainly, packing quality would remain decisive factors differentiating packing machinery suppliers.

    Lastly, in respect of packing-related machinery, the industry would have to ditch well-known rod-handling and logistics setups. The NGPs were, in fact, a variety of different products, requiring more complex and careful handling than the industry had been used to. The new products would drive design changes and customization of the new-products’ handling machinery. And, as usual during a transition period, only the most advanced and dedicated suppliers would, using their acquired knowledge and established machinery, take up the challenge of supporting the industry.

    Over the next few years, in the transition period, modified filter makers and cigarette makers would be used for HNB production, giving machinery suppliers sufficient time to come up with new, faster and more flexible designs, complying with NGP specifications. In time, Druzdzel said, a new generation of make-pack machinery would be supplied, customized for particular products once they were defined by their manufacturers. More assembly robotics, more direct communication between collaborating machines and production modules, and more parameters controlled and processed on-line (in real time) would shape the production plant manufacturing standard products of the future.

  • Their fair share

    Their fair share

    Tobacco growers deserve better

    By George Gay

    In the 20 years from 1996 to 2016, the average price paid to Zimbabwe growers for their flue-cured tobacco rose by 0.34 percent. That’s worth repeating: 0.34 percent over 20 years.

    It rose from US$2.94 per kg to $2.95 per kg. To say this was parsimonious on the part of the buyers would be thoroughly mean to the word parsimonious.

    I wonder in what universe such a price development would be seen to be fair—if, indeed, it can be referred to meaningfully as a development. In which corporate responsibility report does this shine out as a beacon for others to follow?

    It surely cannot be seen to be fair in this universe where the major tobacco companies—which are the ultimate buyers of this tobacco—are imposing on their customers cigarette price increases of, what, 6–8 percent a year, excluding taxes?

    Let it never be said again that Zimbabwean tobacco growers are tobacco industry stakeholders, unless the imagery is extended to have them trying to fend off the pointy end of a stake wielded by the manufacturers and those that buy leaf on their behalf.

    If, according to my back-of-the-envelope figures, the amount paid to flue-cured tobacco growers in Zimbabwe had grown at the lower end of the manufacturers’ price rises (at 6 percent a year, from $2.94 per kg in 1996), by 2016 those growers would have been paid $9.42 per kg. Even if they had been paid a miserly 1 percent increase each year, by 2016 they would have been paid $3.54 per kg.

    OK, to give a fuller picture, I should say that the average price during those 20 years did go up by 24.8 percent to $3.67 per kg in 2013, but then it had crashed by 45.2 percent to $1.61 per kg in 2005. In any case, if leaf prices had increased by 6 percent a year, they would have been at $7.92 per kg in 2013. Even if they had gone up by only 1 percent a year, they would have been at $3.45 per kg. Increasing by 1 percent or 6 percent, the average price would have been $3.21 per kg or $4.97 per kg, respectively, in 2005—that is two or three times the price paid.

    The slippery concept of quality

    What might the reasons for such pricing be? Well, one thing that is often said is that prices—in any industry—are set by markets that are governed by supply and demand. This implies that those markets are reasonably “free,” but in our neoliberal world they are clearly not. They are controlled by huge, powerful corporations, and as can be seen from the above prices, power concedes nothing to the powerless.

    One reason that is given for low prices is that the quality of the tobacco is low. This is a difficult one to argue because quality is a slippery concept. I was reading recently a piece in which it was said that Robert Pirzig had started writing Zen and the Art of Motorcycle Maintenance because, as a new university lecturer, he noticed that he had an obligation to teach quality, but that nowhere was it defined what quality was. I’m not saying that quality is not defined when it comes to leaf tobacco; it’s just that it is a concept that is difficult to nail down, especially at the time farmers’ bales are bought. And under such circumstances it is open to manipulation. As playwright George Bernard Shaw once observed, every profession is a conspiracy against the laity.

    And there is another reason why I tend to be suspicious of the quality argument. In the 20-year time frame of the grower-price stagnation described above, the volume of the cigarette brands on which the major manufacturers target their marketing efforts—each uses a different term to describe such brands—has been increasing, though very lately sometimes only in relation to overall volumes. Now these targeted brands I take it are premium-price or at least higher-price brands, and, again, presumably, they are made with better-quality leaf than are other brands. So the question arises as to where this increased volume of quality tobacco has been coming from. It is clearly not coming from Zimbabwe because, otherwise, prices would have been going up—or they would have been according to the “good quality equals higher prices” argument.

     

    Low quality, it seems to me, is used, along with its partner, high quantity as a sort of Catch-22 whereby farmers are only rarely allowed to take home a few extra cents. If the weather is helpful, I guess the chances are that the quality will be at least reasonable and the quantity on the high side, so any chance that prices will be good because of the quality is cancelled out by the quantity’s being too high—by the entrance of “market forces.”

    The average price paid in 2008, when Zimbabwe’s farmers produced a very small crop that was close to 49 million kg, was $3.21 per kg. We can assume, I think, that in 2008, with much of the crop being grown by inexperienced farmers, the leaf produced was not of the highest quality. But $3.21 per kg was more than was paid in the last years of commercial growing, or in 2016, by which time, presumably, the small-scale farmers were more used to growing tobacco and quality was improved.

    I would speculate that a higher price was paid in 2008 because buyers wanted to encourage farmers to produce more, as they did the next year and, especially, in 2010. This seems to be an indication that prices are linked to quantity in certain circumstances. Prices go up if the quantity falls below a point at which manufacturers become concerned that, if there are another two or three years of low volumes, their manufacturing capability might be endangered.

    Patronizing

    Some people will argue that the above isn’t fair to tobacco companies because part of the reason why prices have stagnated during the period under review is that an increasing amount of contract farming has been brought in, and under that system certain inputs needed by growers have been provided—factors that should be considered in looking at grower prices. To those people I would say two things. The first is that I am willing to accept this, but only if published grower prices show, in a meaningful way, the value of whatever other benefits the growers are receiving. After all, sustainability demands transparency.

    The other thing I would say is that if growers are being provided with inputs, such as fertilizer, and are told when to apply them, then it should be discussed whether those growers are actually employees of the buyers who are directing nearly their every move. This certainly seems to be the case in regard to farmers working according to integrated production systems. And if they are employees, then they should be provided with whatever benefits the country in which they operate decrees they should receive as employees: holiday pay and sick pay, for instance.

    Some other people will say that tobacco companies provide benefits to the communities where tobacco is grown, but often, to people such as me, these benefits are patronizing bordering on colonialism. And, ironically, you will hear people try to counter the charge that they are being patronizing by saying that these benefits are provided because if growers are handed money they will spend it instantly, leaving no cushion for lean times. I rest my case.

    We in the West are happy to lecture the people of Africa about good financial management, but we should reflect that it wasn’t the people of Zimbabwe, Malawi or Zambia who crashed the financial system in 2008. And it wasn’t tobacco farmers who predicted in 2007 that the world’s economy was in good shape; it was the International Monetary Fund. A little humility never goes amiss.

    Most of the above comments have been about Zimbabwe, but they could just as well have been directed at many other tobacco growing countries. When I had nearly finished this piece, it came to my attention that a disagreement had blown up about the battle against the use of child labor in Malawi. I haven’t had time to examine this issue, but I think one thing bears repeating. One of the parties to the disagreement made the point that certain initiatives aimed at eliminating child labor in tobacco growing insufficiently addressed the root cause of this problem: the endemic poverty among tobacco farmers. And he said that that poverty was being exacerbated by contracting schemes developed by the very companies funding some of the initiatives.

    Although I did not have time properly to look into this matter and so have no idea about the benefits or otherwise of the contracting schemes mentioned, I believe that it is not in doubt that poverty is endemic to Malawi, a country whose economy relies heavily on selling the most important raw material to a hugely profitable industry in which executives are each paid millions of dollars per year. Nor is it in doubt that that poverty can be laid, in no small part, at the feet of the tobacco industry. Another of the parties to the disagreement—on the other side of the disagreement—was kind enough to tell me:

    “According to the FAO [the Food and Agricultural Organization of the United Nations], more than 50 percent of Malawi’s population is still living in poverty. Agriculture is the backbone of the economy of Malawi, with 80 percent of Malawians depending on it for their livelihoods. Tobacco is the main crop, accounting for almost 50 percent of the country’s exports according to the World Bank. Agriculture in Malawi, in general and including in tobacco growing communities, tends to be subsistence in nature, which means that equipment, sustainable technologies and finance are often beyond [the] reach of small-scale farmers.”

    In July, a generally upbeat piece in Tobacco Reporter started with this sentence: “Following several disappointing seasons, Malawi tobacco growers have reason to smile again.” “Disappointing” seems to be an understatement. I imagine that following these disappointing seasons, some of the tobacco growers, along with their families, would have gone hungry. That is devastating. We in the West like to lecture these people on how to do things, but I wonder how many of us could survive such devastating times—who wouldn’t go to pieces in such circumstances? How many of us could get by if our salaries were “disappointing” for several years and then less than disappointing for one year? A little humility and a little empathy never goes amiss.

    It is long past the time when the tobacco industry should have started worrying less about how much sand is in with the leaf it buys and more about how much food is in the mouths of the people who grow that leaf and the families they support. Just because the industry can buy leaf on the cheap doesn’t mean that it should.

  • Lease on life

    Lease on life

    Industry leaders respond to the U.S. Food and Drug Administration’s new attitude toward vapor products.

    By Maria Verven

    It was a day to celebrate. When the U.S. Food and Drug Administration announced in late July that it had revised its plan and timeline to regulate e-cigarettes, you could almost hear the vapor industry breathe a huge sigh of relief.

    Though the FDA extended the premarket tobacco product application (PMTA) deadline to Aug. 8, 2022, several key deadlines are still looming, according to Rob Burton, head of consultancy and compliance with Nerudia. Based in the U.K, Nerudia recently opened an office in Washington, D.C., to help the U.S. vapor industry comply with European and FDA guidelines.

    “Vapor product manufacturers and importers selling products made on or before Aug. 8, 2016, must submit a listing of all ingredients to the FDA by Nov. 8, 2017,” Burton said. “However, if you’re a ‘small-scale tobacco product manufacturer’—with 150 or fewer full-time employees and annual revenues of $5,000,000 or less—you have until May 8, 2018 to submit your ingredient listing. And if your products entered the market after August 8, 2016, you must submit your ingredient listings 90 days prior to marketing.”

    Three vapor industry leaders shared their thoughts with Vapor Voice on the FDA’s revised guidelines. We spoke with Lorenzo De Plano, co-founder of Solace Vapor; Nick Molina, CEO of VaporFi; and Rodney Jerabek of Five Pawns.

    Vapor Voice: Has your company’s outlook changed with this announcement? Please explain.

    Lorenzo De Plano

    De Plano: Absolutely! Our business has tripled since the release of the announcement. We were doing very well prior, but the shift in policy has been a driver of growth and new business as shop owners are more comfortable spending on new products and brands. We always felt optimistic that there would be some kind of reprieve on policy; there was just too much disorganization overall in the initial deeming regulations.

    Molina: We haven’t made any significant adjustments because not much has really changed with the regulations, and they’re still coming in. We have some more time regarding PMTA submissions and feel we have a very good plan in place that will ensure we are within compliance.

    The biggest takeaway from the FDA announcement is that they’re coming around to the fact that vapor is a viable solution to the smoking epidemic. This is significant because special interest influence tried to argue that vaping was the problem and a conduit to smoking. We applaud the FDA for seeing through the smoke.

    Jerabek: My biggest takeaway from the announcement is the fact that the FDA is starting to recognize vapor products rather than demonize them. Our outlook has definitely changed. We see an even greater opportunity to leave a legacy within this newly recognized tobacco harm reduction category. It’s a lot easier to do that when you have regulatory support. But there’s clearly still a lot of work to be done.

    Five Pawns has been preparing for FDA regulation since the day we first incorporated in 2012. From proper manufacturing practices to responsible and adult targeted branding, we are going to stay our course and lead by example. There’s no more important time than now for this industry to grow up and legitimize itself by not introducing new products after the 8/8/16 date, peddling copyright infringement and promoting products clearly designed to target underage users. This makes us all appear juvenile and could be seen as a slap in the face to those that just gave us some needed relief.

    Although our industry appears to have been thrown a lifeline, I fear what will now happen on state and local levels. The FDA’s new timelines could be throwing fuel on the fire for those looking to impose bans and implement higher taxation. I’m afraid we’re going to be fighting more fierce battles across the country.

    Will this affect any key business decisions regarding staffing, compliance and regulatory counsel, budgets, or marketing? If so, how?

    Nick Molina

    De Plano: With the policy reprieve, we have increased investment and spending on our own business across the board and hired seven new staff members in the last month alone. The ease on immediate regulatory compliance needs has made it substantially easier to allocate funds toward different, more growth-focused aspects of our enterprise.

    In terms of compliance and regulatory counsel, we will be always striving to evaluate and improve our products. Our objective is to constantly improve the quality of our products for our end consumers.

    Molina: It’s too soon to tell, but we will likely be more aggressive with staffing as we continue to grow to meet demand. In fact, prior to this announcement, we feared the industry would stall. But the reality today is that there’s an opportunity to accelerate and continue earning market share as the landscape and players continue to thin out.

    Since we now have a bigger window to incur costs, this will allow us to build our reserves to fund future needs. Marketing has always been an important piece in our business plan, and it will continue to be.

    Jerabek: We’re in growth mode, and the FDA announcement has only strengthened that commitment. Marketing budgets have already been increased, and we’ve brought on a number of new hires to assist with marketing. Future marketing efforts are designed to get more people to adopt vapor products and should translate into increased sales. More sales means more production, and the trickle-down effect should mean more staffing across all channels.

    As an industry, we’ve only scratched the surface in terms of the number of people who have converted to vapor products. Higher adoption rates are key to future business and continued success. We need to continue telling the story about responsible tobacco harm reduction to an even greater audience. Although we love—and call them family—the 2 to 4 percent of converts that make up the vapor industry and its customers, there is no better time than now to get in front of the remaining 96 to 98 percent.

    We are currently developing many different marketing strategies intended to legitimize responsibly marketed vapor products. I don’t envision Five Pawns participating in many—if any—trade shows in the U.S. this year until show organizers do a better job of policing whom they allow to exhibit. Five Pawns has always chosen paths less traveled and will continue to pursue other forms of marketing.

    Have you hired compliance and regulatory staff? Have you hired outside compliance and regulatory counsel?

    Rodney Jerabek

    De Plano: We work with a number of labs to manage compliance and regulatory issues. Our biggest objective is to properly represent our products to the general public. Our product registrations were mostly executed in-house, but we do use external consultants for more sophisticated and technical endeavors.

    Molina: We have compliance and regulatory counsel in place. We plan to make a few more hires so we have a diverse, experienced and dedicated regulatory team guiding us along the way.

    Jerabek: Five Pawns has had regulatory counsel and compliance specialists on our team for quite some time. We began working with them long ago in preparing our PMTA pathway. With this new breathing room, they’re shifting efforts to ensure we are meeting all upcoming filing requirements and making sure we’re buttoned up from a paperwork and registration standpoint. PMTA efforts will soon commence after this well-needed respite. We’ve been ready and are more than prepared for when it’s time to press on.

    Have you met with the FDA? Have you prepared a strategy for complying with the FDA regulations? What steps have you taken so far in preparation for submitting PMTAs?
    De Plano
    : We tried to reach out to the FDA leading up to product registrations and following the policy shift; however, we have yet to hear back from them. In terms of FDA compliance and regulations, we have registered our product SKUs and are waiting to hear more information about the new regulations.

    Molina: We requested a meeting with the FDA and look forward to this initial meeting later this year. We know we’ll likely have to meet with them again as they revamp the initial regulations to eliminate a lot of the ambiguity that exists in the current ones. The industry is starved for clear directives, so brands like VaporFi, Direct Vapor and South Beach Smoke—all part of International Vapor Group—can continue to plan and operate successfully.

    We have always had a well-thought-out strategy while understanding that we would need to make constant adjustments. This strategy has served us well, set a good standard and allowed us to proactively expand while others are reacting.

    Jerabek: Yes, I personally had the privilege—with a number of others—to sit at an FDA table with Mitch Zeller and his staff years ago, helping educate him on the vapor products industry. The agency was surprisingly warm, engaged and grateful for our industry insights. Recently, our compliance and regulatory team met with the FDA on several occasions in preparation for our PMTA filings. We hope the FDA will eventually come out with a more defined set of guidelines, eased restrictions and a reduction in PMTA filing costs that will allow for even more players to responsibly define our category.

    Long-term, what is your vision for your company as it relates to the regulatory environment and the competitive landscape?

    The original “Vaping Vamp,” Maria Verven is a 35-year PR veteran and owner of Verven Communications, a marketing firm focused on the vapor industry.

    De Plano: Our vision for the company is to continue as the market leader of the nicotine salt category we invented and offer great products that comply with the FDA regulations. There will always be competition, but over the last few months, the brands that were serious about their long-term prospects grew, while the rest got left behind.

    Molina: We have never changed our long-term vision. While we haven’t been able to proceed as quickly as we would like to due to the regulatory ambiguity, our foresight and steadfastness will ensure our company is one of the few remaining in an already thinning field. We are industry innovators with a strong reputation for quality products, consumer loyalty and outstanding service. That’s brand recognition that garners respect in the vape community now and into the future.

    Jerabek: Five Pawns is going to continue to stay the course, play by the rules and do our best to lead by example. It absolutely kills me that new product innovation has been stifled. This is what I do and what I love. Innovation was what put Five Pawns on the map in 2012. We will continue to explore new product offerings in both flavor and technology in the not-so-distant future. We’ll continue to be the best we can be within the confines of the current regulatory framework.

    I’m all for fair competition. However, today the landscape appears to “punish the ethical and reward the criminal.” New products have been introduced daily since Aug. 8, 2016, and until the FDA starts enforcing noncompliant products, the wild, Wild West will unfortunately continue. A low barrier to entry allows new players to enter the market with misbranded products that do an injustice to our category.

    On a positive note, more time from the FDA should promote a healthier retail landscape, allowing more store owners to renew leases and open additional locations. The future looks far brighter than it did just a mere six months ago!

     

     

  • Buckling up

    Buckling up

    Manufacturers of belting solutions are successfully navigating the industry’s transition.

    By Stefanie Rossel

    The radical changes in the tobacco industry haven’t bypassed suppliers of tobacco materials handling solutions. As the golden days for combustible tobacco products are over and cigarette volumes decrease, manufacturers have stepped up their quest for ever-greater efficiency and process optimization.

    At the same time, tobacco companies must cope with changing consumer preferences, which include increasingly customized traditional cigarettes as well as the rapid rise of an entirely new product category, next-generation products.

    Jens Faerber

    “There is a remarkable transition within the industry,” notes Jens Faerber, managing director of sales at Max Schlatterer, a German manufacturer of belts and tapes. While probably best known for its Esband endless garniture and suction tapes, the company also offers a wide range of endless transport and conveyor belts, as well as drive and special belts.

    “Belting manufacturers are facing a challenging world full of regulations, restrictions and the constant demand for efficiency. The pace of development is getting faster and faster,” says Faerber. “Digitization is one main factor that drives our current understanding of smart tools, transparency, pace, flexibility and customer orientation into completely different dimensions.”

    One of the main tasks for tobacco companies, he adds, is to cater to the changing smoking habits, which requires a vastly expanded product portfolio. “Like to our customers, we see the potential of new tobacco products, and we support their development projects with our expertise. Nevertheless, we still see our competencies also in belting and supplying the tobacco industry with belt and tape solutions for existing tobacco products such as cigarettes and filters. Constant improvement of processes and therefore efficiency are the keywords here.”

    Wanted: multifunctionality

    In traditional cigarette production, there is a vast range of applications for belts and tapes in the primary and the secondary department. Comprising highly specialized material compositions and featuring elaborate surface structures and coatings to optimize product movements within the cigarette manufacturing process, belts and tapes are high-tech products. Requirements for the regular consumable items, which, like other spare parts, have a limited lifespan, vary greatly depending on the point in processing where they are used. Having direct contact with tobacco and other cigarette components, belts and tapes must comply with strict unpacked food and pyrolysis guidelines.

    This means that belts in the primary need a nonstick surface that doesn’t contaminate the tobacco. Forbo Siegling, a German manufacturer of conveyor belts, currently focuses on the development of belts with improved “release” properties, as well as dirt-resistant and dirt-repellent silo belts, according to Christian Reinhard, Forbo Siegling’s segment manager for food and tobacco. Resistance to high temperatures and steam is also essential. “We see a trend toward fine-cut tobaccos,” says Reinhard. “These often wet and sticky tobaccos require belts with better release properties.”

    To cater to these requirements, the company in early 2016 launched a new type of conveyor belt. The Siegling Transilon E 8/2 0/A2 MT-TT white FDA is a fabric-based polyolefin belt with an additional top face made of polypropylene. This coating makes the belt resistant to hot water and steam—i.e., hydrolysis-resistant. According to its manufacturer, temperatures of up to 120 degrees Celsius and for short periods up to 140 C are unproblematic. Originally developed for manufacturing steam-cooked rice for a customer in China, the new belt also has good release characteristics for sticky foodstuffs, such as moist tobacco. The belt is also “troughable,” which is important for the conveyance of bulk goods and complies with U.S., EU and Japanese regulations for use in the food industry.

    Extending service life

    Schlatterer’s current emphasis is on tapes for filter components, such as nonwrapped acetate, in addition to solutions for the production of new tobacco products. Materials must meet both the high tobacco industry requirements and Schlatterer’s own quality standards. Service life is still the main consideration in terms of good belt performance, according to Faerber. “The service life of a belt is affected by various facets; the material, for example, is one factor,” he says. “Another point is the machine setup. This is why we stay in close contact with our customers, to find the right belting solution by looking at the tobacco machine in total. Efficiency is key, and therefore we focus on maintaining and expanding our high quality level. This means that the variety between two belts of the same product line is as low as possible. We already set narrow fields of tolerance.”

    The company benefits from its diversification into other industries, which is typical of most players in the belting systems sector. “Since we are able to combine different carrier materials, coatings and refinements, it is possible to create a custom conveyor belt that suits the needs of our customers,” says Faerber. “The possible application areas vary from transportation to food processing, weighing, etc. So we have a profound knowledge and understanding of production processes in different fields. Through being so diversified, we are able to transfer new findings and technologies we developed for the food industry to the tobacco industry, for example.”

    The company’s most recent innovation has gone the opposite direction. Looking outside the tobacco industry, based on many years of experience and knowledge, the company introduced a completely new product—pressure rollers. These consist of polymers or foam and can be applied to hold down transportation goods or attach labels.

    Moving with the times

    Such equipment might also become useful in the production and packaging of novel tobacco products. Heat-not-burn (HnB) products, for instance, have seen remarkable growth over the past few years. To meet demand, manufacturers have begun to expand production capacities and convert former cigarette factories into HnB production sites, which opens up additional opportunities for manufacturers of belting solutions. Schlatterer already operates in this field. “New tobacco products such as heat-not-burn products are produced in a different way but quite similar to the traditional cigarettes, and therefore there are special requirements on belts and tapes as well,” Faerber points out. “In the case of new tobacco products, our portfolio varies from slightly altered tapes and belts to complete innovations, depending on the processes.” Here, Schlatterer uses various materials, such as yarns and polymers.

    E-cigarette production involves different manufacturing processes altogether. “Our belts may be involved in the process—mainly packaging—but the typical tobacco-specific requirements, such as pyrolysis requirements, do not apply here,” says Reinhard.

    “At the moment, there is no special need for endless belts in the actual production process of e-cigarettes as far as we know, but Esband offers belting solutions regarding the packaging process and other transport processes,” Faerber says. “With our other product line for the packaging industry, for example, we already have sophisticated solutions that are ready to be used in these processes as well.”

    For the time being, novel tobacco products are likely to remain a niche market, despite their impressive growth rates, and both companies see current opportunities predominantly in the traditional tobacco market. “Even though tobacco consumption may decrease in some parts of the world, it will undoubtedly stay a major industry,” says Reinhard. “We will continue to listen to our customers—original equipment manufacturers and end users alike—and be a powerful provider of belting solutions.”

    “I definitely see the change within the tobacco industry and find it remarkable how innovative the industry is,” says Faerber. “The new products—but also other developments in production processes—show that the industry is able to adapt quickly to the needs of the customers and requirements of the market and legislation. Looking at Schlatterer, based on our comprehensive strategy, the future will be challenging—but we are well-prepared.”

  • The new endgame

    The new endgame

    Some strategies to phase out combustible cigarettes are more sensible than others.

    By George Gay

    It has been well said that if you hold to a constant political position while living in the same country, sooner or later you will be tried for treason. In a similar vein, if, two years or so ago, you were talking with serious intent about the tobacco endgame, you were considered by many people to be “one prawn short of a barbie.” But now, if you’re seriously examining a closely related issue, the traditional tobacco cigarette endgame, you’re seen as cooking on all burners.

    On June 29, I attended an event hosted by Philip Morris (PM) Limited in London that was staged on the back of the question: Can Britain go smoke-free in the next 10 years? A couple of weeks later, I read a piece by Jackie Horne on http://asia.nikkei.com in which she said Philip Morris International could be looking to begin talks with governments—the Japanese and South Korean governments, I believe—within five years on phasing out traditional cigarettes. Then, at the end of July, the U.S. Food and Drug Administration (FDA) came out with its “comprehensive plan for tobacco and nicotine regulation.” And at the beginning of August, New Zealand announced that it was going to legalize the sale there of previously banned smokeless tobacco products if manufacturers could demonstrate that they were significantly less risky than were traditional tobacco cigarettes.

    As some readers will have noted, I was a little disingenuous in my introduction. You cannot sensibly make a direct comparison between most of the endgames envisaged two years ago and the more recent ones, for at least one major reason. Those of two years ago were based on the idea that, in one way or another, tobacco products should be made unavailable to those not already using them—and that was basically it. Under such schemes, those born after a certain year—say, 2000 in a country with a legal tobacco buying age of 18—would not be allowed to buy tobacco products. Such schemes, therefore, would allow those who were already smokers to continue to smoke if they so wished but would make it difficult and unwise for young persons to start smoking.

    Although such schemes had merit, many people decided, without any evidence as far as I could see, that they couldn’t be made to work. I was reluctant to treat them so dismissively, but they certainly had two major and related problems. Firstly, they seemed to assume that anybody too young to buy cigarettes legally would not, when they reached 18, 21 or whatever, want to use some mild relaxant or stimulant that was legally available over the counter and that, unlike alcohol for instance, didn’t make them lose their mental faculties. And secondly, they seemed to throw onto the “too hard” pile already-smokers. In other words, they offered no alternative products to traditional tobacco cigarettes. They didn’t always rule them out specifically, but such alternatives were not part of the offer.

    Some of the new endgames, on the other hand, seek to “encourage” smokers to shift to other products that are less risky, while others are based on authorities not actively discouraging these alternative products. And each of these strategies is backed by policies that seek to make the consumption of traditional tobacco cigarettes less appealing, though just how less appealing differs from market to market.

    Defining success

    Does this mean, therefore, that the new endgames are good and the old ones bad? I don’t think so. It seems to me that the new schemes are far better simply because they do offer alternatives to smoking, but, in my estimation, some of the old schemes had positive aspects, while some of the ideas that one can infer from what is known of the new schemes seem positively potty.

    Overall, I think that the way to judge the value of these old or new schemes is to look—once they have been evaluated as having a reasonable chance of success—at how long they would take to come to fruition. And I fail to see why others would do otherwise, given that, we are told by the World Health Organization, each year 6 million to 7 million people die from tobacco-related diseases.

    One of the interesting points made by PM on June 29 was that while smoking rates were declining in the U.K., it could take 30–50 years or longer before everybody had quit—before there were no smokers left. The question that had to be asked was how the number could be reduced to zero as quickly as possible.

    Now I don’t want readers to get all dewy-eyed about this because, clearly, PM, as well as selling the idea of reduced harm, was selling its iQOS heated-tobacco device—something that it made no bones about. But then why not? In the U.K., 1.5 million smokers have switched to e-cigarettes because of the intervention of this new idea and this new technology. And iQOS is a newer technology that has gone through a few iterations to emerge at the point where it apparently offers an experience closer to smoking than that offered by e-cigarettes.

    Although the experience with e-cigarettes in the U.K. has been impressive, it has not been overwhelming. According to PM, while about 90 percent of U.K. smokers have tried vaping these products, only 15 percent have switched to them. Contrast that with iQOS in Japan, where 80 percent of people who have tried the product have been able to stop smoking.

    Now you can argue that Japan is a special case. For one thing, its consumers are generally receptive to new products. And for another, Japan’s laws have deprived smokers of nicotine-delivering e-cigarettes; so heat-not-burn devices have not had to compete with these products. But it nevertheless seems to me that whichever way you cut them, PM’s sales in Japan have been impressive. And when I say impressive, I’m not talking only about the commercialization of iQOS, which apparently has taken 10 percent of the cigarette market in three years; I am talking about the potential harm reduction that this commercialization has engendered. In Japan, something like 130,000 people die each year of smoking-related diseases.

    Still, is 10 years long enough to completely reorientate the U.K. market? It’s impossible to say, of course. At this stage, nobody knows whether somebody will find a flaw in the reduced-harm credentials of heat-not-burn devices, or whether somebody might come up with an even more efficacious product. Certainly, the optimists among the invitees at PM’s London event would have been cheered when they were reminded how far the iPhone had come since being launched 10 years ago. On the other hand, the pessimists might have been recalling that it was also the 10th anniversary of the start of the global financial crisis, and you could argue that, since then, almost nothing has happened with respect to developing a financial system that is more robust than the one that fell apart 10 years ago.

    And perhaps there is a lesson here. Perhaps huge, global problems such as the financial crisis or 6 million to 7 million deaths a year are just too big to be fixed by the good and the great sitting around thinking about them. Perhaps they can be fixed only by the unexpected—new technologies such as those that have delivered e-cigarettes and heat-not-burn devices—or by things that have been staring us in the face for years without most of us having recognized them fully, such as snus.

    No sense of urgency

    This is why I’m less than excited about the FDA’s recent conversion to the continuum of risk and harm reduction. Yes, it was good to see it draw back from the brink of sending years of vaping progress over the cliff edge, but, still, this is not an organization that is going to have a positive feel for timing or the unexpected. It will bang on at every opportunity about how each year 480,000 U.S. citizens die prematurely from smoking-related diseases, but this knowledge seems to engender in it nothing like the sense of urgency that you will find at PM and, indeed, British American Tobacco.

    Look at the FDA’s record. As far as I can work out, in January 2011, Swedish Match North America (SMNA) started the formal process of submitting an FDA modified-risk tobacco product (MRTP) application, and, on Aug. 27, 2014, it became the first company to complete such an application. The application—which basically sought only to change, in respect of one brand of snus, what one expert observer described as “egregiously inaccurate” health warnings—involved the submission of something like 1,000 pages of evidence with about 120,000 pages of supporting documents. On July 31, 2015, at the request of the FDA, SMNA supplied additional information. At the very end of 2016, SMNA’s application was eventually denied, or a decision was deferred, which, in practice, amounted to the same thing. U.S. smokers were to continue to be misled by egregiously inaccurate health warnings about what is probably the lowest-risk tobacco or nicotine product available—a product with a proven record of converting smokers.

    If you take the view that the SMNA application took six years, then using the FDA’s own figures, during that time 2,880,000 U.S. citizens died as a result of tobacco use. And if you take only the 2 1/2 years from when the application was lodged to when the decision was deferred, the death toll was 1,200,000. Of course, these people wouldn’t have been “saved” by a different decision, but very many would have been as the years rolled by and more smokers, encouraged by new, more accurate health warnings, switched from smoking to snus use.

    Perhaps it isn’t helpful or healthy to rake over the past in this way, but for me it is a useful reminder of what might happen when the FDA talks about its latest plan being a multiyear road map, with, unspoken, each year seeing the death of another 480,000 tobacco users. As I understand it, the iQOS application currently before the FDA involves about 2.5 million pages of documents. If it took the FDA 2 1/2 years to get through 120,000 pages of documents, it’s going to take … oh, you do the math. But bear in mind that our solar system is due to burn out in 5 billion years’ time.

    Nicotine and addiction

    I have a problem also with the FDA’s thoughts on nicotine and addiction. As I understand it, the idea is that the nicotine deliveries of traditional tobacco cigarettes should be reduced gradually to nonaddictive levels in order to encourage smokers to quit or to shift to lower-risk vapor products that provide higher levels of nicotine—providing such a reduction proves practical. In fairness, I should say that it is encouraging—from a rational point of view, if not from a timing point of view—that the FDA intends to consult on possible unintended consequences that would result in lowering nicotine levels in traditional tobacco cigarettes.

    And I wouldn’t be too concerned about the potential unintended consequence that everybody seems to be picking up on (and that therefore surely cannot be a “potential unintended consequence”)—the one that says the sale on the duty-paid market of only lower-nicotine delivery cigarettes might cause smokers to switch to illicit cigarettes. Governments and tobacco manufacturers are old enough and big enough to look after themselves if they start to lose revenue and income because of such a switch.

    One worry that I do have concerns who is going to pick up the tab for lowering nicotine in this way, assuming there is a cost associated with licensing the technology for producing the leaf tobacco needed? Smokers cannot afford it. In the U.S., state and local cigarette tax increases have been shown to be pushing them toward the federal food stamp program.

    But the worst consequence—it certainly wouldn’t be unintended because everybody associated with tobacco is aware of it—would arise if lowering nicotine caused smokers to suck harder on their cigarettes to get the nicotine they seek. Such a development would have the potential to increase smokers’ health risks in at least two ways. It would change the way they smoke, something that could alter the type of risk they face and the magnitude of that risk. Additionally, sucking harder would mean that they would draw into their lungs more of the tar that just about everybody wants to reduce and has been working to reduce through the promotion of vapor products.

    The same sorts of effects could be seen if smokers smoked a greater number of lower-nicotine cigarettes because they needed to keep up their nicotine intake or because they decided that lower-nicotine cigarettes were associated with lower risk—not an unreasonable assumption given the misinformation that has been peddled to them over the years.

    OK, you might say that the FDA has covered this by saying it intends to investigate nicotine and addiction, but for how many years at 480,000 deaths a year? Why not increase nicotine delivery levels so that smokers ingest lower levels of tar and encourage smokers to switch to lower-risk products by allowing manufacturers of these products to tell the public the truth about them? We need to cut a few corners; we don’t want to take the long way home.

    There is another, lesser problem on the horizon, too. Some people have been suggesting for a while that nicotine on its own—say, as it’s delivered by e-cigarettes—isn’t addictive. Addiction occurs only when nicotine is delivered in association with some other element of tobacco, they say. If this is the case, could it be that that element is delivered by heat-not-burn devices as well as by traditional tobacco cigarettes, and, if so, do we have to open a branch line off the continuum of risk to account for the fact that consumers of heat-not-burn products might keep using these products for longer than consumers of e-cigarettes keep using theirs?

    Ask the smoker

    But one of the biggest bugbears of all forms of endgames comes down to whether anybody knows or cares what smokers want. I have written about this often before, but it bears repeating. Has anybody ventured into the “sink estates” and asked financially impoverished smokers whether they want the new products on offer or whether they are happy with traditional products? Well-heeled representatives of companies, agencies and governments might assume that everybody wants to add an extra 10 years or so to their lives, but have they really thought about the 55-year-old widow living in a flat with a metal security door to keep the vandals from putting burning paper through her letter box? Has anybody asked the homeless? Perhaps these people do want to live an extra 10 years, but I would want to hear that from their own lips.

    If the well-heeled in our societies want to improve the lot of smokers, I suggest that in the first instance they stop trying to prevent them from smoking, especially by “denormalizing” them and by raising tobacco taxes because, in the U.K. at least, people in the financially poorest section of society die nine years younger than do those in the richer sections. But, at the same time, for goodness’ sake stop telling them that quitting is hard. Would you tell a child learning to swim that swimming was hard?

    In the second instance, the well-heeled should stop sucking the value out of our societies and allow some of the wealth that is created to lift people out of their poverty and out of the sink estates. Or if they cannot bring themselves to do that, perhaps they could find it in their hearts to unban smoking in bingo halls and pubs that want to allow smoking so that our 55-year-old widow can get out again and perhaps have a reason to start thinking about longevity.

    Getting on with the job

    I have another small worry, too. The idea that companies will start talking to governments about phasing out a legal product is worrying from the point of view of democracy. Our democracies, where they exist, are already being chipped away by, for instance, the signing of international trade deals that include investor-state dispute settlement provisions. If cigarette manufacturers are going to talk to governments about phasing out cigarettes, those discussions should be transparent, and every word of them made public—and they should include smoker representatives, some of whom should not be dressed in sharp suits. Smokers should not be treated as if they are passive bystanders. They’re not children.

    But let me end on a positive note. Commercial and competitive issues aside, PM is surely doing a tremendous job in trying to turn the supertanker of tobacco-related disease that has been, despite numerous efforts, sailing into deeper and deeper waters. British American Tobacco, too, has been working phenomenally hard for a long time to produce lower-risk products that are acceptable to smokers, and Japan Tobacco, as I understand it, is following along. All these companies need is to be allowed to get on with the job that they are doing without governments banning their lower-risk products through ignorance or on ideological grounds, and preferably with governments allowing them to explain to the public exactly what they are doing.

    This is not to say that some governments are not being helpful. In my opinion, the U.K. government has generally been very progressive in its approach to the use of vapor products for harm reduction. But the New Zealand government is also worthy of mention. In my opinion, it was once reactionary in regard to questions of lower-risk products and harm reduction, but it seems to be becoming more flexible in its approach. While I was writing this piece, a story by Rachel Thomas on http://stuff.co.nz described how the sale of smokeless tobacco products was to be legalized in New Zealand with a view to providing smokers with less risky alternatives to cigarettes.

    Associate Health Minister Nicky Wagner was quoted as saying that some smokeless products available internationally, including heat-not-burn, snus, moist snuff, dissolvables and inhaled-nicotine devices, might be significantly safer than are cigarettes. Current laws ban the import, sale and distribution of tobacco products described as suitable for chewing or any other oral use besides smoking, but in her announcement Wagner said the government intended to establish a premarket approval system for smokeless tobacco and nicotine-delivery products, other than e-cigarettes. “This is part of new thinking—a forward-looking approach, building on some of the innovative new technologies that are available intentionally to try and give smokers safer alternatives to tobacco,” she said.

    Coming out of New Zealand, that announcement is so encouraging.

  • Creating momentum

    Creating momentum

     

    The VTA’s second Vape and the FDA event got attendees up to date on the vapor industry before taking the fight to legislators firsthand.

    By Timothy S. Donahue

    “Was it us?” It is a question that may have been asked by attendees to the Vapor Technology Association’s (VTA) event, Vape and the FDA 2: Surviving & Thriving in a New Regime for Vapor, held in Washington, D.C., in mid-July. It was a week later, after all, that the U.S. Food and Drug Administration (FDA) announced it would delay the doomsday deadline for premarket tobacco product applications (PMTAs), adding an additional four years (also see “Breathing Room,” page 12).

    After getting the most up-to-date industry information on day one, attendees spent day two getting in front of members of both the United States Senate and House of Representatives to promote the reduced-risk benefits that vapor products offer over combustible cigarettes. The first day’s session was held in the Trump International Hotel, where more than 150 attendees from 23 states heard presentations from 26 different speakers. Subjects covered a broad range of industry challenges and strategies, including legislative updates, using the media to send a clear message, regulation and the future of the vapor industry.

    The VTA has been one of the most outspoken and impactful vapor industry trade associations. The organization has been instrumental in numerous legislative successes concerning vapor, including the repeal of the state of Indiana’s unconstitutional Vapor Pens and E-Liquid Act. Opening the event, Tony Abboud, executive director of the VTA, told attendees that if they “don’t take the time to advocate on behalf of our industry, then things will happen to us that you cannot allow to happen. The growth and vibrancy that this industry promises will be squashed.”

    One of the conference’s most anticipated speakers was Senator Ron Johnson, chairman of the Committee on Homeland Security and Governmental Affairs. Abboud called Johnson a champion of the vapor industry. “He is a champion for the issues that concern us,” said Abboud. “We owe him a deep debt of gratitude because he does speak up and talk about what is important and why it’s important to protect this industry.”

    Johnson, a longtime vapor supporter, is well-known in vapor circles for sending three separate letters to the commissioner of the FDA, demanding that the agency produce evidence and adequate documentation for their regulatory overreach in implementing deeming regulations. Johnson’s speech did not disappoint. “How many of you here think the federal government is efficient and effective?” Johnson asked. “I’m not seeing any hands going up.”

    Johnson told a story about how he had met Christian Berkey, founder of Johnson Creek Enterprises, the first large-scale e-liquid manufacturer in the U.S., in their home state of Wisconsin. Berkey explained to Johnson how the deeming rule was killing the industry and his business. Johnson looked into the deeming rule and found he agreed with Berkey. “It is wrong that the federal government is doing this to a business in a free market, capitalist system,” said Johnson. “It’s just simply wrong. When you’re one of those businesses being snuffed out [by overregulation and big government] you have got to come to Washington. You have to make your members of Congress aware of the situation. This is what this industry has done, and you have to keep doing it until you win.”

    The vaping industry is a single-issue voting bloc, according to Johnson. There is nothing wrong with that, he said, adding that what is even more important is being a single-issue voter on an issue larger than vaping. “It’s what caused our fathers to risk their lives. The issue I want these voters to vote on is a simple word but a powerful concept: freedom,” said Johnson. “That is what is really being snuffed out. It’s not just your vaping industry, but our freedoms are being snuffed out every day by this $5 trillion beast we call the federal government. Please never forget what this all about.”

    Changing or repealing and passing new legislation is going to be tough, but Johnson said that President Donald J. Trump is sympathetic to the private sector and also appointed new FDA Commissioner Scott Gottlieb. It was Gottlieb who listened to the pleas of the vapor industry, as well as read letters from Johnson and other members of Congress (and later postponed PMTAs). Johnson said the industry could do even more, however, if they could find a way to come together. “Again, remember passing legislation is tough. It would be a little easier if you could all get together, not have little splinter groups, but all get together and cooperate,” Johnson said emphatically.

    After Johnson’s speech, there was an aggressive morning agenda covering numerous industry topics. For example, Kristi Remington, of West Front Strategies, presented on legislative pathways in Congress and current vapor legislation, explaining the different vapor bills pending and why certain bills move while others do not. Also, Chris Howard, of E-Alternative Solutions, gave a presentation on avoiding marketing and selling electronic nicotine-delivery systems to youth.

    Another conference highlight was when Brittani Cushman, of Turning Point Brands, led a panel of industry experts including Julie Woessner of the Consumer Advocates for Smoke-free Alternatives Association (CASAA), George Cassels-Smith of eLiquiTech, Janet Aho of Mane, and Marc Scheineson of Alston & Bird on an in-depth discussion on flavors. Attendees were also provided insights from FDA-experienced attorneys on what to expect when the FDA comes to inspect your business and what the changing deadlines in the deeming rule mean to businesses.

    The afternoon was carved into a dual track: one for manufacturer compliance with PMTAs and one for retailers and state vapor associations to discuss growth strategies. Alex Clark, executive director of CASAA; Matt Milby, president of the Maryland Vapor Alliance; Dimitris Agrafiotis, executive director of the Tennessee Smoke Free Association; Amy Lane, president of the Indiana Smoke-Free Alliance; Jay Taylor, president of the Virginia Smoke Free Association; James Jarvis, president of the Ohio Vapor Trade Association; and Cynthia Cabrera of The Cating Group all spoke on the strategies for state organization growth that have been effective and ineffective over the years. Further, Clark, Abboud and Jarvis laid out a new coordinated strategy for organizing and fighting back at the local level against anti-vapor ordinances.

    Then Dr. Sally Satel, the W.H. Brady Fellow at the American Enterprise Institute, give a thoughtful defense of tobacco harm reduction and vapor products. She was followed by Jake Butcher, VTA state affairs manager, who gave attendees a summary of the successes that the VTA and its affiliated state vapor associations have enjoyed at the state level. Butcher also lead a panel discussion on vapor tax policy that included state vapor lobbyists from some of the key states confronting hostile laws this past session.

    During the second day of the event, attendees were paired up according to their home state (or another state if they desired) with team leaders who then took the different groups to visit various congressmen from those states. Organized by the VTA’s lobbying team, West Front Strategies, vapor industry companies’ leaders and consumer advocates had more than 90 meetings with legislators. More than 100 vape shop owners, state vapor association leaders, manufacturers, wholesalers, distributors and consumers took to Capitol Hill. The main goal was to ask members of Congress to assist the VTA in halting or dramatically delaying the FDA’s deeming rule. “We explained that the rule, which had been hastily implemented, does nothing to address product standards or consumer safety issues and is so overly burdensome that it is tantamount to a ban on these new and innovative vapor products,” said Abboud.

    VTA members also pushed for passage of H.R. 1136 (the FDA Deeming Authority Clarification Act of 2017) and that members of Congress send a letter to Gottlieb encouraging him to delay by at least two years the continued implementation of the deeming regulations. “We were thrilled that many members of Congress agreed to send the letter or reach out to Commissioner Gottlieb right away and that they followed through on that promise,” said Abboud.

    Then it happened. On July 28, Gottlieb made a major policy speech in which he granted one of the main points of relief the VTA had been seeking: a four-year extension of the PMTA deadlines. “These successes required us to organize on-the-ground efforts in [Washington] D.C. and deploy resources in many states through numerous channels,” said Abboud. “We are incredibly pleased with these recent events and are grateful for all those who worked with us, but you need to know that VTA is just getting started.” Maybe it was them.